* Principal U.S. Listing Exchange:
NYSE Arca, Inc.
This Statement of Additional Information (“SAI”) is
not a Prospectus. It should be read in conjunction with the Prospectus dated October 24, 2016 (the “Prospectus”)
for USCF Restaurant Leaders Fund (the “Fund”) of USCF ETF Trust (the “Trust”). A copy of the Prospectus
for the Fund may be obtained, without charge, by calling 1-800-920-0259 or visiting www.uscfinvestments.com, or writing to the
Trust, c/o ALPS Distributors, Inc., 1290 Broadway, Suite 1100, Denver, CO 80203.
Capitalized terms used herein that are not defined have
the same meaning as in the Prospectus, unless otherwise noted. Audited financial statements are not presented for the Fund since
the Fund is newly formed and has not yet commenced operations as of the date of this SAI.
TABLE OF CONTENTS
No person has been authorized to give any information
or to make any representations other than those contained in this SAI and the Prospectus and, if given or made, such information
or representations may not be relied upon as having been authorized by the Trust.
The SAI does not constitute an offer to sell securities.
GENERAL DESCRIPTION OF THE TRUST AND THE FUND
The Trust was organized as a Delaware statutory trust in accordance
with a Declaration of Trust dated November 6, 2013. The Declaration of Trust was amended and restated on June 16, 2014.
The Trust is authorized to have multiple segregated series or portfolios. The Trust is an open-end management investment company
registered under the Investment Company Act of 1940 (the “1940 Act”). The Trust currently consists of two series,
the Fund and the Split Stock Index Fund (TOFR). This SAI relates only to the Fund. Other series may be added to the Trust in the
future. The shares of the Fund are referred to herein as “shares.” The offering of shares is registered under the
Securities Act of 1933 (the “Securities Act”).
The Fund is managed by USCF Advisers LLC (the “Adviser”).
The Adviser has been a registered investment adviser with the Securities and Exchange Commission (the “SEC”) since
July 2, 2014 and is a wholly-owned subsidiary of Wainwright Holdings, Inc.
Shares trade on the NYSE Arca, Inc. (the “Listing
Exchange”) at market prices that may be below, at, or above NAV.
The Fund offers and issues shares at net asset value (“NAV”)
only in aggregations of a specified number of shares (each, a “Creation Basket”), generally in exchange for a basket
of equity securities included in the Fund’s portfolio (“Deposit Securities”). Shares of the Fund are
redeemable only in Redemption Baskets and generally, in exchange for Deposit Securities.
Creation Baskets and Redemption Baskets are aggregations
of a stipulated “block” of shares, currently 50,000 shares. In the event of the liquidation of the Fund, the Trust
may lower the number of shares in a Redemption Basket.
EXCHANGE LISTING AND TRADING
There can be no assurance that the requirements of the
Listing Exchange necessary for the Fund to maintain the listing of its shares will continue to be met. The Listing Exchange will
consider the suspension of trading and delisting of the shares from listing if, following the initial 12-month period beginning
at the commencement of trading of the Fund, there are fewer than 50 beneficial owners of the shares the Fund for 30 or more consecutive
trading days or such other event shall occur or condition exist that, in the opinion of the Listing Exchange, makes further trading
on the Listing Exchange inadvisable. The Listing Exchange will remove the shares from listing and trading upon terminations of
the Fund.
As in the case of other stocks traded on the Listing
Exchange, brokers’ 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 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 the Fund.
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective
The Fund has a distinct investment objective and policies. There
can be no assurance that a Fund’s objective will be achieved. The Fund seeks to track the price and yield performance, before
fees and expenses, of the Restaurant Leaders INDXX Index (the “Index”).
The investment objective and investment policies that are not
fundamental may be changed without shareholder approval. Additional information about the Fund, its policies, and the investment
instruments it may hold, is provided below.
The Fund’s share price will fluctuate with market,
economic and, to the extent applicable, foreign exchange conditions. The Fund should not be relied upon as a complete investment
program.
Investment Restrictions
The investment restrictions set forth below have been
adopted by the Board of Trustees (the “Board”) as fundamental policies that cannot be changed with respect to the Fund
without the affirmative vote of the holders of a majority (as defined in the 1940 Act) of the outstanding voting securities of
the Fund. The investment objective of the Fund and all other investment policies or practices of the Fund are considered by the
Trust not to be fundamental and accordingly may be changed without shareholder approval. For purposes of the 1940 Act, a “majority
of the outstanding voting securities” means the lesser of the vote of (i) 67% or more of the shares of the Fund present at
a meeting, if the holders of more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the shares of the Fund.
If any percentage restriction described below is complied with
at the time of investment, a later increase or decrease in percentage resulting from a change in the values of assets will not
constitute a violation of such restriction, except that certain percentage limitations will be observed continuously in accordance
with applicable law. With respect to the Fund’s fundamental investment restriction A (below), asset coverage of at least
300% (as defined in the 1940 Act), inclusive of any amounts borrowed, must be maintained at all times.
As a matter of fundamental policy, the Fund may not:
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A.
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Borrow money, except to the extent permitted by applicable law.
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B.
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Make loans except as permitted under the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief. For example, Sections 17 and 18 of the 1940 Act relate to certain transactions and the capital structure of investment companies. Such provisions can inhibit an investment company’s ability to make loans.
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C.
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Underwrite
securities issued by others, except to the extent that the Fund may be considered an underwriter within the meaning of the
Securities Act, in the disposition of restricted securities or in connection with investments in other investment companies.
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D.
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Purchase, hold or deal in real estate, although the Fund may purchase and sell securities or other investments that are secured by real estate or invest in securities or other instruments issued by issuers that invest in real estate.
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E.
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Purchase
or sell commodities or commodity contracts, except as permitted under the 1940 Act or unless acquired as result of ownership
of securities or other instruments issued by persons that purchase or sell commodities or commodities contracts. This restriction
shall not prevent the Fund from purchasing, selling and entering into financial futures contracts (including futures contracts
on indices of securities, interest rate and currencies), options on financial futures contracts (including futures contracts
on indices of securities, interest rates and currencies), warrants, swaps, forward contracts, foreign currency spot and forward
contracts or other derivative instruments that are not related to physical commodities. Notwithstanding this fundamental
policy, the Fund may invest in derivatives only to the extent permitted by its exemptive relief.
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F.
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Issue senior securities, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief. Section 18(f) of the 1940 Act regulates the requisite asset coverage and permissible classes; such restrictions have been interpreted by the SEC Staff and subsequent rules and regulations have been issued.
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As a matter of fundamental policy, the Fund may purchase
any security that would cause the Fund to concentrate 25% or more of its investments in the securities of issuer primarily engaged
in any particular industry or group of industries to the extent the Index (which may be changed) is concentrated in the securities
of issuers primarily engaged in any particular industry or group of industries, but will not concentrate in the securities of issuers
primarily engaged in any particular industry or group of industries at any time when the Index is not concentrated. This policy
does not apply to investments in securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities,
or repurchase agreements secured thereby, and futures and options transactions issued or guaranteed by the U.S. government or any
of its agencies or instrumentalities.
INVESTMENT STRATEGIES AND RISKS
A description of the risks associated with an investment in the
Fund is contained in the Fund’s Prospectus under the headings “Principal Risks of Investing in the Fund,”
and “Additional Principal Risk Information About the Fund.” The discussion below supplements, and should be read
in conjunction with, such sections of the Fund’s Prospectus.
General
Investment in the Fund should be made with an understanding
that the value of the portfolio of securities held by the Fund may fluctuate in accordance with changes in the financial condition
of the issuers of the portfolio securities, the value of common stocks generally and other factors.
Credit Risk
Credit risk includes the possibility that a party to
a transaction involving the Fund will fail to meet its obligations. This could cause the Fund to lose the benefit of the transaction
or prevent the Fund from selling or buying other securities to implement its investment strategy.
Liquidity Risk
Trading opportunities are more limited for equity securities
that are not widely held. This may make it more difficult to sell or buy a security at a favorable price or time. Consequently,
the Fund may have to accept a lower price to sell a security, sell other securities to raise cash or give up an investment opportunity,
any of which could have a negative effect on the Fund’s performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
Liquidity risk also refers to the possibility that the
Fund may not be able to sell a security when it wants to. If this happens, the Fund will be required to continue to hold the security
or keep the position open, and the Fund could incur losses.
Leverage Risk
Leverage risk is created when an investment exposes the
Fund to a level of risk that exceeds the amount invested. Changes in the value of such an investment magnify the Fund’s risk
of loss and potential for gain. Investments can have these same results if their returns are based on a multiple of a specified
index, security or other benchmark.
Interest Rate Risk
Prices of fixed-income securities rise and fall in response
to changes in the interest rate paid by similar securities. Generally, when interest rates rise, prices of fixed-income securities
fall. However, market factors, such as the demand for particular fixed-income securities, may cause the price of certain fixed-income
securities to fall while the prices of other securities rise or remain unchanged.
Interest rate changes have a greater effect on the price
of fixed-income securities with longer durations. Duration measures the price sensitivity of a fixed-income security to changes
in interest rates.
Certain of the Fund’s investments may be valued,
in part, by reference to the relative relationship between interest rates on tax-exempt securities and taxable securities, respectively.
When the market for tax-exempt securities underperforms (or outperforms) the market for taxable securities, the value of these
investments may be negatively affected (or positively affected).
Call Risk
Call risk is the possibility that an issuer may redeem
a fixed-income security before maturity (a call) at a price below its current market price. An increase in the likelihood of a
call may reduce the security’s price.
If a fixed-income security is called, the Fund may have
to reinvest the proceeds in other fixed-income securities with lower interest rates, higher credit risks, or other less favorable
characteristics.
Prepayment Risk
Unlike traditional fixed-income securities, which pay
a fixed rate of interest until maturity (when the entire principal amount is due) payments on mortgage-backed securities include
both interest and a partial payment of principal. Partial payment of principal may be comprised of scheduled principal payments
as well as unscheduled payments from the voluntary prepayment, refinancing, or foreclosure of the underlying loans. These unscheduled
prepayments of principal create risks that can adversely affect the Fund holding mortgage-backed securities.
For example, when interest rates decline, the values
of mortgage-backed securities generally rise. However, when interest rates decline, unscheduled prepayments can be expected to
accelerate, and the Fund would be required to reinvest the proceeds of the prepayments at the lower interest rates then available.
Unscheduled prepayments would also limit the potential for capital appreciation on mortgage-backed securities.
Conversely, when interest rates rise, the values of mortgage-backed
securities generally fall. Since rising interest rates typically result in decreased prepayments, this could lengthen the average
lives of mortgage-backed securities, and cause their value to decline more than traditional fixed-income securities.
Risk of Foreign Investing
Foreign securities pose additional risks because foreign
economic or political conditions may be less favorable than those of the United States. Securities in foreign markets may also
be subject to taxation policies that reduce returns for U.S. investors.
Foreign companies may not provide information (including
financial statements) as frequently or to as great an extent as companies in the United States. Foreign companies may also receive
less coverage than U.S. companies by market analysts and the financial press. In addition, foreign countries may lack uniform accounting,
auditing and financial reporting standards or regulatory requirements comparable to those applicable to U.S. companies. These factors
may prevent the Fund and its Adviser from obtaining information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership
of securities or may impose exchange controls, capital flow restrictions or repatriation restrictions which could adversely affect
the liquidity of the Fund’s investments.
Currency Risk
Exchange rates for currencies fluctuate daily. The combination of
currency risk and market risks tends to make securities traded in foreign markets more volatile than securities traded exclusively
in the United States. The Adviser attempts to manage currency risk by limiting the amount the Fund invests in securities denominated
in a particular foreign currency. However, diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
Investing in currencies or securities denominated in
a foreign currency entails risk of being exposed to a currency that may not fully reflect the strengths and weaknesses of the economy
of the country or region utilizing the currency. In addition, it is possible that a currency (such as, for example, the euro) could
be abandoned in the future by countries that have already adopted its use, and the effects of such an abandonment on the applicable
country and the rest of the countries utilizing the currency are uncertain but could negatively affect the Fund’s investments
denominated in the currency. If a currency used by a country or countries is replaced by another currency, the Fund’s Adviser
would evaluate whether to continue to hold any investments denominated in such currency, or whether to purchase investments denominated
in the currency that replaces such currency, at the time. Such investments may continue to be held, or purchased, to the extent
consistent with the Fund’s investment objective and permitted under applicable law.
Many countries rely heavily upon export-dependent businesses
and any strength in the exchange rate between a currency and the U.S. dollar or other currencies can have either a positive or
a negative effect upon corporate profits and the performance of investments in the country or region utilizing the currency. Adverse
economic events within such country or region may increase the volatility of exchange rates against other currencies, subjecting
the Fund’s investments denominated in such country’s or region’s currency to additional risks.
European Related Risks
A number of countries in the European Union (EU) have experienced,
and may continue to experience, severe economic and financial difficulties. Additional EU member countries may also fall subject
to such difficulties. These events could negatively affect the value and liquidity of the Fund’s investments in euro-denominated
securities, securities of issuers located in the EU or with significant exposure to EU issuers or countries. If the euro is dissolved
entirely, the legal and contractual consequences for holders of euro-denominated obligations would be determined by laws
in effect at such time. Such investments may continue to be held, or purchased, to the extent consistent with the Fund’s
investment objective and permitted under applicable law. These potential developments, or market perceptions concerning these
and related issues, could adversely affect the value of the shares.
Certain countries in the EU have had to accept assistance
from supra-governmental agencies such as the International Monetary Fund and the recently created European Financial Service Facility
(the EFSF). The European Central Bank has also been intervening to purchase Eurozone debt in an attempt to stabilize markets and
reduce borrowing costs. There can be no assurance that these agencies will continue to intervene or provide further assistance
and markets may react adversely to any expected reduction in the financial support provided by these agencies. Responses to the
financial problems by European governments, central banks and others including austerity measures and reforms, may not work, may
result in social unrest and may limit future growth and economic recovery or have other unintended consequences.
In addition, one or more countries may abandon the euro
and/or withdraw from the EU. The impact of these actions, especially if they occur in a disorderly fashion, could be significant
and far-reaching. Specifically, the United Kingdom has recently voted to leave the EU. The timing of this withdrawal and the impact
that it will have on the British economy and political situation and the economies and political situations of other EU countries
is unknown at this time.
Risk of Investing in Emerging Market Countries
Securities issued or traded in emerging markets generally
entail greater risks than securities issued or traded in developed markets. For example, their prices may be significantly more
volatile than prices in developed countries. Emerging market economies may also experience more severe downturns (with corresponding
currency devaluations) than developed economies.
Emerging market countries may have relatively unstable
governments and may present the risk of nationalization of businesses, expropriation, confiscatory taxation or, in certain instances,
reversion to closed market, centrally planned economies.
Risk of Investing in American Depositary Receipts
(“ADRs”) and Domestically Traded Securities of Foreign Issuers
Because the Fund may invest in ADRs and other domestically traded
securities of foreign companies, The Fund’s share price may be more affected by foreign economic and political conditions,
taxation policies and accounting and auditing standards than would otherwise be the case. Foreign companies may not provide information
as frequently or to as great an extent as companies in the United States. Foreign companies may also receive less coverage than
U.S. companies by market analysts and the financial press. In addition, foreign companies may lack uniform accounting, auditing
and financial reporting standards or regulatory requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser from obtaining information concerning foreign companies that is as frequent, extensive and reliable
as the information concerning companies in the United States.
Risk Associated with Noninvestment-Grade Securities
Securities rated below investment grade, also known as
junk bonds, generally entail greater economic, credit and liquidity risks than investment-grade securities and are considered speculative.
For example, their prices are more volatile, economic downturns and financial setbacks may affect their prices more negatively,
and their trading market may be more limited.
Short Selling Risk
A short sale by the Fund involves borrowing securities
from a lender which are then sold in the open market. At a future date, the securities are repurchased by the Fund and returned
to the lender. While the securities are borrowed, the proceeds from the sale are deposited with the lender and the Fund pays interest
to the lender. If the value of the securities declines between the time that the Fund borrows the securities and the time it repurchases
and returns the securities to the lender, the Fund makes a profit on the difference (less any interest the Fund is required to
pay the lender). Short selling involves risk. There is no assurance that securities will decline in value during the period of
the short sale and make a profit for the Fund. Securities sold short may instead appreciate in value creating a loss for the Fund.
The Fund also may experience difficulties repurchasing and returning the borrowed securities if a liquid market for the securities
does not exist. The lender may also recall borrowed securities at any time. The lender from whom the Fund has borrowed securities
may go bankrupt and the Fund may lose the collateral it has deposited with the lender. The Fund will adhere to controls and limits
that are intended to offset these risks by short selling only liquid securities and by limiting the amount of exposure for short
sales.
Risk Related to the Economy
Lower-grade corporate bond returns are sensitive to changes
in the economy. The value of the Fund’s portfolio may decline in tandem with a drop in the overall value of the stock market
based on negative developments in the U.S. and global economies.
Lending of Portfolio Securities
The Fund may lend portfolio securities constituting up
to 33 1/3% of its total assets (as permitted by the 1940 Act) to unaffiliated broker-dealers, banks or other recognized institutional
borrowers of securities, provided that the borrower at all times maintains with the Fund cash, U.S. government securities or equivalent
collateral or provides an irrevocable letter of credit in favor of the Fund equal in value to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan, the borrower pays the Fund an amount equivalent to any dividends
or interest paid on such securities, and the Fund may receive an agreed-upon amount of interest income (to be retained by the Fund)
from a borrower who delivered equivalent collateral or provided a letter of credit. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may invest any cash collateral and earn additional income, or it may receive an agreed-upon
amount of interest income from the borrower who has delivered equivalent collateral or a letter of credit. The Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a negotiated portion of the income earned on the cash to
the borrower or placing broker. The Fund does not have the right to vote securities on loan, but could terminate the loan and regain
the right to vote if that were considered important with respect to the investment. The Fund currently does not intend to lend
its portfolio securities.
The primary risk in securities lending is a default by
the borrower during a sharp rise in the price of the borrowed security resulting in a deficiency in the collateral posted by the
borrower. The Fund will seek to minimize this risk by requiring that the value of the securities loaned be computed each day and
additional collateral be furnished each day if required.
Money Market Instruments
The Fund may invest a portion of its assets in high-quality
money market instruments on an ongoing basis. The instruments in which the Fund may invest include: (1) short-term obligations
issued by the U.S. government; (2) negotiable certificates of deposit (“CDs”), fixed time deposits and bankers’
acceptances of U.S. and foreign banks and similar institutions; (3) 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 Ratings Group,
Inc., a division of The McGraw-Hill Companies, Inc., or, if unrated, of comparable quality as determined by the Adviser; and (4)
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.
MANAGEMENT
Board Responsibilities
The business of the Trust is overseen by the Board. The Board
has considered and approved contracts, as described herein, under which certain companies provide essential management and administrative
services to the Trust. The day-to-day business of the Trust, including the day-to-day management of risk is performed by the service
providers of the Trust, such as the Adviser, Distributor and Administrator. The Board is responsible for overseeing the Trust’s
service providers and therefore, has oversight responsibility with respect to the risk management performed by those service providers.
Risk management seeks to identify and eliminate or mitigate the potential effects of risks such as events or circumstances that
could have material adverse effects on the business, operations, shareholder services, investment performance or reputation of
the Trust or the Fund. The Board’s role in risk management oversight begins before the inception of an investment portfolio,
at which time the Adviser presents the Board with information concerning the investment objective, strategies and risks of the
investment portfolio. Additionally, the Adviser provides the Board with an overview of, among other things, the firm’s
investment philosophy, brokerage practices and compliance infrastructure. Thereafter, the Board oversees the risk management
of the investment portfolio’s operations, in part, by requesting periodic reports from and otherwise communicating with
various personnel of the service providers, including the Trust’s Chief Compliance Officer and the independent registered
public accounting firm of the Trust. The Board and, with respect to identified risks that relate to its scope of expertise, the
Audit Committee of the Board, oversee efforts by management and service providers to manage risks to which the Fund may be exposed.
Under the overall supervision of the Board and the Audit
Committee (discussed in more detail below), the service providers to the Trust employ a variety of processes, procedures and controls
to identify risks relevant to the operations of the Trust and the Fund to lessen the probability of their occurrence and/or to
mitigate the effects of such events or circumstances if they do occur. Each service provider is responsible for one or more discrete
aspects of the Trust’s business and, consequently, for managing the risks associated with that activity.
The Board is responsible for overseeing the nature, extent
and quality of the services provided to the Fund by the Adviser and receives information about those services at its regular meetings.
In addition, on at least an annual basis, in connection with its consideration of whether to renew the Advisory Agreement with
the Adviser, the Board receives detailed information from the Adviser. Among other things, the Board regularly considers the Adviser’s
adherence to the Fund’s investment restrictions and compliance with various policies and procedures of the Trust and with
applicable securities regulations. The Board also reviews information about the Fund’s performance and investments.
The Trust’s Chief Compliance Officer meets regularly
with the Board to review and discuss compliance and other issues. At least annually, the Trust’s Chief Compliance Officer
provides the Board with a report reviewing the adequacy and effectiveness of the Trust’s policies and procedures and those
of its service providers, including the Adviser. The report addresses the operation of the policies and procedures of the Trust
and each service provider since the date of the last report; material changes to the policies and procedures since the date of
the last report; any recommendations for material changes to the policies and procedures; and material compliance matters since
the date of the last report.
The Board receives reports from the Trust’s service
providers regarding operational risks, portfolio valuation and other matters. Annually, the independent registered public accounting
firm reviews with the Audit Committee its audit of the financial statements of the Fund, focusing on major areas of risk encountered
by the Trust and noting any significant deficiencies or material weaknesses in the Trust’s internal controls.
The Board recognizes that not all risks that may affect
the Fund can be identified, that it may not be practical or cost-effective to eliminate or mitigate certain risks, that it may
be necessary to bear certain risks (such as investment-related risks) to achieve the Fund’s goals, and that the processes,
procedures and controls employed to address certain risks may be limited in their effectiveness. Moreover, despite the periodic
reports the Board receives and the Board’s discussions with the service providers to the Trust, it may not be made aware
of all the relevant information of a particular risk. Most of the Trust’s investment management and business affairs are
carried out by or through the Adviser and other service providers each of which has an independent interest in risk management,
but whose policies and methods by which one or more risk management functions are carried out may differ from the Trust’s
and each other’s in the setting of priorities, the resources available or the effectiveness of relevant controls. As a result
of the foregoing and other factors, the Board’s risk management oversight is subject to substantial limitations.
Members of the Board and Officers of the Trust
Set forth below are the names, ages, position with the Trust, term
of office, and the principal occupations and other directorships for a minimum of the last five years of each of the persons currently
serving as members of the Board and as Executive Officers of the Trust. Also included below is the term of office for each of
the Executive Officers of the Trust. The members of the Board serve as Trustees for the life of the Trust or until retirement,
removal, or their office is terminated pursuant to the Trust’s Declaration of Trust.
The Chairman of the Board, Nicholas D. Gerber, and Trustees,
Andrew F Ngim and Stuart P. Crumbaugh are interested persons of the Trust, as that term is defined under Section 2(a)(19)
of the 1940 Act (“Interested Trustees”), because of their affiliation with the Adviser. Messrs. Thomas E. Gard,
Jeremy Henderson, John D. Schwartz, and H. Abram Wilson, and their immediate family members have no affiliation or business connection
with the Adviser or the Distributor or any of their affiliated persons and do not own any stock or other securities issue
by the Adviser or the Distributor. These Trustees are not Interested Persons of the Trust and are referred to herein as
“Independent Trustees.”
There is an Audit Committee and Nominating Committee
of the Board, each of which is chaired by an Independent Trustee and comprised solely of Independent Trustees. The Committee chair
for each is responsible for running the Committee meeting, formulating agendas for those meetings, and coordinating with management
to serve as a liaison between the Independent Trustees and management on matters within the scope of the responsibilities of such
Committee as set forth in its Board-approved charter. There is a Valuation Committee, which is comprised of the Independent Trustees
and representatives of the Adviser to take action in connection with the valuation of portfolio securities held by the Fund in
accordance with the Board-approved Valuation Procedures. The Fund has determined that this leadership structure is appropriate
given the specific characteristics and circumstances of the Fund. The Fund made this determination in consideration of, among other
things, the fact that the Independent Trustees of the Fund constitute a majority of the Board, the assets under management of the
Fund, the number of portfolios overseen by the Board and the total number of trustees on the Board. Mr. Henderson serves as the
lead Independent Trustee.
Independent Trustees
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Name and Age
(1)
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Position(s)
Held with
Trust
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Term of
Office and
Length of
Time
Served
(2)
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Principal Occupation(s)
During Past 5 Years
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Number of
Portfolios in
Fund
Complex
Overseen by
Trustee
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Other
Directorships
Held by
Trustee
(Past 5 Years)
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Thomas E. Gard
Year of Birth: 1959
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Independent Trustee
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Since 2015
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Partner Armanino LLP 1995 to Present; Member of Armanino Executive Committee 2001 to Present; Partner in Charge of Armanino LLP Audit Department December 2004-2013.
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Two
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None
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Jeremy Henderson
Year of Birth: 1956
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Independent Trustee
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Since 2014
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Retired – 2007 to Present; Managing Director – Societe Generale 1991-2007.
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Two
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None
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John D. Schwartz
Year of Birth: 1968
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Independent Trustee
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Since 2014
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President – Sam CLAR Office Furniture 1996-Present.
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Two
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None
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H. Abram Wilson
Year of Birth: 1946
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Independent Trustee
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Since 2014
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San Ramon City, CA Councilmember 1999-2011, including Mayor of San Ramon City, CA from 2002-2009. Mr. Wilson has been retired from 2011 to the Present.
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Two
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None
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Interested Trustees and Officers of the Trust
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Name and Age
(1)
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|
Position(s)
Held with
Trust
|
|
Term of
Office and
Length of
Time
Served
(2)
|
|
Principal
Occupation(s)
During
Past 5 Years
|
|
Number of
Portfolios in
Fund
Complex
Overseen by
Trustee
|
|
Other
Directorships
Held by
Trustee
(Past 5 Years)
|
Nicholas D. Gerber
(3)
Year of Birth: 1962
|
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Chairman, and Trustee
|
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Since 2014
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Chairman
of the Board of Directors of United States Commodity Funds LLC (“USCF”) since 2005; President and Chief
Executive Officer of USCF from 2005 through June 2015; Board Manager of USCF Advisers LLC since June 2014 and President
and Chief Executive Officer of USCF Advisers LLC from June 2014 to June 2015; Vice President of USCF since
June 2015; Chief Executive Officer, President and Secretary of Concierge
Technologies, Inc. since January 2015; Co-founded Ameristock Corporation in March 1995, a
registered investment adviser under the Investment Advisers Act of 1940 from March
1995 until January 2013; and Portfolio manager of the Ameristock Mutual Fund, Inc. a mutual
fund registered under the 1940 Act, from August 1995 to January 2013.
|
|
Two
|
|
Management Director
of USCF since May 2005, which is the sponsor of a family of commodity pools whose shares are registered under the Securities
Act of 1933. Board Manager of USCF Advisers, LLC since June 2014. Chief Executive Officer, President and
Secretary, Chairman of the Board of Concierge Technologies, Inc. from January 2015 -
Present.
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John P. Love
Year of Birth: 1971
|
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President,
Principal
Executive
Officer
|
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Since 2015
|
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Chief Executive Officer and President of USCF since June 2015; Senior Portfolio Manager of USCF from March 2010 to June 2015; Portfolio manager of USCF April 2006 to March 2010; President of USCF Advisers LLC since June 2015.
|
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N/A
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N/A
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Stuart P. Crumbaugh
(3)
Year of Birth: 1963
|
|
Chief Financial Officer (Principal Accounting and Principal Financial Officer), Treasurer, Secretary and Trustee
|
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Since 2015
|
|
Chief
Financial Officer (Principal Accounting Officer), Treasurer and Secretary of USCF Advisers LLC and USCF since June 2015 and
May 2015, respectively; Sikka Software Corporation – Vice President Finance and Chief Financial Officer from April 2014 to
April 2015; Vice President, Corporate Controller and Treasurer – Auction.com, LLC December 2012 - December
2013; Chief Financial Officer IP Infusion Inc., March 2011 - September 2012; Consultant January 2010 - February
2011.
|
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Two
|
|
Independent Trustee of USCF ETF Trust from Inception to February 2015.
|
|
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Andrew F Ngim
(3)
Year of Birth: 1960
|
|
Trustee,
Portfolio Manager
|
|
Trustee from 2014 to February 2015 and May 2015 to Present.
|
|
Co-founded
USCF in 2005 and has served as a Management Director since May 2005; Portfolio Manager for the United States Commodity Index
Funds Trust since January 2013; Treasurer of USCF from June 2005 – February 2012; Board Manager of USCF Advisers LLC
since June 2014. Prior to and concurrent with his services to USCF, from January 1999 to January 2013 Mr.
Ngim served as a Managing Director for Ameristock Corporation which he co-founded in March 1995
and was Co-Portfolio Manager of Ameristock Mutual Fund, Inc. from January 2000 to January 2013;
Portfolio Manager to the Fund since 2014.
|
|
Two
|
|
Management Director
of USCF since May 2005, which is the sponsor of a family of commodity pools whose shares are registered under the Securities Act
of 1933. Board Manager of USCF Advisers LLC since June 2014.
|
|
|
|
|
|
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|
|
|
|
|
|
Carolyn M. Yu
Year of Birth: 1958
|
|
Chief Legal Officer, Assistant Secretary, Chief Compliance Officer and AML Officer
|
|
Chief Legal Officer and Assistant Secretary from May 2015 - Present; Chief Compliance Officer, since February 2015; AML Officer since 2014.
|
|
General Counsel and Chief Compliance Officer of USCF from since May 2015 and February 2013, respectively and from August 2011 through April 2015 she served as Associate Counsel to USCF; Since May 2015, Ms. Yu has served as Chief Legal Officer and Chief Compliance Officer of USCF Advisers LLC; Associate Counsel; Assistant Chief Compliance Officer, USCF ETF Trust from June 2014 to February 2015; Branch Chief – Securities Enforcement Branch for the State of Hawaii, Department of Commerce and Consumer Affairs 2008 - 2011.
|
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N/A
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N/A
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(1)
|
The address of each Trustee and officer is c/o USCF ETF Trust, 1999 Harrison Street, Suite 1530, Oakland, California 94612.
|
|
(2)
|
The
Trustees and officers serve until their successors are duly elected and qualified.
|
|
(3)
|
Messrs. Gerber, Crumbaugh and Ngim are “interested persons” of the Trust (as that term is defined in the 1940 Act) because of their affiliation with the Adviser.
|
Description of Standing Board Committees
Audit Committee.
The principal responsibilities
of the Audit Committee are the appointment, compensation and oversight of the Trust’s independent auditors, including the
resolution of disagreements regarding financial reporting between Trust management and such independent auditors.
The Audit Committee’s responsibilities include,
without limitation, to (i) oversee the accounting and financial reporting processes of the Trust and its internal control over
financial reporting and, as the Committee deems appropriate, to inquire into the internal control over financial reporting of certain
third-party service providers; (ii) oversee the quality and integrity of the Fund’s financial statements and the independent
auditors thereof; (iii) oversee, or as appropriate, assist Board oversight of, the Trust’s compliance with legal and regulatory
requirements that relate to the Trust’s accounting and financial reporting, internal control over financial reporting and
independent audits; (iv) approve prior to appointment the engagement of the Trust’s independent auditors and, in connection
therewith, to review and evaluate the qualifications, independence and performance of the Trust’s independent auditors; and
(v) act as a liaison between the Trust’s independent auditors and the full Board. The Board of the Trust has adopted a written
charter for the Audit Committee. The following Independent Trustees serve on the Trust’s Audit Committee: Messrs. Gard, Henderson,
Schwartz and Wilson. Mr. Henderson is the chairperson of the Audit Committee. During the fiscal year ended June 30, 2016, the Audit
Committee met three (3) times.
Nominating Committee.
The Nominating Committee
has been established to: (i) assist the Board in matters involving mutual fund governance and industry practices; (ii) select and
nominate candidates for appointment or election to serve as Trustees who are not “interested persons” of the Trust
or its Adviser or distributor (as defined by the 1940 Act); and (iii) advise the Board on ways to improve its effectiveness. All
of the Independent Trustees serve on the Nominating Committee. As stated above, each Trustee hold office for an indefinite term
until the occurrence of certain events. In filling Board vacancies, the Nominating Committee will consider nominees recommended
by shareholders. Nominee recommendations should be submitted to the Trust at its mailing address stated in the Fund’s Prospectus
and should be directed to the attention of the USCF ETF Trust Nominating Committee. The following Independent Trustees serve on
the Trust’s Nominating Committee: Messrs. Gard, Wilson and Schwartz. During the fiscal year ended June 30, 2016, the Nominating
Committee met one (1) time.
Valuation Committee.
The Valuation Committee is
authorized to act for the Board in connection with the valuation of portfolio securities held by the Fund in accordance with the
Trust’s Valuation Procedures. Messrs. Gerber, Ngim and Crumbaugh serve as voting members and Messrs. Henderson, Schwartz
and Wilson serve as non-voting members on the Valuation Committee, which meets on an ad hoc basis. During the fiscal year ended
June 30, 2016, the Valuation Committee did not meet.
Individual Trustee Qualifications
The Trust has concluded that each of the Trustees should
serve on the Board because of their ability to review and understand information about the Trust and the Fund provided to them
by management, to identify and request other information they may deem relevant to the performance of their duties, to question
management and other service providers regarding material factors bearing on the management and administration of the Fund, and
to exercise their business judgment in a manner that serves the best interest of the Fund’s shareholders. The Trust has concluded
that each of the Trustees should serve as a Trustee based on their own experience, qualifications, attributes and skills as described
below.
In concluding that Thomas E. Gard should serve as a Trustee,
the Board considered his extensive accounting background, including the fact that he served as the partner-in-charge of Armanino
LLP’s audit department for over 10 years. In concluding that Jeremy Henderson should serve as a Trustee, the Board considered
his extensive business background, including the fact that he served as a managing director at Societe Generale for 16 years. In
concluding that John D. Schwartz should serve as Trustee, the Board considered his extensive business background and the number
of years for which he has served in a senior executive position. In concluding that H. Abram Wilson should serve as Trustee, the
Board considered his past experience as a banker and federal funds trader and his role in serving on San Ramon’s finance
committee. In concluding that Nicholas D. Gerber should serve as a Trustee, the Board considered his broad business experiences
in the industry including: forming and managing investment companies and commodity pools, raising capital for such entities and
founding and managing non-finance related companies. In concluding that Stuart P. Crumbaugh should serve as a Trustee, the Board
considered his background in accounting and finance, as well as his experience as an Independent Trustee of the Trust. In concluding
that Andrew F Ngim should serve as a Trustee, the Board considered his background as a portfolio manager for the Ameristock Mutual
Fund, as well as his experience with United States Commodity Funds LLC.
Trustees’ Ownership of Fund Shares
The Fund is newly formed and did not have any shares outstanding
as of the date of this SAI.
Board Compensation
Each Independent Trustee receives an annual retainer of $2,000.
For each in-person Board Meeting, each Independent Trustee receives $2,000. For each telephonic meeting, each Independent
Trustee receives $500. The Chair of the Audit Committee receives an annual retainer of $500 at the beginning of the Trust’s
fiscal year on July 1. In addition, the Independent Trustees are reimbursed for all reasonable travel expenses relating to their
attendance at the Board Meetings.
The table below details the amount of compensation the
Trustees received from the Trust during the fiscal year ended June 30, 2016. The Trust does not have a bonus, profit sharing, pension
or retirement plan.
|
Name of Person, Position
|
Aggregate Compensation from the Trust
|
Total Compensation from Fund Complex Paid to Trustees
|
|
Independent Trustees
|
|
Thomas E. Gard
|
$11,000
|
$11,000
|
|
Jeremy Henderson
|
$11,500
|
$11,500
|
|
John D. Schwartz
|
$11,000
|
$11,000
|
|
H. Abram Wilson
|
$11,000
|
$11,000
|
|
Interested Trustees
|
|
Nicholas D. Gerber
|
$0
|
$0
|
|
Stuart P. Crumbaugh
|
$0
|
$0
|
|
Andrew F Ngim
|
$0
|
$0
|
Code of Ethics
The Trust, its Adviser and the Distributor have adopted
codes of ethics under Rule 17j-1 of the 1940 Act that permit personnel subject to their particular codes of ethics to invest
in securities, including securities that may be purchased or held by the Fund.
PROXY VOTING POLICES
The Board believes that the voting of proxies on securities
held by the Fund is an important element of the overall investment process. As such, the Board has delegated responsibility for
decisions regarding proxy voting for securities held by each Fund to the Adviser. The Adviser will vote such proxies in accordance
with its proxy policies and procedures, a summary of which is included in Appendix A to this SAI. The Board will periodically review
the Fund’s proxy voting record.
The Trust is required to disclose annually the Fund’s
complete proxy voting record on Form N-PX during the most recent 12-month period ended June 30 and file it with the SEC no later
than August 31 of each year. The Fund’s Form N-PX will be available at no charge upon request by calling 1-866-909-9473.
It will also be available on the SEC’s website at www.sec.gov.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The Fund is newly formed and did not have any shares outstanding
as of the date of this SAI.
MANAGEMENT SERVICES
The following information supplements and should be read
in conjunction with the section of the Prospectus entitled “Management.”
Adviser
The Adviser serves as investment adviser to the Fund
and has overall responsibility for the general management and administration of the Trust, pursuant to the Investment Advisory
Agreement between the Trust and the Adviser (the “Advisory Agreement”). The Adviser is a wholly-owned subsidiary of
Wainwright Holdings, Inc., a holding company.
Under the Advisory Agreement, the Adviser, subject to
the supervision of the Board, provides an investment program for the Fund and is responsible for the retention of sub-advisers,
if applicable, to manage the investment of the Fund’s assets in conformity with the stated investment policies of the Fund
if the Adviser does not provide these services directly. The Adviser is responsible for placing purchase and sale orders and providing
continuous supervision of the investment portfolio of the Fund. The Adviser also arranges for the provision of distribution, transfer
agency, custody, administration and all other services necessary for the Fund to operate.
The Advisory Agreement provides for an initial two-year
term after the date the Fund commenced operations. The Advisory Agreement will continue in effect from year to year thereafter
provided such continuance is specifically approved at least annually by (i) the vote of a majority of the Fund’s outstanding
voting securities or a majority of the Trustees of the Trust, and (ii) the vote of a majority of the Independent Trustees of the
Trust, cast in person at a meeting called for the purpose of voting on such approval.
In addition to providing advisory services, under the
Advisory Agreement, the Adviser also: (i) supervises all non-advisory operations of the Fund; (ii) provides personnel to perform
such executive, administrative and clerical services as are reasonably necessary to provide effective administration of the Fund;
(iii) arrange for (a) the preparation of all required tax returns, (b) the preparation and submission of reports to existing shareholders,
(c) the periodic updating of the prospectus and statement of additional information and (d) the preparation of reports to be filed
with the SEC and other regulatory authorities; (iv) maintains the Fund’s records; and (v) provides office space and all necessary
office equipment and services.
The Advisory Agreement will terminate automatically if
assigned (as defined in the 1940 Act). The Advisory Agreement is also terminable at any time without penalty by the Trustees of
the Trust or by a vote of a majority of the outstanding voting securities of the Fund on 60 days’ written notice to the Adviser
or by the Adviser on 60 days’ written notice to the Trust.
Expense Limitation Agreement
The Adviser has entered into an Expense Limitation Agreement with
the Trust, on behalf of the Fund, under which it has agreed to waive or reduce its fees and to assume other expenses of the Fund,
if necessary, in an amount that limits “Total Annual Fund Operating Expenses” (exclusive of interest, taxes, brokerage
commission, expenses related to short sales, other expenses that are capitalized in accordance with generally accepted
accounting principles, extraordinary expenses, if any and payments under the Rule 12b-1 plan, if any) to not more
than 0.65% of the average daily net assets of the Fund for the period from the Fund’s inception until October 31,
2017.
The Adviser currently expects that the contractual agreement
will continue from year-to-year, provided such continuance is approved by the Trust’s Board on behalf of the
Fund. The Adviser may terminate the Expense Limitation Agreement at the end of the then-current term upon not less than 90
days’ notice to the Fund. The terms of the Expense Limitation Agreement may be revised upon renewal, if renewed. The
Adviser is permitted to recoup from the Fund previously waived advisory fees or reimbursed expenses for three years from the date
on which fees were waived or expenses reimbursed, as long as such recoupment does not cause the Fund’s Total
Annual Fund Operating Expenses to exceed the expense cap that was applicable during the period in which the fees were
waived or expenses were reimbursed.
Advisory
Fees
Pursuant to the Advisory Agreement, the Adviser is entitled to receive
a fee, payable monthly, at the annual rate of 0.65% of the Fund’s average daily net assets. As described above, the Adviser
has agreed, through October 31, 2017, to waive fees and reimburse expenses of the Fund such that the “Total Annual
Fund Operating Expenses” for the Fund will not exceed the applicable expense limit for the Fund. The Adviser is permitted
to recoup from the Fund previously waived fees or reimbursed expenses for three years from the date on which such fees were waived
or expenses reimbursed, as long as the recoupment does not cause the Fund’s Total Annual Fund Operating Expenses
to exceed the expense cap that was applicable during the period in which the fees were waived or expenses reimbursed.
The Fund is newly formed and did not have any shares outstanding
as of the date of this SAI.
Portfolio Managers
Andrew F Ngim and Ray W. Allen are primarily responsible
for the day-to-day management of the Fund.
The following table provides information about the other accounts
for which either Mr. Ngim or Mr. Allen is primarily responsible. The reporting information is provided as of June 30, 2016:
|
|
|
Andrew
F Ngim
|
|
Ray
W. Allen
|
|
Registered Investment Companies
|
|
|
|
|
|
|
Number of Accounts
|
|
|
1
|
|
0
|
|
Total Assets (in millions)
|
|
$
|
5
|
|
0
|
|
Number of Accounts Subject to a Performance Fee
|
|
|
0
|
|
0
|
|
Total Assets Subject to a Performance Fee (in millions)
|
|
$
|
0
|
|
0
|
|
Other Pooled Investment Vehicles
|
|
|
|
|
|
|
Number of Accounts
|
|
|
3
|
|
8
|
|
Total Assets (in millions)
|
|
$
|
665
|
|
4.3
|
|
Number of Accounts Subject to a Performance Fee
|
|
|
0
|
|
0
|
|
Total Assets Subject to a Performance Fee (in millions)
|
|
$
|
0
|
|
0
|
|
Other Accounts
|
|
|
|
|
|
|
Number of Accounts
|
|
|
0
|
|
0
|
|
Total Assets (in millions)
|
|
$
|
0
|
|
0
|
|
Number of Accounts Subject to Performance
|
|
|
0
|
|
0
|
|
Total Assets Subject to a Performance Fee (in millions)
|
|
$
|
0
|
|
0
|
Material Conflicts Of Interest
Because the portfolio managers manage multiple portfolios
for multiple clients, the potential for conflicts of interest exists. Each portfolio manager may manage portfolios having substantially
the same investment style as the Fund. However, the portfolios managed by a portfolio manager may not have portfolio compositions
identical to those of the Fund managed by the portfolio manager due, for example, to specific investment limitations or guidelines
present in some portfolios or accounts, but not others. The portfolio manager may purchase or sell short securities for one portfolio
and not another portfolio, and the performance of securities purchased or sold short for one portfolio may vary from the performance
of securities purchased or sold short for other portfolios. A portfolio manager may place transactions on behalf of other accounts
that are directly or indirectly contrary to investment decisions made on behalf of the Fund, or make investment decisions that
are similar to those made for the Fund, both of which have the potential to adversely impact the Fund depending on market conditions.
For example, a portfolio manager may purchase a security in one portfolio while appropriately selling that same security in another
portfolio. In addition, some of these portfolios have fee structures that are, or have the potential to be, higher than the advisory
fees paid by the Fund, which can cause potential conflicts in the allocation of investment opportunities between the Fund and the
other accounts. However, the compensation structure for the portfolio manager does not generally provide incentive to favor one
account over another because that part of a manager’s bonus based on performance is not based on the performance of one account
to the exclusion of others. There are many other factors considered in determining the portfolio manager’s bonus and there
is no formula that is applied to weight the factors listed (see “Compensation”). In addition, current trading practices
do not allow the Adviser to intentionally favor one portfolio over another as trades are executed as trade orders are received.
Portfolio rebalancing dates also generally vary from fund to fund.
Compensation
The Adviser compensates its portfolio management personnel
through cash remuneration. The cash portion consists of market-based base salary and a year-end discretionary bonus. Base salary
is determined by the employee’s experience and performance in the role, taking into account the ongoing compensation benchmark
analyses. Base salary is generally a fixed amount that may change as a result of an annual review, upon assumption of new duties,
or when a market adjustment of the position occurs. The discretionary cash component is driven by both individual performance and
the performance of the firm overall, as measured by assets under management, revenues, and profitability.
Ownership of Securities
The portfolio managers do not own shares of the Fund.
OTHER SERVICE PROVIDERS
Administrator, Custodian, Transfer Agent and Securities
Lending Agent
Under the Fund Administration and Accounting Agreement
(the “Administration Agreement”), Brown Brothers Harriman & Company (“BBH” or the “Fund Administrator”
or “Administrator”) serves as Administrator for the Fund. BBH’s principal address is 50 Post Office Square, Boston
Massachusetts 02110-1548. Under the Administration Agreement, BBH provides necessary administrative, legal, tax, accounting services,
and financial reporting for the maintenance and operations of the Trust and the Fund. In addition, BBH makes available the office
space, equipment, personnel and facilities required to provide such services.
BBH supervises the overall administration of the Trust
and the Fund, including, among other responsibilities, assisting in the preparation and filing of documents required for compliance
by the Fund with applicable laws and regulations and arranging for the maintenance of books and records of the Fund.
BBH serves as custodian of Fund’s assets (the “Custodian”).
The Custodian has agreed to (1) make receipts and disbursements of money on behalf of the Fund; (2) collect and receive all income
and other payments and distributions on account of each Fund’s portfolio investments; (3) respond to correspondence from
Fund shareholders and others relating to its duties; and (4) make periodic reports to each Fund concerning the Fund’s operations.
The Custodian does not exercise any supervisory function over the purchase and sale of securities.
BBH serves as transfer agent and dividend paying agent
for the Fund (the “Transfer Agent”). The Transfer Agent has agreed to (1) issue and redeem shares of the Fund; (2)
make dividend and other distributions to shareholders of the Fund; (3) respond to correspondence by Fund shareholders and others
relating to its duties; (4) maintain shareholder accounts; and (5) make periodic reports to the Fund.
As compensation for the foregoing services, BBH receives certain
out of pocket costs, transaction fees and asset based fees, which are accrued daily and paid monthly by the Trust.
BBH also serves as the Trust’s securities lending agent (the
“Securities Lending Agent”) pursuant to a Securities Lending Authorization Agreement. As compensation for providing
securities lending services, BBH receives a portion of the income earned by the Fund on collateral investments in connection with
the lending program.
The following table sets forth the compensation received
by BBH in its roles as Administrator, Custodian, Transfer Agent and Securities Lending Agent during the fiscal year ended June
30, 2016. These amounts relate to the Stock Split Index Fund and not the Fund, which was not in existence as of the end of the
last fiscal year.
|
Administrator
|
|
Custodian
|
|
|
Transfer Agent
|
|
|
Securities
Lending Agent
|
|
|
Total
Compensation Received
|
|
|
$109,229
|
|
|
$269
|
|
|
|
$20,000
|
|
|
|
$0
|
|
|
|
$129,498
|
|
Distributor
ALPS Distributors, Inc., the Distributor, is located
at 1290 Broadway, Suite 1100, Denver, Colorado 80203. The Distributor is a broker-dealer registered under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), and a member of the Financial Industry Regulatory Authority (“FINRA”).
Shares will be continuously offered for sale by the Trust
through the Distributor only in whole Creation Baskets, as described in the section of this SAI entitled “Purchase and Redemption
of Creation Baskets.” The Distributor also acts as an agent for the Trust. The Distributor will deliver a prospectus to persons
purchasing shares in Creation Baskets and will maintain records of both orders placed with it and confirmations of acceptance furnished
by it. The Distributor has no role in determining the investment policies of the Fund or which securities are to be purchased or
sold by the Fund.
As compensation for the foregoing services, the Distributor
receives certain out of pocket costs, transaction fees and asset based fees, which are paid by the Adviser out of its own assets.
The Distributor receives no compensation from the Trust.
The Board has adopted a Distribution and Service Plan
pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1 plan, the Fund is authorized to pay an amount up to
0.25% of its average daily net assets each year to finance activities primarily intended to result in the sale of Creation Baskets
of the Fund or the provision of investor services. No Rule 12b-1 fees are currently paid by the Fund and there are no plans to
impose this fee. However, in the event Rule 12b-1 fees are charged in the future, they will be paid out of the Fund’s assets,
and over time these fees will increase the cost of your investment and they may cost you more than certain other types of sales
charges.
The Adviser and its affiliates may, out of their own
resources, pay amounts to third parties for distribution or marketing services on behalf of the Fund. The making of these payments
could create a conflict of interest for a financial intermediary receiving such payments.
Independent Registered Public Accounting Firm
Spicer Jeffries LLP (“Spicer”), 5251 S. Quebec St.,
Suite 200, Greenwood Village, CO 80111, serves as independent registered public accounting firm to the Trust. Spicer performs
the annual audit of the financial statements of the Fund, prepares the Fund’s federal, state and excise tax returns, and
advises the Fund on matters of accounting and federal and state income taxation.
Legal Counsel
Sutherland Asbill & Brennan LLP, 700 Sixth Street,
NW, Suite 700, Washington, DC 20001-3980, serves as legal counsel to the Trust and the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Board, the Adviser is
responsible for decisions to buy and sell securities for the Fund, the selection of brokers and dealers to effect the transactions,
which may be affiliates of the Adviser, and the negotiation of brokerage commissions. The Fund may execute brokerage or other
agency transactions through registered broker-dealers who receive compensation for their services in conformity with the 1940
Act, the Exchange Act, and the rules and regulations thereunder. Compensation may also be paid in connection with riskless
principal transactions (in NASDAQ or over-the-counter securities and securities listed on an exchange) and agency NASDAQ or over-the-counter
transactions executed with an electronic communications network or an alternative trading system.
The Fund will give primary consideration to obtaining
the most favorable prices and efficient executions of transactions in implementing trading policy. Consistent with this policy,
when securities transactions are traded on an exchange, the Fund’s policy will be to pay commissions which are considered
fair and reasonable without necessarily determining that the lowest possible commissions are paid in all circumstances. The Adviser
believes that a requirement always to seek the lowest possible commission cost could impede effective portfolio management and
preclude the Fund from obtaining a high quality of brokerage services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Adviser will rely upon its experience and knowledge regarding commissions generally charged
by various brokers and on its judgment in evaluating the brokerage and research services received from the broker effecting the
transaction. Such determinations will be necessarily subjective and imprecise, as in most cases an exact dollar for those services
is not ascertainable.
The Adviser does not consider sales of shares by broker-dealers
as a factor in the selection of broker-dealers to execute portfolio transactions.
As permitted by Section 28(e) of the 1934 Act, the Adviser
may cause the Fund to pay a broker-dealer a commission for effecting a securities transaction for the Fund that is in excess of
the commission which another broker-dealer would have charged for effecting the transaction, if the Adviser makes a good faith
determination that the broker’s commission paid by the Fund is reasonable in relation to the value of the brokerage and research
services provided by the broker-dealer, viewed in terms of either the particular transaction or the Adviser’s overall responsibilities
to the Fund and its other investment advisory clients. The practice of using a portion of the Fund’s commission dollars to
pay for brokerage and research services provided to the Adviser is sometimes referred to as “soft dollars.” Section
28(e) is sometimes referred to as a “safe harbor,” because it permits this practice, subject to a number of restrictions,
including the Adviser’s compliance with certain procedural requirements and limitations on the type of brokerage and research
services that qualify for the safe harbor.
Research products and services may include, but are not
limited to, general economic, political, business and market information and reviews, industry and company information and reviews,
evaluations of securities and recommendations as to the purchase and sale of securities, financial data on a company or companies,
performance and risk measuring services and analysis, stock price quotation services, computerized historical financial databases
and related software, credit rating services, analysis of corporate responsibility issues, brokerage analysts’ earnings estimates,
computerized links to current market data, software dedicated to research, and portfolio modeling. Research services may be provided
in the form of reports, computer-generated data feeds and other services, telephone contacts, and personal meetings with securities
analysts, as well as in the form of meetings arranged with corporate officers and industry spokespersons, economists, academics
and governmental representatives. Brokerage products and services assist in the execution, clearance and settlement of securities
transactions, as well as functions incidental thereto, including but not limited to related communication and connectivity services
and equipment, software related to order routing, market access, algorithmic trading, and other trading activities. On occasion,
a broker-dealer may furnish the Adviser with a service that has a mixed use (that is, the service is used both for brokerage and
research activities that are within the safe harbor and for other activities). In this case, the Adviser is required to reasonably
allocate the cost of the service, so that any portion of the service that does not qualify for the safe harbor is paid for by the
Adviser from its own funds, and not by portfolio commissions paid by the Fund.
Research products and services provided to the Adviser
by broker-dealers that effect securities transactions for the Fund may be used by the Adviser in servicing all of its accounts.
Accordingly, not all of these services may be used by the Adviser in connection with the Fund. Some of these products and services
are also available to the Adviser for cash, and some do not have an explicit cost or determinable value. The research received
does not reduce the advisory fees paid to the Adviser for services provided to the Fund.
The Adviser’s expenses would likely increase if
the Adviser had to generate these research products and services through its own efforts, or if it paid for these products or services
itself.
DISCLOSURE OF PORTFOLIO HOLDINGS
Portfolio Disclosure Policy
The Trust has adopted a Portfolio Holdings Policy (the
“Policy”) designed to govern the disclosure of Fund portfolio holdings and the use of material non-public information
about Fund holdings. The Policy applies to all officers, employees and agents of the Fund, including the Adviser. The Policy is
designed to ensure that the disclosure of information about each Fund’s portfolio holdings is consistent with applicable
legal requirements and otherwise in the best interest of each Fund.
As an ETF, information about the Fund’s portfolio holdings
is made available on a daily basis in accordance with the provisions of any Order of the SEC applicable to the Fund, regulations
of the Fund’s Listing Exchange and other applicable SEC regulations, orders and no-action relief. Such information typically
reflects all or a portion of the Fund’s anticipated portfolio holdings as of the next Business Day (as defined below).
This information is used in connection with the Creation Basket and Redemption Basket process and is disseminated
on a daily basis through the facilities of the Listing Exchange, the National Securities Clearing Corporation (the “NSCC”)
and/or third party service providers.
The Fund will disclose on the Fund’s website (www.uscfinvestments.com)
prior to the commencement of trading on each Business Day the identities and quantities of the securities and other assets held
by the Fund that will form the basis of the Fund’s calculation of its NAV on that Business Day. The portfolio holdings so
disclosed will be based on information as of the close of business on the prior Business Day and/or trades that have been completed
prior to the opening of business on that Business Day and that are expected to settle on the Business Day. Online disclosure of
such holdings is publicly available at no charge.
Daily access to each Fund’s portfolio holdings is
permitted to personnel of the Adviser, the Distributor and the Fund’s administrator, custodian and accountant and other agents
or service providers of the Trust who have need of such information in connection with the ordinary course of their respective
duties to the Fund. The Fund’s Chief Compliance Officer may authorize disclosure of portfolio holdings.
The Fund will disclose its complete portfolio holdings
schedule in public filings with the SEC on a quarterly basis, based on the Fund’s fiscal year, within sixty (60) days of
the end of the quarter, and will provide that information to shareholders, as required by federal securities laws and regulations
thereunder.
No person is authorized to disclose a Fund’s portfolio
holdings or other investment positions except in accordance with the Policy. The Trust’s Board reviews the implementation
of the Policy on a periodic basis.
INDICATIVE INTRA-DAY VALUE
The approximate value of the Fund’s investments on a per-share
basis, the Indicative Intra-Day Value or IIV, is disseminated by the Listing Exchange every 15 seconds during hours
of trading on the Listing Exchange. The IIV should not be viewed as a “real-time” update of NAV because the
IIV will be calculated by an independent third party calculator and may not be calculated in the exact same manner as NAV, which
is computed daily.
The Listing Exchange calculates the IIV during hours of
trading on the Listing Exchange by dividing the “Estimated Fund Value” as of the time of the calculation by the total
number of outstanding shares. “Estimated Fund Value” is the sum of the estimated amount of cash held in a Fund’s
portfolio, the estimated amount of accrued interest owing to the Fund and the estimated value of the securities held in the Fund’s
portfolio, minus the estimated amount of liabilities. The IIV will be calculated based on the same portfolio holdings disclosed
on the Fund’s website. In determining the estimated value for each of the component securities, the IIV will use last sale,
market prices or other methods that would be considered appropriate for pricing equity securities held by registered investment
companies.
Although Fund provides the independent third party calculator
with information to calculate the IIV, the Fund is not involved in the actual calculation of the IIV and is not responsible for
the calculation or dissemination of the IIV. The Fund makes no warranty as to the accuracy of the IIV.
ADDITIONAL INFORMATION CONCERNING SHARES
Organization and Description of Shares of Beneficial
Interest
The Trust is a Delaware statutory trust and registered
investment company. The Trust was organized on November 8, 2013, and has authorized capital of an unlimited number of shares of
beneficial interest of no par value which may be issued in more than one class or series.
Under Delaware law, the Trust is not required to hold
an annual shareholder meeting if the 1940 Act does not require such a meeting. Generally, there will not be annual meetings of
Trust shareholders. If requested by shareholders of at least 10% of the outstanding shares of the Trust, the Trust will call a
meeting of the Trust’s shareholders for the purpose of voting upon the question of removal of a Trustee and will assist in
communications with other Trust shareholders. Shareholders holding two-thirds of shares outstanding may remove Trustees from office
by votes cast at a meeting of Trust shareholders or by written consent.
All shares will be freely transferable; provided, however,
that shares may not be redeemed individually, but only in Creation Baskets. The shares will not have preemptive rights or cumulative
voting rights, and none of the shares will have any preference to conversion, exchange, dividends, retirements, liquidation, redemption
or any other feature. Shares have equal voting rights, except that, if the Trust creates additional funds, only shares of that
fund may be entitled to vote on a matter affecting that particular fund. Trust shareholders are entitled to require the Trust to
redeem Creation Baskets if such shareholders are Authorized Participants. The Declaration of Trust confers upon the Board the power,
by resolution, to alter the number of shares constituting a Creation Basket or to specify that shares of the Trust may be individually
redeemable. The Trust reserves the right to adjust the stock prices of shares to maintain convenient trading ranges for investors.
Any such adjustments would be accomplished through stock splits or reverse stock splits which would have no effect on the net assets
of the Fund.
The Trust’s Declaration of Trust disclaims liability
of the shareholders or the officers of the Trust for acts or obligations of the Trust which are binding only on the assets and
property of the Trust. The Declaration of Trust provides for indemnification by the Trust for all loss and expense of the Fund’s
shareholders held personally liable for the obligations of the Trust. The risk of a Trust’s shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which the Fund itself would not be able to meet the Trust’s
obligations and this risk should be considered remote. If a Fund does not grow to a size to permit it to be economically viable,
the Fund may cease operations. In such an event, shareholders may be required to liquidate or transfer their shares at an inopportune
time and shareholders may lose money on their investment.
Book Entry Only System
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled “Book Entry.”
The Depository Trust Company (“DTC”) acts
as securities depository for the Fund’s shares. Shares of the Fund are represented by securities registered in the name of
DTC or its nominee, Cede & Co., 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 New York Stock Exchange, LLC (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 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 Fund 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 Participants a fair and reasonable amount as reimbursement for the expenses attendant
to such transmittal, all subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee,
Cede & Co., as the registered holder of all shares. DTC or its nominee, upon receipt of any such distributions, shall credit
immediately 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 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. The DTC Participants’ rules and policies are made publicly available through its website at:
www.dtcc.com
.
PURCHASE AND REDEMPTION OF CREATION BASKETS
Creation
The Trust issues and sells shares of the Fund only in
Creation Baskets on a continuous basis through the Distributor, at their NAV next determined after receipt, on any Business Day
(as defined below), for an order received in proper form.
A “Business Day” with respect to the Fund
is any day on which the New York Stock Exchange (NYSE) is open for business. As of the date of the Prospectus, the NYSE observes
the following holidays: New Year’s Day, Martin Luther King, Jr. Day, President’s Day (Washington’s Birthday),
Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Fund Deposit.
The consideration for purchase of
Fund shares generally consists of an in-kind deposit of a designated portfolio of securities - the Deposit Securities — per
each Creation Basket constituting a substantial replication, or a representation, of the securities included in the Fund’s
portfolio 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 Basket of the Fund. The Cash Component is an amount equal to the difference between the NAV of the shares
(per Creation Basket) and the market value of the Deposit Securities. If the Cash Component is a positive number (
i.e.
,
the NAV per Creation Basket exceeds the market value of the Deposit Securities), the Cash Component shall be such positive amount.
If the Cash Component is a negative number (
i.e.
, the NAV per Creation Basket is less than the market value of the Deposit
Securities), the Cash Component shall be such negative amount and the creator will be entitled to receive cash from the Fund in
an amount equal to the Cash Component. The Cash Component serves the function of compensating for any differences between the NAV
per Creation Basket and the market value of the Deposit Securities.
The Administrator, through the National Securities Clearing Corporation
(“NSCC”) (discussed below), makes available on each Business Day, immediately prior to the opening of business on
the Listing Exchange (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
the Fund. Such Fund Deposit is applicable, subject to any adjustments as described below, in order to effect creations of Creation
Baskets of the Fund until such time as the next-announced composition of the Deposit Securities is made available.
The identity and number of shares of the Deposit Securities
required for the Fund Deposit for the Fund changes as rebalancing adjustments and corporate action events are reflected from time
to time by the portfolio manager with a view to the investment objective of the Fund. 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 which may not be available in sufficient quantity for delivery or
which may not be eligible for transfer through the Clearing Process (discussed below), or which may not be eligible for trading
by an Authorized Participant (as defined below) or the investor for which it is acting.
In addition to the list of names and numbers of securities
constituting the current Deposit Securities of a Fund Deposit, the Administrator, 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
Basket of the Fund.
Cash Purchase.
When, in the sole discretion of
the Trust, cash purchases of Creation Baskets of shares are available or specified for the Fund, such purchases shall be effected
in essentially the same manner as in-kind purchases thereof. In the case of a cash purchase, the Authorized Participant must pay
the cash equivalent of the Deposit Securities it would otherwise be required to provide through an in-kind purchase, plus the same
Cash Component required to be paid by an in-kind purchaser. In addition, to offset the Trust’s brokerage and other transaction
costs associated with using the cash to purchase the requisite Deposit Securities, the Authorized Participant must pay the Transaction
Fees required for the Fund.
Procedures for Creation of Creation Baskets.
To
be eligible to place orders to create a Creation Basket of the 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 “Book
Entry Only System”), and, in each case, must have executed an agreement with the Distributor with respect to creations and
redemptions of Creation Baskets (“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 with the Fund. All shares of the Fund, 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 Baskets must be placed for one or
more Creation Basket size aggregations of shares (50,000 in the case of the Fund). All orders to create Creation Baskets, whether
through the Clearing Process (through a Participating Party) or outside the Clearing Process (through a DTC Participant), must
be received by the Distributor no later than the close of the regular trading session on the Listing Exchange (ordinarily
4:00 p.m. Eastern Time (“Closing Time”) or, for the Cash Creation Baskets, 3:00 p.m. Eastern Time, in each case on
the date such order is placed in order for the creation of Creation Baskets to be effected based on the NAV of shares of the Fund
as next determined on such date after receipt of the order in proper form. The date on which an order to create Creation Baskets
(or an order to redeem Redemption Baskets 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 “Placement of Creation and Redemption
Orders Using Clearing Process” and “Placement of Creation and Redemption Orders Outside Clearing Process”).
Severe economic or market disruptions or changes, or telephone or other communication failure, may impede the ability to reach
the Distributor or an Authorized Participant.
Orders to create Creation Baskets or Redemption Baskets
of the Fund 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,
i.e.
, 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 Baskets or redeem Redemption
Baskets of the Fund have to be placed by the investor’s broker through an Authorized Participant that has executed a Participant
Agreement. 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 Baskets or Redemption Baskets 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 or redemption 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 and Redemption Orders
Using the Clearing Process.
The Clearing Process is the process of creating or redeeming Creation Baskets and Redemption Baskets
through the Continuous Net Settlement System of the NSCC. Fund Deposits or Cash Creation Amount deposits, as applicable, 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 Fund’s transfer agent to NSCC, on behalf of the Participating
Party, such trade instructions as are necessary to effect the Participating Party’s creation order or redemption order. Pursuant
to such trade instructions to NSCC, the Participating Party agrees to deliver the requisite Deposit Securities and the Cash Component
(or the Cash Creation Amount, if applicable) to the Trust, together with such additional information as may be required by the
Distributor. An order to create Creation Baskets or redeem Redemption Baskets 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.
Acceptance of Orders for Creation Baskets.
The Trust reserves
the absolute right to reject a creation order transmitted to it by the Distributor in respect of the Fund if (a) the order is
not in proper form; (b) the investor(s), upon obtaining the shares ordered, would own 80% or more of the currently outstanding
shares of the Fund; (c) the Deposit Securities delivered are not as disseminated through the facilities of the Listing
Exchange for that date by the Administrator, as described above; (d) acceptance of the Deposit Securities would have certain adverse
tax consequences to the Fund; (e) the acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (f) the acceptance
of the Fund Deposit would otherwise, in the discretion of the Trust or the Adviser, have an adverse effect on the Trust or the
rights of beneficial owners; or (g) in the event that circumstances outside the control of the Trust, the Distributor and the
Adviser make it for all practical purposes impossible to process creation orders. Examples of such circumstances include acts
of God or public 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 Adviser, the Distributor, DTC, NSCC or any other participant in the creation
process, and similar extraordinary events. The Distributor shall notify a prospective creator of a Creation Basket and/or the
Authorized Participant acting on behalf of the creator of a Creation Basket of its rejection of the order of such person. The
Trust, the Administrator and the Distributor are under no duty, however, to give notification of any defects or irregularities
in the delivery of Fund Deposits nor shall either 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.
To compensate the Trust
for transfer and other transaction costs involved in creation transactions through the Clearing Process, investors will be required
to pay a creation transaction fee of $350.
The Fund, subject to approval by the Board, may adjust
the fee from time to time based upon actual experience. Investors who use the services of a broker or other such intermediary in
addition to an Authorized Participant to effect a creation of a Creation Basket may be charged a fee for such services.
Redemption
Shares may be redeemed only in Redemption Baskets at
their NAV next determined after receipt of a redemption request in proper form by the Distributor and the Fund through the Administrator
and only on a Business Day. The Trust will not redeem shares in amounts less than Redemption Baskets. Beneficial Owners must accumulate
enough shares in the secondary market to constitute a Creation Basket 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 Redemption Basket. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number
of shares to constitute a redeemable Redemption Basket.
With respect to the Fund, the Administrator, through the NSCC, makes
available immediately prior to the opening of business on the Listing Exchange (currently 9:30 a.m., Eastern Time) on each
Business Day, the designated portfolio of securities (“Fund Securities”) per each Creation Basket that will be applicable
(subject to possible amendment or correction) to redemption requests received in proper form (as defined below) on that day. Fund
Securities received on redemption may not be identical to Deposit Securities, which are applicable to creations of Creation Baskets.
Unless cash redemptions are available or specified for
the Fund, the redemption proceeds for a Creation Basket generally consist of Fund Securities - as announced by the Administrator
on the Business Day of the request for redemption received in proper form — plus cash in an amount equal to the difference
between the NAV of the 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 described below in the section
entitled “Redemption Transaction Fee.” In the event that the Fund Securities have a value greater than the NAV of the
shares, a compensating cash payment equal to the differential is required to be made by or through an Authorized Participant by
the redeeming shareholder.
Placement of Redemption Orders Using Clearing Process.
Orders to redeem Creation Baskets through the Clearing Process must be delivered through a Participating Party that has executed
the Participant Agreement. An order to redeem Redemption Baskets using the Clearing Process is deemed received on the Transmittal
Date if (i) such order is received by the Administrator 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 Fund as next determined. An order to redeem Redemption Baskets using the Clearing Process made in proper form but received
by the Fund 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 Business Day. The requisite Fund Securities and the Cash Redemption
Amount will be transferred by the third (3rd) NSCC Business Day following the date on which such request for redemption is deemed
received.
Redemption Transaction Fee.
To compensate the
Trust for transfer and other transaction costs involved in redemption transactions through the Clearing Process, investors will
be required to pay a redemption transaction fee of $350 assessed per transaction. The redemption transaction fee will be no more
than 2.0% of the cost of a redemption basket.
The Fund, subject to approval by the Board, may adjust
the fee from time to time based upon actual experience. Investors who use the services of a broker or other such intermediary in
addition to an Authorized Participant to effect a redemption of a Redemption Basket may be charged a fee for such services.
CONTINUOUS OFFERING
The method by which Creation Baskets are created and
traded may raise certain issues under applicable securities laws. Because new Creation Baskets are issued and sold by the Trust
on an ongoing basis, at any point a “distribution,” as such term is used in the Securities Act, may occur. Broker-dealers
and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed
participants in a distribution in a manner which could render them statutory underwriters and subject them to the prospectus delivery
and liability provisions of the Securities Act.
For example, a broker-dealer firm or its client may be
deemed a statutory underwriter if it takes Creation Baskets after placing an order with the Distributor, breaks them down into
constituent shares, and sells such shares directly to customers, or if it chooses to couple the creation of a supply of new shares
with an active selling effort involving solicitation of secondary market demand for shares. A determination of whether one is an
underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining to the activities
of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete
description of all the activities that could lead to a categorization as an underwriter.
Broker-dealer firms should also note that dealers who
are effecting transactions in shares of the Fund, whether or not participating in the distribution of such shares, are generally
required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the Securities Act is not
available in respect of such transactions as a result of Section 24(d) of the 1940 Act. Broker-dealer firms should note that dealers
who are not “underwriters” but are participating in a distribution (as contrasted to an ordinary secondary market transaction),
and thus dealing with shares that are part of an “unsold allotment” within the meaning of Section 4(3)(C) of the Securities
Act, would be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities Act. Firms
that incur a prospectus-delivery obligation with respect to Shares are reminded that under Rule 153 under the Securities Act, a
prospectus delivery obligation under Section 5(b)(2) of the Securities Act owed to a national securities exchange member in connection
with a sale on the national securities exchange is satisfied if a fund’s prospectus is made available upon request at the
national securities exchange on which the shares of such Fund trade. The prospectus delivery mechanism provided in Rule 153 is
only available with respect to transactions on a national securities exchange and not with respect to other transactions.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled “Determination of Net Asset Value.”
The NAV per share for the 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 outstanding, rounded to the nearest cent. Expenses and fees, including the management fee, are accrued daily and taken
into account for purposes of determining NAV. The NAV of the Fund is determined as of the close of the regular trading session
on the Listing Exchange (ordinarily 4:00 p.m., Eastern time) on each day that such exchange is open. Any assets or liabilities
denominated in currencies other than the U.S. dollar are converted into U.S. dollars at the current market rates on the date of
valuation as quoted by one or more sources.
In computing the Fund’s NAV, the Fund’s portfolio
securities are valued based on market quotations. When market quotations are not readily available for a portfolio security a Fund
must use such security’s fair value as determined in good faith in accordance with the Fund’s Fair Value Pricing Procedures,
which are approved by the Board.
The value of the Fund’s portfolio securities is
based on such securities’ closing price on local markets when available. If a portfolio security’s market price is
not readily available or does not otherwise accurately reflect the fair value of such security, the portfolio security will be
valued by another method that the Adviser believes will better reflect fair value in accordance with the Trust’s valuation
policies and procedures approved by the Board. The Fund may use fair value pricing in a variety of circumstances, including but
not limited to, situations when the value of a Fund’s portfolio security has been materially affected by events occurring
after the close of the market on which such security is principally traded (such as a corporate action or other news that may materially
affect the price of such security) or trading in such security has been suspended or halted. In addition, each Fund may fair value
foreign equity portfolio securities each day the Fund calculates its NAV. Accordingly, the Fund’s NAV may reflect certain
portfolio securities’ fair values rather than their market prices. Fair value pricing involves subjective judgments and it
is possible that a fair value determination for a portfolio security is materially different than the value that could be realized
upon the sale of such security. With respect to securities that are primarily listed on foreign exchanges, the value of the Fund’s
portfolio securities may change on days when you will not be able to purchase or sell your shares.
DIVIDENDS AND DISTRIBUTIONS
General Policies
The following information supplements and should be read
in conjunction with the section in the Prospectus entitled “Dividends, Distributions and Taxes.”
Dividends from net investment income are declared and
paid at least annually by each Fund. Distributions of net realized capital gains, if any, generally are declared and paid once
a year, but the Trust may make distributions on a more frequent basis for the Fund to comply with the distribution requirements
of the Internal Revenue Code of 1986, as amended (the “Code”), in all events in a manner consistent with the provisions
of the 1940 Act. In addition, the Trust may distribute at least annually amounts representing the full dividend yield on the underlying
Portfolio Securities of the Fund, net of expenses of the Fund, as if the Fund owned such underlying Portfolio Securities for the
entire dividend period in which case some portion of each distribution may result in a return of capital for tax purposes for certain
shareholders.
Dividends and other distributions on 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 the Trust. The Trust makes additional
distributions to the minimum extent necessary (i) to distribute the entire annual taxable income of the Trust, plus any net capital
gains and (ii) to avoid imposition of the excise tax imposed by Section 4982 of the Code. Management of the Trust reserves the
right to declare special dividends if, in its reasonable discretion, such action is necessary or advisable to preserve the status
of the Fund as a “regulated investment company” (a “RIC”) or to avoid imposition of income or excise taxes
on undistributed income.
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 through DTC Participants
for reinvestment of their dividend distributions. If this service is used, dividend distributions of both income and realized gains
will be automatically reinvested in additional whole shares of the Fund. 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.
TAXATION
Set forth below is a discussion of certain U.S. federal
income tax considerations affecting the Fund and the purchase, ownership and disposition of shares. It is based upon the Code, the regulations promulgated thereunder, judicial authorities, and administrative
rulings and practices as in effect as of the date of this SAI, all of which are subject to change (possibly with retroactive effect),
including the following information which also supplements and should be read in conjunction with the section in the Prospectus
entitled “Dividends, Distributions and Taxes”.
This discussion does not constitute a detailed explanation
of all U.S. federal income tax aspects affecting us and our shareholders and does not purport to deal with the U.S. federal income
tax consequences that may be important to particular shareholders in light of their individual investment circumstances or to
some types of shareholders subject to special tax rules, such as financial institutions, broker dealers, insurance companies,
tax-exempt organizations, partnerships or other pass-through entities, persons holding our shares in connection with a hedging,
straddle, conversion or other integrated transaction, non-U.S. shareholders (as defined below) engaged in a trade or business
in the United States and who hold our shares in connection with such business (determined under applicable U.S. tax laws), persons
who have ceased to be U.S. citizens or to be taxed as resident aliens or individual non-U.S. shareholders present in the United
States for 183 days or more during a taxable year. This discussion also does not address any aspects of U.S. estate or gift tax
or foreign, state or local tax. This discussion assumes that our shareholders hold their shares as capital assets for U.S. federal
income tax purposes (generally, assets held for investment). No ruling has been or will be sought from the IRS regarding any matter
discussed herein.
For purposes of this discussion, a “U.S. Shareholder”
generally is a beneficial owner of Fund shares who is for U.S. federal income tax purposes:
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An individual who, for U.S. federal income tax purposes,
is a citizen or individual resident of the United States;
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A corporation or other entity treated as a corporation,
for U.S. federal income tax purposes, created or organized in or under the laws of the
United States, any state thereof, or the District of Columbia or any political subdivision
thereof;
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An estate, the income of which is subject to U.S. federal
income taxation regardless of its source; or.
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A trust if either a U.S. court can exercise primary
supervision over its administration and one or more U.S. persons have the authority to
control all its substantial decisions or the trust was in existence on August 20, 1996,
was treated as a U.S. person prior to that date, and has made a valid election to be
treated as a U.S. person.
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A “Non-U.S. Shareholder” generally is a beneficial
owner of Fund shares who is not a U.S. Shareholder. Non-U.S. Shareholders that hold Fund shares as part of a U.S. trade or business
should consult their own tax advisor as to the tax consequences of holding and disposing of Fund shares.
If a partnership or other entity classified as a partnership,
for U.S. federal income tax purposes, holds our shares, the U.S. tax treatment of the partnership and each partner generally depends
on the status of the partner, the activities of the partnership and certain determinations made at the partner level. A partnership
(and any partner in such partnership) considering an investment in our common stock should consult its own tax advisers regarding
the U.S. federal income tax consequences of the acquisition, ownership and disposition of shares by the partnership.
Tax matters are very complicated and the tax consequences
to an investor of an investment in our shares will depend on the facts of his, her or its particular situation. We encourage investors
to consult their own tax advisers regarding the specific consequences of such an investment, including tax reporting requirements,
the applicability of federal, state, local and foreign tax laws, eligibility for the benefits of any applicable tax treaty and
the effect of any possible changes in the tax laws.
Tax Treatment of the Fund
In General.
The Fund intends to qualify and elect
to be treated as a separate RIC under the Code.
As a RIC, we generally do not pay corporate-level U.S.
federal income taxes on any ordinary income or capital gains that we timely distribute to our stockholders as dividends.
To qualify as a RIC, we must, among other things:
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derive in each taxable year at least 90% of our gross income
from dividends, interest, payments with respect to certain securities loans, gains from
the sale or other disposition of stock, securities or foreign currencies, other income
derived with respect to our business of investing in stock, securities or currencies,
or net income derived from an interest in a “qualified publicly traded partnership,”
or “QPTP,” hereinafter the “90% Gross Income Test;” and
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diversify our holdings so that, at the end of each quarter
of each taxable year:
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at least 50% of the value of our total assets is represented
by cash and cash items, U.S. Government securities, the securities of other RICs and
other securities, with other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the value of our total assets and not more than 10% of
the outstanding voting securities of such issuer, and
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not more than 25% of the value of our total assets is
invested in the securities of any issuer (other than U.S. Government securities and the
securities of other regulated investment companies), the securities of any two or more
issuers that we control and that are determined to be engaged in the same business or
similar or related trades or businesses, or the securities of one or more QPTPs, or the
“Diversification Tests.”
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As a RIC, we are generally not subject to U.S. federal
income tax on investment company taxable income and net capital gains that we distribute to our stockholders in any taxable year
with respect to which we distribute an amount equal to at least 90% of the sum of our (i) investment company taxable income (which
includes, among other items, dividends, interest and the excess of any net realized short-term capital gains over net realized
long-term capital losses and other taxable income (other than any net capital gain), reduced by deductible expenses) determined
without regard to the deduction for dividends and distributions paid and (ii) net tax-exempt interest income (which is the excess
of our gross tax-exempt interest income over certain disallowed deductions), or the “Annual Distribution Requirement.”
We intend to distribute annually all or substantially all of such income. Generally, if we fail to meet this Annual Distribution
Requirement for any taxable year, we will fail to qualify as a RIC for such taxable year. To the extent we meet the Annual Distribution
Requirement for a taxable year, but retain our net capital gains for investment or any investment company taxable income, we are
subject to U.S. federal income tax on such retained capital gains and investment company taxable income. We may choose to retain
our net capital gains for investment or any investment company taxable income, and pay the associated U.S. federal corporate income
tax.
U.S. Federal Excise Tax.
The Fund will be
subject to a four percent excise tax on certain undistributed income if the Fund does not distribute to its shareholders in each
calendar year an amount equal to at least the sum of 98% of its ordinary income for the calendar year, (ii) 98.2% of its capital
gain net income for the twelve months ended October 31 of such year, and (iii) any previously undistributed ordinary income or
capital gain net income on which the Fund did not pay corporate-level U.S. federal income tax. The Fund intends to make distributions
necessary to avoid the 4% excise tax.
Failure to Maintain RIC Status.
If the Fund fails
to qualify as a RIC for any year (subject to certain curative measures allowed by the Code), the Fund will be subject to regular
corporate-level U.S. federal income tax in that year on all of its taxable income, regardless of whether the Fund makes any distributions
to its shareholders. In addition, distributions will be taxable to a Fund’s shareholders generally as ordinary dividends
to the extent of the Fund’s current and accumulated earnings and profits. Distributions from a non-qualifying Fund’s
earnings and profits will be taxable to the Fund’s shareholders as regular dividends, possibly eligible for (i) in the case
of a non-corporate Fund shareholder, treatment as a qualifying dividend (as discussed below) taxable at the same maximum tax rates
applicable to long-term capital gains or (ii) in the case of a corporate Fund shareholder, a dividends-received deduction.
Recognition of Income Prior to Receiving Cash.
With respect to some or all of its investments, the Fund may be required to recognize taxable income in advance of receiving the
related cash payment. For example, if the Fund invests in original issue discount obligations (such as zero coupon debt instruments
or debt instruments with payment-in-kind interest), the Fund will be required to include as interest income a portion of the original
issue discount that accrues over the term of the obligation, even if the related cash payment is not received by the Fund until
a later year. Under the “wash sale” rules, a Fund may not be able to deduct a loss on a disposition of a portfolio
security. As a result, the Fund may be required to make an annual income distribution greater than the total cash actually received
during the year. Such distribution may be made from the cash assets of the Fund or by selling Portfolio Securities. The Fund may
realize gains or losses from such sales, in which event the Fund’s shareholders may receive a larger capital gain distribution
than they would in the absence of such transactions.
Foreign Investments and Taxes.
Investment income
and gains received by the Fund from foreign investments may be subject to foreign withholding and other taxes, which could decrease
the Fund’s return on those investments. The effective rate of foreign taxes to which a Fund will be subject depends on the
specific countries in which its assets will be invested and the extent of the assets invested in each such country and, therefore,
cannot be determined in advance. If more than 50% of the Fund’s assets at year end consists of the securities of foreign
corporations, the Fund may elect to permit shareholders to claim a credit or deduction on their income tax returns for their pro
rata portions of qualified taxes paid by the Fund to foreign countries in respect of foreign securities that the Fund has held
for at least the minimum period specified in the Code. In such a case, shareholders will include in gross income from foreign
sources their pro rata shares of such taxes paid by the Fund. A shareholder’s ability to claim an offsetting foreign tax
credit or deduction in respect of foreign taxes paid by the Fund is subject to certain limitations imposed by the Code, which
may result in the shareholder’s not receiving a full credit or deduction (if any) for the amount of such taxes. Shareholders
who do not itemize on their U.S. federal income tax returns may claim a credit (but not a deduction) for such foreign taxes. Even
if the Fund were eligible to make such an election for a given year, it may determine not to do so. Shareholders that are not
subject to U.S. federal income tax, and those who invest in the Fund through tax-advantaged accounts (including those who invest
through individual retirement accounts or other tax-advantaged retirement plans), generally will receive no benefit from any tax
credit or deduction passed through by the Fund.
PFIC Investments.
The Fund may purchase shares
in a foreign corporation treated as a “passive foreign investment company” (a “PFIC”) for federal income
tax purposes. As a result, the Fund may be subject to increased federal income tax (plus charges in the nature of interest on
previously-deferred income taxes on the PFIC’s income) on “excess distributions” made on or gain from a sale
(or other disposition) of the PFIC shares even if the Fund distributes the excess distributions to its shareholders.
In lieu of the increased income tax and deferred tax interest
charges on excess distributions on and dispositions of a PFIC’s shares, the Fund can elect to treat the underlying PFIC
as a “qualified electing fund,” provided that the PFIC agrees to provide the Fund with adequate information regarding
its annual results and other aspects of its operations. With a “qualified electing fund” election in place, the Fund
must include in its income each year its share (whether distributed or not) of the ordinary earnings and net capital gain of a
PFIC.
In the alternative, the Fund can elect, under certain
conditions, to mark-to-market at the end of each taxable year its PFIC shares. The Fund would recognize as ordinary income any
increase in the value of the PFIC shares and as an ordinary loss (up to any prior income resulting from the mark-to-market election)
any decrease in the value of the PFIC shares.
With a “mark-to-market” or “qualified
election fund” election in place on a PFIC, the Fund might be required to recognize in a year income in excess of its actual
distributions on and proceeds from dispositions of the PFIC’s shares. Any such income would be subject to the RIC distribution
requirements and would be taken into account for purposes of the 4% excise tax (described above).
Foreign Currency Transactions.
Gains or losses
attributable to fluctuations in exchange rates between the time a Fund accrues income, expenses or other items denominated in
a foreign currency and the time the Fund actually collects or pays such items are generally treated as ordinary income or loss.
Similarly, gains or losses on foreign currency forward contracts and the disposition of debt securities denominated in a foreign
currency, to the extent attributable to fluctuations in exchange rates between the acquisition and disposition dates, are also
treated as ordinary income or loss.
Special or Uncertain Tax Consequences.
The Fund’s
investment or other activities could be subject to special and complex tax rules that may produce differing tax consequences,
such as disallowing or limiting the use of losses or deductions (such as the “wash sale” rules), causing the recognition
of income or gain without a corresponding receipt of cash, affecting the time as to when a purchase or sale of stock or securities
is deemed to occur or altering the characterization of certain complex financial transactions. The Fund will monitor its investment
activities for any adverse effects that may result from these special tax rules.
The Fund may engage in investment or other activities
the treatment of which may not be clear or may be subject to recharacterization by the IRS. In particular, the treatment of swaps
and other derivatives and income from foreign currency transactions is unclear for purposes of determining the Fund’s status
as a RIC. If a final determination on the tax treatment of the Fund’s investment or other activities differs from the Fund’s
original expectations, the final determination could adversely affect the Fund’s status as a RIC or the timing or character
of income recognized by the Fund, requiring the Fund to purchase or sell assets, alter its portfolio or take other action in order
to comply with the final determination.
Tax Treatment of U.S. Shareholders
Fund Distributions.
In general, Fund distributions
are subject to federal income tax when paid, regardless of whether they consist of cash or property or are re-invested in Fund
shares. However, any Fund distribution declared in October, November or December of any calendar year and payable to shareholders
of record on a specified date during such month will be deemed to have been received by each Fund shareholder on December 31 of
such calendar year, provided such dividend is actually paid during January of the following calendar year.
Distributions of a Fund’s investment company taxable
income (i.e., net investment income and net short-term capital gains) are taxable as ordinary income to the extent of the Fund’s
current or accumulated earnings and profits. Distributions of a Fund’s realized net long-term capital gains in excess of
realized net short-term capital losses properly reported by us as “capital gain dividends” are taxable as long-term
capital gain to the extent of the Fund’s current or accumulated earnings and profits, regardless of a Fund shareholder’s
holding period in the Fund’s shares.
“Qualified dividend income” received by an
individual is taxed at the rates applicable to net capital gain. In order for some portion of the dividends received by a Fund
shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion
of the dividend-paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect
to the Fund’s shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level)
(1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning
on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the
case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that
the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to
positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment
income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign
corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception
of dividends paid on stock of such a foreign corporation that is readily tradable on an established securities market in the United
States) or (b) treated as a passive foreign investment company. In general, distributions of investment income reported by a Fund
as derived from qualified dividend income will be treated as qualified dividend income in the hands of a shareholder taxed as
an individual, provided the shareholder meets the holding period and other requirements described above with respect to the Fund’s
shares.
In general, dividends of net investment income received
by corporate shareholders of a Fund may qualify for the 70% dividends-received deduction generally available to corporations to
the extent of the amount of eligible dividends received by the Fund from domestic corporations for the taxable year. A dividend
received by a Fund will not be treated as a dividend eligible for the dividends-received deduction (1) if it has been received
with respect to any share of stock that the Fund has held for less than 46 days (91 days in the case of certain preferred stock)
during the 91-day period beginning on the date which is 45 days before the date on which such share becomes ex-dividend with respect
to such dividend (during the 181-day period beginning 90 days before such date in the case of certain preferred stock) or (2)
to the extent that the Fund is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect
to positions in substantially similar or related property. Moreover, the dividends received deduction may otherwise be disallowed
or reduced (1) if the corporate shareholder fails to satisfy the foregoing requirements with respect to its shares of the Fund
or (2) by application of various provisions of the Code (for instance, the dividends-received deduction is reduced in the case
of a dividend received on debt-financed portfolio stock (generally, stock acquired with borrowed funds)). The corporate alternative
minimum tax may disallow the dividends received deduction in certain circumstances.
Distributions in excess of our earnings and profits first
will reduce a U.S. shareholder’s adjusted tax basis in such shareholder’s common stock and, after the adjusted basis
is reduced to zero, will constitute capital gains to such U.S. shareholder.
Any distributions reinvested in additional shares will
nevertheless remain taxable to the U.S. shareholder. The U.S. shareholder will have an adjusted basis in the additional shares
equal to the amount of the reinvested distribution. The additional shares will have a new holding period commencing on the day
following the day on which the shares are acquired by the U.S. shareholder.
The Fund intends to distribute its long-term capital gains
at least annually. However, by providing written notice to its shareholders no later than 60 days after its year-end, a Fund may
elect to retain some or all of its long-term capital gains and designate the retained amount as a “deemed distribution.”
In that event, the Fund pays income tax on the retained long-term capital gain, and each Fund shareholder recognizes a proportionate
share of the Fund’s undistributed long-term capital gain. In addition, each Fund shareholder can claim a refundable tax
credit for the shareholder’s proportionate share of the Fund’s income taxes paid on the undistributed long-term capital
gain and increase the tax basis of the Fund shares by an amount equal to the shareholder’s proportionate share of the Fund’s
undistributed long-term capital gains, reduced by the amount of the shareholder’s tax credit.
Long-term capital gains of non-corporate Fund shareholders
(
i.e.
, individuals, trusts and estates) are taxed at a maximum rate of 20%. In addition, Fund distributions of qualifying
dividend income to non-corporate Fund shareholders qualify for taxation at long-term capital gain rates.
To the extent that the Fund makes a distribution of income
received by such Fund in lieu of dividends with respect to securities on loan pursuant to a securities lending transaction, such
income will not constitute qualified dividend income to individual shareholders and will not be eligible for the dividends-received
deduction for corporate shareholders.
Investors considering buying Fund shares just prior to
a distribution should be aware that, although the price of the Fund shares purchased at such time may reflect the forthcoming
distribution, such distribution nevertheless may be taxable (as opposed to a non- taxable return of capital).
Alternative Minimum Tax.
As a RIC, we are subject
to alternative minimum tax, also referred to as “AMT,” but any items that are treated differently for AMT purposes
must be apportioned between us and our U.S. shareholders and this may affect the U.S. shareholders’ AMT liabilities. Although
regulations explaining the precise method of apportionment have not yet been issued, such items are generally apportioned in the
same proportion that dividends paid to each U.S. shareholder bear to our taxable income (determined without regard to the dividends
paid deduction), unless a different method for particular item is warranted under the circumstances.
REIT/REMIC Investments.
The Fund may invest in
REITs owning residual interests in real estate mortgage investment conduits (“REMICs”). Income from a REIT to the
extent attributable to a REMIC residual interest (known as “excess inclusion” income) is allocated to a Fund’s
shareholders in proportion to the dividends received from the Fund, producing the same income tax consequences as if the Fund
shareholders directly received the excess inclusion income. In general, excess inclusion income (i) cannot be offset by net operating
losses (subject to a limited exception for certain thrift institutions), (ii) constitutes “unrelated business taxable income”
to certain entities (such as a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan or other
tax-exempt entity), and (iii) in the case of a foreign shareholder, does not qualify for any withholding tax reduction or exemption.
In addition, if at any time during any taxable year certain types of entities own Fund shares, the Fund will be subject to a tax
equal to the product of (i) the excess inclusion income allocable to such entities and (ii) the highest U.S. federal income tax
rate imposed on corporations. The Fund is also subject to information reporting with respect to any excess inclusion income.
Sales of Fund Shares.
A U.S. shareholder generally
will recognize gain or loss on the sale, exchange or other taxable disposition of Fund shares in an amount equal to the difference
between the U.S. shareholder’s adjusted basis in the shares disposed of and the amount realized on their disposition. Generally,
gain recognized by a U.S. shareholder on the disposition of Fund shares will result in capital gain or loss to a U.S. shareholder,
and will be a long-term capital gain or loss if the shares have been held for more than one year at the time of sale. Any loss
recognized by a U.S. shareholder upon the disposition of Fund shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends received (including amounts credited as an undistributed capital gain
dividend) by the U.S. shareholder. A loss recognized by a U.S. shareholder on a disposition of Fund shares will be disallowed
as a deduction if the U.S. shareholder acquires additional Fund shares (whether through the automatic reinvestment of dividends
or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed.
In this case, the basis of the shares acquired will be adjusted to reflect the disallowed loss.
Creation Basket Issues and Redemptions.
On an issue
of Standard Creation Fund shares as part of a Creation Basket, an Authorized Participant recognizes capital gain or loss equal
to the difference between (i) the fair market value (at issue) of the issued Fund shares (plus any cash received by the Authorized
Participant as part of the issue) and (ii) the Authorized Participant’s aggregate basis in the exchanged securities (plus
any cash paid by the Authorized Participant as part of the issue). On a redemption of Standard Creation Fund shares as part of
a Creation Basket, an Authorized Participant recognizes capital gain or loss equal to the difference between (i) the fair market
value (at redemption) of the securities received (plus any cash received by the Authorized Participant as part of the redemption)
and (ii) the Authorized Participant’s basis in the redeemed Fund shares (plus any cash paid by the Authorized Participant
as part of the redemption). However, the IRS may assert, under the “wash sale” rules or on the basis that there has
been no significant change in the Authorized Participant’s economic position, that any loss on an issue or redemption of
Creation Baskets cannot be deducted currently.
In general, any capital gain or loss recognized upon the
issue or redemption of Fund shares (as components of a Creation Basket) is treated either as long-term capital gain or loss, if
the deposited securities (in the case of an issue) or the Fund shares (in the case of a redemption) have been held for more than
one year, or otherwise as short-term capital gain or loss. However, any capital loss on a redemption of Fund shares held for six
months or less is treated as long-term capital loss to the extent that capital gain dividends were paid with respect to such Fund
shares.
Foreign Tax Credits.
The Fund may be subject
to foreign income taxes and may be able to elect to pass-along such credit to its shareholders. If this election is available
and the Fund elects such treatment, the amount of such credit will be treated as an additional distribution by the Fund and, subject
to various limitations of the Code, its shareholders will be entitled to claim a foreign tax credit to offset their tax liability.
Please consult your tax advisor regarding whether you will be able to use such credit against your tax liability.
Medicare Tax.
In addition, if applicable
to a shareholder, a 3.8% Medicare tax will be imposed on net investment income. Please consult your tax advisor regarding this
tax.
Back-Up Withholding.
The Fund may be required to
report certain information on a Fund shareholder to the IRS and withhold federal income tax (“backup withholding”)
from all taxable distributions and redemption proceeds payable to the Fund shareholder if the Fund shareholder fails to provide
the Fund with a correct taxpayer identification number (or, in the case of a U.S. individual, a social security number) or a completed
exemption certificate
(e.g.,
an IRS Form W-8BEN or IRS Form W-8BEN-E in the case of a foreign Fund shareholder) or if the
IRS notifies the Fund that the Fund shareholder is otherwise subject to backup withholding. Backup withholding is not an additional
tax and any amount withheld may be credited against a Fund shareholder’s federal income tax liability.
Tax Shelter Reporting Regulations.
If a Fund shareholder
recognizes a loss with respect to Fund shares of $2 million or more (for an individual Fund shareholder) or $10 million or more
(or a greater loss over a combination of years) for a corporate stockholder in any single taxable year, the Fund shareholder must
file a disclosure statement with the IRS. Significant penalties may be imposed upon the failure to comply with these reporting
rules.
Special Issues for Non-U.S. Shareholders
In general.
Non-U.S. Shareholders who do not hold
Fund shares as part of a U.S. trade or business generally are not subject to U.S. federal income tax on distributions from the
Fund. However, the Fund’s ordinary income dividends (including distributions of net short-term capital gains and other amounts
that would not be subject to U.S. withholding tax if paid directly to foreign Fund shareholders) will be subject to withholding
tax at a rate of 30% (or at a lower rate established under an applicable tax treaty) unless an exception applies. No withholding
is required with respect to certain distributions of (i) U.S. source interest income, and (ii) net short term capital gains in
excess of net long term capital losses, in each case to the extent the Fund properly reports such distributions as “interest-related
dividends” or “short-term capital gain dividends” and certain other requirements were satisfied. We anticipate
that a portion of our distributions will be eligible for this exception from withholding; however, we cannot determine what portion
of our distributions (if any) will be eligible for this exception until after the end of our taxable year. No certainty can be
provided that any of our distributions will be reported as eligible for this exception. Under current law, a Non-U.S. Shareholder
who does not hold Fund shares as part of U.S. trade or business generally is not subject to U.S. federal income tax on gain realized
on a sale or exchange of Fund shares unless (i) in the case of an individual Non-U.S. Shareholder, such shareholder is physically
present in the United States for more than 182 days during the taxable year and meets certain other requirements, or (ii) at any
time during the shorter of the period during which the Non-U.S. Shareholder held such shares of the Fund and the five-year period
ending on the date of the disposition of those shares, the Fund was a “U.S. real property holding corporation” (as
defined below) and the Non-U.S. Shareholder actually or constructively held more than 5% of the Fund shares of the same class.
In the case of a disposition described in clause (ii) of the preceding sentence, the gain would be taxed in the same manner as
for a domestic Fund shareholder and in certain cases will be collected through withholding at the source in an amount equal to
10% of the sales proceeds.
Under current law, a Non-U.S. Shareholder who does not
hold Fund shares as part of U.S. trade or business generally is not subject to U.S. federal income tax on gain realized on a sale
or exchange of Fund shares unless (i) in the case of an individual Non-U.S. Shareholder, such shareholder is physically present
in the United States for more than 182 days during the taxable year and meets certain other requirements, or (ii) at any time
during the shorter of the period during which the Non-U.S. Shareholder held such shares of the Fund and the five-year period ending
on the date of the disposition of those shares, the Fund was a “U.S. real property holding corporation” (as defined
below) and the Non-U.S. Shareholder actually or constructively held more than 5% of the Fund shares of the same class. In the
case of a disposition described in clause (ii) of the preceding sentence, the gain would be taxed in the same manner as for a
domestic Fund shareholder and in certain cases will be collected through withholding at the source in an amount equal to 10% of
the sales proceeds.
Unless treated as a “domestically-controlled”
RIC, a Fund will be a “U.S. real property holding corporation” if the fair market value of its U.S. real property
interests (which includes shares of U.S. real property holding corporations and certain participating debt securities) equals
or exceeds 50% of the fair market value of such interests plus its interests in real property located outside the United States
plus any other assets used or held for use in a business. A “domestically controlled” RIC is any RIC in which at all
times during the relevant testing period 50% or more in value of the RIC’s stock was owned by U.S. persons.
In general, if a Fund is a “U.S. real property holding
corporation,” (determined without the exception for “domestically-controlled” RICs and publicly-traded RICs)
distributions by the Fund attributable to gains from “U.S. real property interests” (including gain on the sale of
shares in certain “non-domestically controlled” REITs and certain capital gain dividends from REITs) will be treated
as income effectively connected to a trade or business within the United States, subject generally to tax at the same rates applicable
to domestic Fund shareholders and, in the case of a corporate Non-U.S. Shareholder, a “branch profits” tax at a rate
of 30% (or other applicable lower rate). Such distributions will be subject to U.S. withholding tax and will generally give rise
to an obligation on the part of the Non-U.S. Shareholder to file a U.S. federal income tax return.
Even if a Fund is treated as a U.S. real property holding
company, distributions on and sales of the Fund shares will not be treated as income effectively connected with a U.S. trade or
business in the case of a Non-U.S. Shareholder owning (for the applicable period) 5% or less (by class) of the Fund shares. Investors
are advised to consult their own tax advisers with respect to the application to their own circumstances of the above-described
rules.
Non-U.S. Shareholders should provide the Fund or the dividend
paying agent with an IRS Form W-8BEN or IRS Form W-8BEN-E or an acceptable substitute form or otherwise meets documentary evidence
requirements for establishing that it is a Non-U.S. stockholder and establishes an exemption from backup withholding. To claim
a credit or refund for any Fund-level taxes on any undistributed long-term capital gains (as discussed above) or any taxes collected
through withholding or to claim a benefit under an applicable tax treaty, a Non-U.S. Shareholder must obtain a U.S. taxpayer identification
number and may be required to file a federal income tax return even if the Non-U.S. Shareholder would not otherwise be required
to obtain a U.S. taxpayer identification number or file a U.S. income tax return.
Non-U.S. Shareholders that engage in certain “wash
sale” and/or substitute dividend payment transactions the effect of which is to avoid the receipt of distributions from
the Fund that would be treated as gain effectively connected with a United States trade or business or avoiding withholding tax
will be treated as having received such distributions. All shareholders of the Fund should consult their tax advisers regarding
the application of these rules.
Foreign Account Tax Compliance Act.
Legislation commonly referred to as the “Foreign Account Tax Compliance Act,” or “FATCA,” generally
imposes a 30% withholding tax on payments of certain types of income to foreign financial institutions (“FFIs”)
unless such FFIs (i) enter into an agreement with the U.S. Treasury to report certain required information with respect to
accounts held by U.S. persons (or held by foreign entities that have U.S. persons as substantial owners) or (ii) reside in a
jurisdiction that has entered into an intergovernmental agreement (“IGA”) with the IRS to provide such
information and are in compliance with the terms of such IGA and any implementing legislation or regulation. The types of
income subject to the tax include U.S. source interest and dividends and, after December 31, 2018, the gross proceeds from
the sale of any property that could produce U.S.-source interest or dividends. The information required to be reported
includes the identity and taxpayer identification number of each account holder that is a U.S. person and transaction
activity within the holder’s account. In addition, subject to certain exceptions, this legislation also imposes a 30%
withholding on payments to foreign entities that are not financial institutions unless the foreign entity certifies that it
does not have a greater than 10% U.S. owner or provides the withholding agent with identifying information on each greater
than 10% U.S. owner. Depending on the status of a Fund shareholder and the status of the intermediaries through which they
hold their shares, Fund shareholders could be subject to this 30% withholding tax with respect to distributions on their
shares and proceeds from the sale of their shares. Under certain circumstances, a Fund shareholder might be eligible for
refunds or credits of such taxes.
OTHER INFORMATION
The Fund is not sponsored, endorsed, sold or promoted
by the Listing Exchange. The Listing Exchange makes no representation or warranty, express or implied, to the owners of shares
or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly or the
ability of the Fund to achieve its objective. The Listing Exchange has no obligation or liability in connection with the administration,
marketing or trading of the Fund.
For purposes of the 1940 Act, the Fund is a registered
investment company, and the acquisition of shares by other registered investment companies and companies relying on an exemption
from registration as an investment company under Section 3(c)(1) or 3 (c)(7) of the 1940 Act is subject to the restrictions of
Section 12(d)(1) of the 1940 Act, except as permitted by an exemptive order that permits such otherwise restricted registered investment
companies from acquiring shares, beyond the limits, particularly on the amount and value, detailed in Section 12(d)(1) of the 1940
Act.
Shareholder inquiries may be made by writing to the Trust,
c/o USCF Advisers LLC, 1999 Harrison Street, Suite 1530, Oakland, California 94612.
