N-1A/A 1 assembled.htm

As filed with the Securities and Exchange Commission on February 28, 2007

Securities Act File No. 333-139823

Investment Company File No. 811- 22000

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-1A

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

[X]

 

 

Pre-Effective Amendment No. 1

[X]

 

 

Post-Effective Amendment No.

[   ]

 

and/or

 

 

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

[X]

 

 

Amendment No. 1

[X]

(Check appropriate box or boxes)

StateShares™, Inc.

(Exact Name of Registrant as Specified in Charter)

420 Lexington Avenue,

Suite 2626

New York, New York 10170

(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (212) 986-7900

David W. Jaffin

StateShares™, Inc.

420 Lexington Avenue, Suite 2626

New York, New York 10170

(Name and Address of Agent for Service)

Copy to:  Michael R. Rosella, Esq.

Paul, Hastings, Janofsky & Walker LLP

75 East 55th Street

New York, New York 10022

Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of the Registration Statement.

 

It is proposed that this filing will become effective: (check appropriate box)

 

[   ] 

immediately upon filing pursuant to paragraph (b)

 

[   ] 

on (date) pursuant to paragraph (b)

 

[   ] 

60 days after filing pursuant to paragraph (a) (1)

 

[   ] 

on (date) pursuant to paragraph (a) (1)

 

[   ] 

75 days after filing pursuant to paragraph (a)(2)

 

[   ] 

on (date) pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

 

[   ] 

this post-effective amendment designates a new effective date for a previously filed post-effective amendment

 

 

Registrant declares that an indefinite amount of its shares of beneficial interest is being registered by this Registration Statement pursuant to Section 24(f) under the Investment Company Act of 1940, as amended, and Rule 24f-2 thereunder.

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall became effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


 

STATESHARES™, INC.

PRELIMINARY PROSPECTUS – SUBJECT TO COMPLETION

DATED __________, 2007

PROSPECTUS

StateShares™ California 50 Exchange-Traded Fund

StateShares™ Colorado 50 Exchange-Traded Fund

StateShares™ Connecticut 50 Exchange-Traded Fund

StateShares™ Florida 50 Exchange-Traded Fund

StateShares™ Georgia 50 Exchange-Traded Fund

StateShares™ Illinois 50 Exchange-Traded Fund

StateShares™ Indiana 50 Exchange-Traded Fund

StateShares™ Maryland 50 Exchange-Traded Fund

StateShares™ Massachusetts 50 Exchange-Traded Fund

StateShares™ Michigan 50 Exchange-Traded Fund

StateShares™ Minnesota 50 Exchange-Traded Fund

StateShares™ Missouri 50 Exchange-Traded Fund

StateShares™ New Jersey 50 Exchange-Traded Fund

StateShares™ New York 50 Exchange-Traded Fund

StateShares™ North Carolina 50 Exchange-Traded Fund

StateShares™ Ohio 50 Exchange-Traded Fund

StateShares™ Pennsylvania 50 Exchange-Traded Fund

StateShares™ Tennessee 50 Exchange-Traded Fund

StateShares™ Texas 50 Exchange-Traded Fund

StateShares™ Virginia 50 Exchange-Traded Fund

StateShares™ Washington 50 Exchange-Traded Fund

StateShares™ Composite Exchange-Traded Fund

StateShares™, Inc. is an investment company with 22 series of underlying fund portfolios. Each Fund offers shares, known as StateShares™ that are listed on the New York Stock Exchange. StateShares™ are not individually redeemable by the Funds but trade on the New York Stock Exchange in individual share lots.

Information contained in this Prospectus is subject to completion or amendment. A registration statement for StateShares™, Inc. (the “Company”) has been filed with the U.S. Securities and Exchange Commission (the “SEC”) but has not yet become effective. Shares of the Company's funds (the “Funds”) may not be sold, nor may offers to buy be accepted, prior to the time the registration statement becomes effective. This communication shall not constitute an offer to sell, nor shall there be any sale of these securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

 

 

 


 

Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense.

 

 

LEGAL_US_E # 73720936.10

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TABLE OF CONTENTS

 

Page

 

INTRODUCTION

1

OVERVIEW OF THE INVESTMENT OBJECTIVES AND STRATEGIES OF THE FUNDS

5

ADDITIONAL INFORMATION ABOUT THE FUNDS, THEIR PRINCIPAL STRATEGIES
AND RELATED RISKS

117

BUYING AND SELLING FUND SHARES

121

PORTFOLIO TURNOVER RATE

124

DISTRIBUTION AND SERVICE PLAN

125

PORTFOLIO HOLDINGS

125

FUND MANAGEMENT

125

DIVIDENDS, CAPITAL GAINS, AND TAXES

127

DAILY PRICING

129

DELIVERY OF FUND DOCUMENTS

130

FINANCIAL HIGHLIGHTS

130

 

 

-i-

 

 

 


 

INTRODUCTION

This Prospectus provides important information you need to make an informed decision about whether to invest in StateShares™, Inc. (the “Company”). It contains information about the Company, each of its investment portfolios (the “Funds”) and the shares of the Funds being offered by this Prospectus, known as StateShares™. An investment in the Funds is not a deposit in a bank and it is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other governmental agency.

The Company and the Funds are part of the XShares Advisors family of exchange-traded funds and are related for purposes of investor and investment services, as defined in Section 12(d)(1)(G) of the Investment Company Act of 1940.

WHAT ARE EXCHANGE-TRADED FUNDS?

An exchange-traded fund (“ETF”) is an investment company which offers shares that are listed on a national securities exchange. Shares of ETFs, because they are listed on a stock exchange, can be traded throughout the day on that stock exchange at market-determined prices. ETFs typically invest predominantly in the securities of companies comprising an underlying index. As such, the ETF itself is an index fund.

WHAT IS STATESHARES™, INC.?

StateShares™, Inc. is an investment company with 22 series of underlying fund portfolios. Each Fund offers shares, known as StateShares™ that are listed on the New York Stock Exchange (“NYSE”). StateShares™ are not individually redeemable by the Funds but trade on the NYSE in individual share lots. Each Fund seeks to invest in a portfolio of securities that substantially replicates a particular benchmark index (the “Underlying Index”). XShares Advisors LLC (the “Advisor”) serves as the investment advisor to each Fund.

WHAT ARE THE UNDERLYING INDEXES AND HOW ARE THEY CREATED AND MAINTAINED?

The Underlying Indexes are designed to track various geographic sub-sectors of the economy and serve as (i) performance benchmarks for portfolio managers and investors who invest in securities of these issuers, (ii) performance yardsticks for issuers in these geographic areas, and (iii) vehicles for directing attention to regional investments and allocations within the U.S. economy. Each Fund focuses on a different geographic index. XShares Group LLC (“XG”), the parent of the Advisor, is the creator of the StateShares™ Indexes.

 


 

The Underlying Indexes have been designed geographically in each of the following areas:

1)

California

2)

Colorado

3)

Connecticut

4)

Florida

5)

Georgia

6)

Illinois

7)

Indiana

8)

Maryland

9)

Massachusetts

10)

Michigan

11)

Minnesota

12)

Missouri

13)

New Jersey

14)

New York

15)

North Carolina

16)

Ohio

17)

Pennsylvania

18)

Tennessee

19)

Texas

20)

Virginia

21)

Washington

22)

Composite

Each Fund is focused on one of these geographical indexes and will provide both institutional and retail investors with the ability to invest in some of the largest companies within each represented state. Based on its own proprietary intellectual model, XG has established specific, defined characterization/inclusion/exclusion criteria (the “Index Methodology”) that an issuer must meet in order to be included in an Underlying Index. Each Underlying Index will be administered by Standard & Poor’s, the Index Administrator, which will employ the Index Methodology to determine the composition of each Underlying Index. BNY Investment Advisors acts as the investment sub-advisor to the Funds and will be responsible for the day-to day management of each Fund’s portfolio, which involves principally reconfiguring the portfolio of each Fund, typically annually, to reflect any reconfiguration in the Underlying Index by the Index Administrator.

When determining the composition of each Underlying Index, the Index Administrator first looks for publicly traded companies with securities listed on a major national securities exchange and with market capitalizations greater than $100 million for at least two of the three preceding quarters. The top 50 companies by market capitalization with both positive income and positive revenue growth over the past year are included in the Index. If there are not 50 companies with both positive revenue and positive income growth, then companies with the largest market capitalization and positive revenue growth over the past year are included until 50 companies are contained in the Index. For each Underlying Index (except for the Composite Index), the universe of eligible securities includes only companies with headquarters in the state indicated in the name of its Underlying Index. The Composite Index is comprised of the largest 500

 

 

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companies, determined by market capitalization, taken from a non-duplicative list of all companies eligible for inclusion in the state-specific Underlying Indices. The Index Methodology is publicly available on the Funds’ website at www.StateSharesinc.com. Any change to the Index Methodology will be posted on the Funds’ website at least 60 days prior to its being implemented.

 

Companies selected for inclusion in an Underlying Index are weighted according to XG’s proprietary weighting system. Each company represented in the Index is assigned a weight factor based upon total employees. Companies with more employees are assigned higher weighting than companies with fewer employees. The portfolio is reconstituted annually at which time some or all of the constituents may change and at which time the weightings of individual securities in the Index are changed to reflect the changes in market price of individual component securities. Securities added to an Index after its inception are weighted to the same level as the securities it replaced. Information about each Underlying Index, including the component securities in each Underlying Index and value of the securities in each Underlying Index are posted throughout the trading day every 15 seconds and are available through Reuters under the following symbols:

S&P Custom/StateShares™ California 50 Index

 

S&P Custom/StateShares™ Colorado Index

 

S&P Custom/StateShares™ Connecticut 50 Index

 

S&P Custom/StateShares™ Florida 50 Index

 

S&P Custom/StateShares™ Georgia 50 Index

 

S&P Custom/StateShares™ Illinois 50 Index

 

S&P Custom/StateShares™ Indiana 50 Index

 

S&P Custom/StateShares™ Maryland 50 Index

 

S&P Custom/StateShares™ Massachusetts 50 Index

 

S&P Custom/StateShares™ Michigan 50 Index

 

S&P Custom/StateShares™ Minnesota 50 Index

 

S&P Custom/StateShares™ Missouri 50 Index

 

S&P Custom/StateShares™ New Jersey 50 Index

 

S&P Custom/StateShares™ New York 50 Index

 

S&P Custom/StateShares™ North Carolina 50 Index

 

S&P Custom/StateShares™ Ohio 50 Index

 

S&P Custom/StateShares™ Pennsylvania 50 Index

 

S&P Custom/StateShares™ Tennessee 50 Index

 

S&P Custom/StateShares™ Texas 50 Index

 

S&P Custom/StateShares™ Virginia 50 Index

 

S&P Custom/StateShares™ Washington 50 Index

 

 

S&P Custom/StateShares™ Composite Index

 

 

 

 

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HOW ARE STATESHARES™ DIFFERENT FROM TRADITIONAL MUTUAL FUND SHARES?

Traditional mutual fund shares are issued by, and redeemed from, a fund at any time for cash at the shares’ net asset value (NAV). NAV is typically calculated only once a day and reflects a fund’s total assets, less its liabilities, divided by the number of shares it has outstanding. In determining the value of its assets, a traditional mutual fund typically values its underlying securities as of the close of trading on the NYSE. As a result, no matter what time during the day an investor in a traditional mutual fund places an order to purchase or redeem shares, that investor’s order will be priced at that fund’s NAV determined as of the close of trading of the NYSE. Traditional mutual fund shares may be purchased from the fund directly by the shareholder or through a financial intermediary.

In contrast, StateShares™ cannot be purchased from, or redeemed by, the issuing Fund except by or through a Participating Organization (defined below), and then only for an in-kind basket of securities. An organized secondary market is expected to exist for the StateShares™, unlike traditional mutual fund shares, because StateShares™ are listed for trading on the NYSE. As a result, investors can purchase and sell StateShares™ on the secondary market through a broker. Secondary-market transactions do not take place at NAV but at market prices that change throughout the day, based on the supply of, and demand for, StateShares™. Shareholders will also incur typically brokerage and transaction costs when buying or selling StateShares™ on the secondary market.

Although the market price of StateShares™ typically approximates its NAV, there may be times when the market price and the NAV differ, so you may receive more or less than NAV when you sell your StateShares™ on the secondary market. Also, it is possible that an active trading market may not be maintained.

BUYING AND SELLING YOUR STATESHARES™

Each Fund issues and redeems shares only in lots of 100,000 shares. These lots are known as Creation Units. To purchase or redeem a Creation Unit, you must be a Participating Organization or you must do so through a broker that is a Participating Organization. A Participating Organization is a firm that is either a member of the Continuous Net Settlement System of the National Securities Clearing Corporation (NSCC) or a Depository Trust Company (DTC) participant that has executed a Participant Agreement with the Funds’ distributor, [ ] (the “Distributor”). The Distributor will provide a list of Participating Organizations upon request. Because Creation Units can be purchased or redeemed only in exchange for a basket of securities likely to cost millions of dollars, it is expected that only a limited number of institutional investors will purchase and redeem shares directly with the Funds. Thus, certain information in this Prospectus (e.g., information about purchasing and redeeming StateShares™ directly from a Fund and references to transaction fees imposed on purchases and redemptions of Creation Units) is not relevant to most retail investors. These arrangements are designed to protect shareholders of the Funds from the potentially adverse effects that may be caused by the need to make frequent purchases and sales of portfolio securities as a result of cash inflows and outflows, as experienced in a traditional mutual fund. For example, in a traditional mutual fund,

 

 

4

 

 

 


 

redemptions can result in adverse tax consequences on non-redeeming taxable shareholders because the mutual fund must sell portfolio securities to raise cash to pay redemptions. These sales may generate taxable capital gains which are then distributed to all shareholders, including non-redeeming shareholders. In contrast, the in-kind redemption mechanism of the Funds will enable the Funds to meet redemption requests without the need to sell portfolio securities and, as a result, redemptions from the Funds will generally not have any tax impact on the non-redeeming shareholders. EXCEPT WHEN AGGREGATED IN CREATION UNITS, STATESHARES™ ARE NOT REDEEMABLE SECURITIES OF THE FUNDS.

Any investor may purchase StateShares™ on the secondary market through a broker. StateShares™ are publicly traded on the NYSE. To acquire StateShares™, you must have a brokerage account. If you want to sell StateShares™, you must do so through your broker. When you buy or sell StateShares™ on the secondary market, your broker will charge a commission. In addition, because secondary-market transactions occur at market prices, you may pay more than NAV when you buy StateShares™, and receive less than NAV when you sell those StateShares™.

OVERVIEW OF THE INVESTMENT OBJECTIVES AND STRATEGIES OF THE FUNDS

Each Fund’s investment objective is to seek to track the performance, before fees and expenses, of a particular Underlying Index. The Advisor uses a passive, or indexing, approach in managing the Funds. Unlike many mutual funds, the Funds do not seek to outperform any particular market sector and will not assume temporary defensive positions when markets decline or appear overvalued. Each Fund will invest at least 90% of its assets in the common stocks of companies in the Underlying Index. Because each Underlying Index, with the exception of StateShares™ Composite Index, is comprised only of stocks as indicated by its name (e.g., only “Indiana ” companies are contained in the S&P Custom/StateShares™ Indiana 50 Index), this means that each Fund will invest at least 90% of its assets in such companies. The Funds will provide shareholders with at least 60 days’ notice of any change in these policies. Each Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the Investment Company Act of 1940, as amended (the “1940 Act”)). Each Fund will attempt to replicate the Underlying Index by matching the weighting of securities in its portfolio with such securities’ weightings in the Underlying Index. In managing the Funds, the Advisor seeks a correlation of 0.95 or better between each Fund’s performance and the performance of the Underlying Index. A figure of 1.00 would represent perfect correlation. There is no guarantee that the Advisor will be able to obtain this level of correlation.

From time to time, it may not be possible, for regulatory or other legal reasons, to replicate the Underlying Index and in such cases the Advisor may pursue a sampling strategy in managing the portfolio. Pursuant to this strategy, a Fund may invest the remainder of its assets in securities of companies not included in an Underlying Index if the Advisor believes that such securities will assist the Fund in tracking the Underlying Index. If a Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of the companies in the

 

 

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Underlying Index. See “Additional Information About The Funds, Their Principal Strategies And Related Risks” for more information about the use of a sampling strategy.

Limitations and restrictions on the level of investment in securities that are discussed in this Prospectus and that are expressed in terms of percentage limitations are measured at the time of investment, unless specifically indicated otherwise. Changes in market values that cause a percentage limitation to be exceeded will not necessarily require that securities be sold.

The following is a summary of the principal investment policies, strategies and risks of each of the Funds. Further information about the Funds and their risks can be found in “Additional Information About the Funds, Their Principal Strategies and Related Risks” in this Prospectus and in the Statement of Additional Information.

 

 

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StateShares™ California 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ California 50 Index (_______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ California 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ California 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “California” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ California 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ California 50 Index. A California company is a company whose headquarters is located in California.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of California companies, this means that the Fund will invest at least 90% of its assets in California companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

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PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in California. These companies may also generate significant revenue from, and conduct a significant amount of business within, California. As a result, these companies may be impacted by events and conditions impacting California and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in California could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in California may be national or international in nature and may therefore generate a

 

 

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substantial, or even a predominant, amount of its business and revenue from outside California. These companies may be impacted to a significant degree by events and conditions in those areas outside of California where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.  

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold California StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

 

 

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1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $_________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.* The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

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1 YEAR

3 YEARS

$___

$___

 

 

 

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StateShares™ Colorado 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Colorado 50 Index (_______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Colorado 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Colorado 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Colorado” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Colorado 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Colorado 50 Index. A Colorado company is a company whose headquarters is located in Colorado.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Colorado companies, this means that the Fund will invest at least 90% of its assets in Colorado companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

12

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Colorado. These companies may also generate significant revenue from, and conduct a significant amount of business within, Colorado. As a result, these companies may be impacted by events and conditions impacting Colorado and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Colorado could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Colorado may be national or international in nature and may therefore generate a substantial, or even a

 

 

13

 

 

 


 

predominant, amount of its business and revenue from outside Colorado. These companies may be impacted to a significant degree by events and conditions in those areas outside of Colorado where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.  

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Colorado StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

 

 

14

 

 

 


 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $_________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

15

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

16

 

 

 


 

StateShares™ Connecticut 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Connecticut 50 Index (_______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Connecticut 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Connecticut 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Connecticut” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Connecticut 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Connecticut 50 Index. A Connecticut company is a company whose headquarters is located in Connecticut.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Connecticut 50 companies, this means that the Fund will invest at least 90% of its assets in Connecticut 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act. The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

17

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Connecticut. These companies may also generate significant revenue from, and conduct a significant amount of business within, Connecticut. As a result, these companies may be impacted by events and conditions impacting Connecticut and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Connecticut could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Connecticut may be national or international in nature and may therefore generate a

 

 

18

 

 

 


 

substantial, or even a predominant, amount of its business and revenue from outside Connecticut. These companies may be impacted to a significant degree by events and conditions in those areas outside of Connecticut where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.  

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Connecticut StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

 

 

19

 

 

 


 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $__________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $__________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

20

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

21

 

 

 


 

StateShares™ Florida 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Florida 50 Index (______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Florida 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Florida 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Florida” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Florida 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Florida 50 Index. A Florida company is a company whose headquarters is located in Florida.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Florida 50 companies, this means that the Fund will invest at least 90% of its assets in Florida 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

22

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Florida. These companies may also generate significant revenue from, and conduct a significant amount of business within, Florida. As a result, these companies may be impacted by events and conditions impacting Florida and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Florida could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Florida may be national or international in nature and may therefore generate a substantial, or even a

 

 

23

 

 

 


 

predominant, amount of its business and revenue from outside Florida. These companies may be impacted to a significant degree by events and conditions in those areas outside of Florida where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.   

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Florida StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of

 

 

24

 

 

 


 

 

$500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $_________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

25

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

26

 

 

 


 

StateShares™ Georgia 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Georgia 50 Index (______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Georgia 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Georgia 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Georgia” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Georgia 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Georgia 50 Index. A Georgia company is a company whose headquarters is located in Georgia.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Georgia 50 companies, this means that the Fund will invest at least 90% of its assets in Georgia 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

27

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Georgia. These companies may also generate significant revenue from, and conduct a significant amount of business within, Georgia. As a result, these companies may be impacted by events and conditions impacting Georgia and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Georgia could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Georgia may be national or international in nature and may therefore generate a substantial, or even a

 

 

28

 

 

 


 

predominant, amount of its business and revenue from outside Georgia. These companies may be impacted to a significant degree by events and conditions in those areas outside of Georgia where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.  

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Georgia StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of

 

 

29

 

 

 


 

 

$500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $_________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

30

 

 

 


 

 

1 YEAR

3 YEARS

$___

$___

 

 

 

31

 

 

 


 

StateShares™ Illinois 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Illinois 50 Index (______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Illinois 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Illinois 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Illinois” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Illinois 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Illinois 50 Index. An Illinois company is a company whose headquarters is located in Illinois.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Illinois 50 companies, this means that the Fund will invest at least 90% of its assets in Illinois 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

32

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Illinois. These companies may also generate significant revenue from, and conduct a significant amount of business within, Illinois. As a result, these companies may be impacted by events and conditions impacting Illinois and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Illinois could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Illinois may be national or international in nature and may therefore generate a substantial, or even a

 

 

33

 

 

 


 

predominant, amount of its business and revenue from outside Illinois. These companies may be impacted to a significant degree by events and conditions in those areas outside of Illinois where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.   

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Illinois StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of

 

 

34

 

 

 


 

 

$500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $__________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $__________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

35

 

 

 


 

 

1 YEAR

3 YEARS

$___

$___

 

 

 

36

 

 

 


 

StateShares™ Indiana 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Indiana 50 Index (______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Indiana 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Indiana 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Indiana” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Indiana 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Indiana 50 Index. An Indiana company is a company whose headquarters is located in Indiana.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Indiana 50 companies, this means that the Fund will invest at least 90% of its assets in Indiana 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

37

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Indiana. These companies may also generate significant revenue from, and conduct a significant amount of business within, Indiana. As a result, these companies may be impacted by events and conditions impacting Indiana and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Indiana could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Indiana may be national or international in nature and may therefore generate a substantial, or even a

 

 

38

 

 

 


 

predominant, amount of its business and revenue from outside Indiana. These companies may be impacted to a significant degree by events and conditions in those areas outside of Indiana where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.   

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Indiana StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of

 

 

39

 

 

 


 

 

$500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $__________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $__________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

40

 

 

 


 

 

1 YEAR

3 YEARS

$___

$___

 

 

 

41

 

 

 


 

StateShares™ Maryland 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Maryland 50 Index (______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Maryland 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Maryland 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Maryland” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Maryland 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Maryland 50 Index. A Maryland company is a company whose headquarters is located in Maryland.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Maryland 50 companies, this means that the Fund will invest at least 90% of its assets in Maryland 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act. The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

42

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Maryland. These companies may also generate significant revenue from, and conduct a significant amount of business within, Maryland. As a result, these companies may be impacted by events and conditions impacting Maryland and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Maryland could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Maryland may be national or international in nature and may therefore generate a

 

 

43

 

 

 


 

substantial, or even a predominant, amount of its business and revenue from outside Maryland. These companies may be impacted to a significant degree by events and conditions in those areas outside of Maryland where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.   

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Maryland StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

 

 

44

 

 

 


 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $__________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $__________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

45

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

46

 

 

 


 

StateShares™ Massachusetts 50 Exchange-Traded Fund

Trading Symbol:

      

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Massachusetts 50 Index (_______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Massachusetts 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Massachusetts 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Massachusetts” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Massachusetts 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Massachusetts 50 Index. A Massachusetts company is a company whose headquarters is located in Massachusetts.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Massachusetts 50 companies, this means that the Fund will invest at least 90% of its assets in Massachusetts 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

47

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Massachusetts. These companies may also generate significant revenue from, and conduct a significant amount of business within, Massachusetts. As a result, these companies may be impacted by events and conditions impacting Massachusetts and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Massachusetts could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Massachusetts may be national or international in nature and may therefore generate a

 

 

48

 

 

 


 

substantial, or even a predominant, amount of its business and revenue from outside Massachusetts. These companies may be impacted to a significant degree by events and conditions in those areas outside of Massachusetts where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.   

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Massachusetts StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

 

 

49

 

 

 


 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $_________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

50

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

51

 

 

 


 

StateShares™ Michigan 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Michigan 50 Index (______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Michigan 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Michigan 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Michigan” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Michigan 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Michigan 50 Index. A Michigan company is a company whose headquarters is located in Michigan.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Michigan 50 companies, this means that the Fund will invest at least 90% of its assets in Michigan 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

52

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Michigan. These companies may also generate significant revenue from, and conduct a significant amount of business within, Michigan. As a result, these companies may be impacted by events and conditions impacting Michigan and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Michigan could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Michigan may be national or international in nature and may therefore generate a substantial, or

 

 

53

 

 

 


 

even a predominant, amount of its business and revenue from outside Michigan. These companies may be impacted to a significant degree by events and conditions in those areas outside of Michigan where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.   

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Michigan StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

 

 

54

 

 

 


 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $_________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

55

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

56

 

 

 


 

StateShares™ Minnesota 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Minnesota 50 Index (_______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Minnesota 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Minnesota 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Minnesota” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Minnesota 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Minnesota 50 Index. A Minnesota company is a company whose headquarters is located in Minnesota.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Minnesota 50 companies, this means that the Fund will invest at least 90% of its assets in Minnesota 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

57

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Minnesota. These companies may also generate significant revenue from, and conduct a significant amount of business within, Minnesota. As a result, these companies may be impacted by events and conditions impacting Minnesota and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Minnesota could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Minnesota may be national or international in nature and may therefore generate a

 

 

58

 

 

 


 

substantial, or even a predominant, amount of its business and revenue from outside Minnesota. These companies may be impacted to a significant degree by events and conditions in those areas outside of Minnesota where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.   

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Minnesota StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

 

 

59

 

 

 


 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $_________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

60

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

61

 

 

 


 

StateShares™ Missouri 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Missouri 50 Index (_______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Missouri 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Missouri 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Missouri” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Missouri 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Missouri 50 Index. A Missouri company is a company whose headquarters is located in Missouri.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Missouri 50 companies, this means that the Fund will invest at least 90% of its assets in Missouri 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

62

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Missouri. These companies may also generate significant revenue from, and conduct a significant amount of business within, Missouri. As a result, these companies may be impacted by events and conditions impacting Missouri and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Missouri could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Missouri may be national or international in nature and may therefore generate a substantial, or even a

 

 

63

 

 

 


 

predominant, amount of its business and revenue from outside Missouri. These companies may be impacted to a significant degree by events and conditions in those areas outside of Missouri where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.   

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Missouri StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

 

 

64

 

 

 


 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $_________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

65

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

66

 

 

 


 

StateShares™ New Jersey 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ New Jersey 50 Index (______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ New Jersey 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ New Jersey 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “New Jersey” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ New Jersey 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ New Jersey 50 Index. A New Jersey company is a company whose headquarters is located in New Jersey.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of New Jersey 50 companies, this means that the Fund will invest at least 90% of its assets in New Jersey 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

67

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in New Jersey. These companies may also generate significant revenue from, and conduct a significant amount of business within, New Jersey. As a result, these companies may be impacted by events and conditions impacting New Jersey and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in New Jersey could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in New Jersey may be national or international in nature and may therefore generate a

 

 

68

 

 

 


 

substantial, or even a predominant, amount of its business and revenue from outside New Jersey. These companies may be impacted to a significant degree by events and conditions in those areas outside of New Jersey where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.   

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold New Jersey StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

 

 

69

 

 

 


 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $_________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

70

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

71

 

 

 


 

StateShares™ New York 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ New York 50 Index (______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ New York 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ New York 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “New York” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ New York 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ New York 50 Index. A New York company is a company whose headquarters is located in New York.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of New York 50 companies, this means that the Fund will invest at least 90% of its assets in New York 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

72

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in New York. These companies may also generate significant revenue from, and conduct a significant amount of business within, New York. As a result, these companies may be impacted by events and conditions impacting New York and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in New York could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in New York may be national or international in nature and may therefore generate a

 

 

73

 

 

 


 

substantial, or even a predominant, amount of its business and revenue from outside New York. These companies may be impacted to a significant degree by events and conditions in those areas outside of New York where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.   

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold New York StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

 

 

74

 

 

 


 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $_________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

75

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

76

 

 

 


 

StateShares™ North Carolina 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ North Carolina 50 Index (______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ North Carolina 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ North Carolina 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “North Carolina” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ North Carolina 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ North Carolina 50 Index. A North Carolina company is a company whose headquarters is located in North Carolina.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of North Carolina 50 companies, this means that the Fund will invest at least 90% of its assets in North Carolina 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

77

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in North Carolina. These companies may also generate significant revenue from, and conduct a significant amount of business within, North Carolina. As a result, these companies may be impacted by events and conditions impacting North Carolina and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in North Carolina could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in North Carolina may be national or international in nature and may therefore generate a

 

 

78

 

 

 


 

substantial, or even a predominant, amount of its business and revenue from outside North Carolina. These companies may be impacted to a significant degree by events and conditions in those areas outside of North Carolina where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.   

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold North Carolina StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

 

 

79

 

 

 


 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $_________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

80

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

81

 

 

 


 

StateShares™ Ohio 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Ohio 50 Index (______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Ohio 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Ohio 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Ohio” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Ohio 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Ohio 50 Index. An Ohio company is a company whose headquarters is located in Ohio.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Ohio 50 companies, this means that the Fund will invest at least 90% of its assets in Ohio 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

82

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Ohio. These companies may also generate significant revenue from, and conduct a significant amount of business within, Ohio. As a result, these companies may be impacted by events and conditions impacting Ohio and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Ohio could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Ohio may be national or international in nature and may therefore generate a substantial, or even a

 

 

83

 

 

 


 

predominant, amount of its business and revenue from outside Ohio. These companies may be impacted to a significant degree by events and conditions in those areas outside of Ohio where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.   

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Ohio StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

 

 

84

 

 

 


 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ SHARES IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $__________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $__________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

85

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

86

 

 

 


 

StateShares™ Pennsylvania 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Pennsylvania 50 Index (_______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Pennsylvania 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Pennsylvania 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Pennsylvania” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Pennsylvania 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Pennsylvania 50 Index. A Pennsylvania company is a company whose headquarters is located in Pennsylvania.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Pennsylvania 50 companies, this means that the Fund will invest at least 90% of its assets in Pennsylvania 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

87

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Pennsylvania. These companies may also generate significant revenue from, and conduct a significant amount of business within, Pennsylvania. As a result, these companies may be impacted by events and conditions impacting Pennsylvania and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Pennsylvania could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Pennsylvania may be national or international in nature and may therefore generate a

 

 

88

 

 

 


 

substantial, or even a predominant, amount of its business and revenue from outside Pennsylvania. These companies may be impacted to a significant degree by events and conditions in those areas outside of Pennsylvania where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.   

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Pennsylvania StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

 

 

89

 

 

 


 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $_________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

90

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

91

 

 

 


 

StateShares™ Tennessee 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Tennessee 50 Index (_________)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Tennessee 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Tennessee 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Tennessee” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Tennessee 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Tennessee 50 Index. A Tennessee company is a company whose headquarters is located in Tennessee.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Tennessee 50 companies, this means that the Fund will invest at least 90% of its assets in Tennessee 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

92

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Tennessee. These companies may also generate significant revenue from, and conduct a significant amount of business within, Tennessee. As a result, these companies may be impacted by events and conditions impacting Tennessee and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Tennessee could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Tennessee may be national or international in nature and may therefore generate a

 

 

93

 

 

 


 

substantial, or even a predominant, amount of its business and revenue from outside Tennessee. These companies may be impacted to a significant degree by events and conditions in those areas outside of Tennessee where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.  

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Tennessee StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

 

 

94

 

 

 


 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $_________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

95

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

96

 

 

 


 

StateShares™ Texas 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Texas 50 Index (_______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Texas 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Texas 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Texas” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Texas 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Texas 50 Index. A Texas company is a company whose headquarters is located in Texas.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Texas 50 companies, this means that the Fund will invest at least 90% of its assets in Texas 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

97

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Texas. These companies may also generate significant revenue from, and conduct a significant amount of business within, Texas. As a result, these companies may be impacted by events and conditions impacting Texas and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Texas could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Texas may be national or international in nature and may therefore generate a substantial, or even a

 

 

98

 

 

 


 

predominant, amount of its business and revenue from outside Texas. These companies may be impacted to a significant degree by events and conditions in those areas outside of Texas where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.  

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Texas StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of

 

 

99

 

 

 


 

 

$500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $__________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $_________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $__________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

100

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

101

 

 

 


 

StateShares™ Virginia 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Virginia 50 Index (______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Virginia 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Virginia 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Virginia” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Virginia 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Virginia 50 Index. A Virginia company is a company whose headquarters is located in Virginia.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Virginia 50 companies, this means that the Fund will invest at least 90% of its assets in Virginia 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

102

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Virginia. These companies may also generate significant revenue from, and conduct a significant amount of business within, Virginia. As a result, these companies may be impacted by events and conditions impacting Virginia and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Virginia could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Virginia may be national or international in nature and may therefore generate a substantial, or even a

 

 

103

 

 

 


 

predominant, amount of its business and revenue from outside Virginia. These companies may be impacted to a significant degree by events and conditions in those areas outside of Virginia where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.   

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Virginia StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of

 

 

104

 

 

 


 

 

$500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $__________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $_________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $__________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

105

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

106

 

 

 


 

StateShares™ Washington 50 Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Washington 50 Index (______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Washington 50 Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Washington 50 Index, an index of issuers that meet certain revenue and income criteria and that have been identified as “Washington” companies by the Index Administrator and therefore are included in the S&P Custom/StateShares™ Washington 50 Index. Only companies with market capitalizations greater than $100 million for at least two of the preceding three quarters are eligible for inclusion in the S&P Custom/StateShares™ Washington 50 Index. A Washington company is a company whose headquarters is located in Washington.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Washington 50 companies, this means that the Fund will invest at least 90% of its assets in Washington 50 companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

 

 

107

 

 

 


 

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of companies whose headquarters or principal place of business are located in Washington. These companies may also generate significant revenue from, and conduct a significant amount of business within, Washington. As a result, these companies may be impacted by events and conditions impacting Washington and its economy to a greater extent than a company whose headquarters or principal place of business is not located in that state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in Washington could significantly affect companies doing business in that State.  To the extent the Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in Washington may be national or international in nature and may therefore generate a

 

 

108

 

 

 


 

substantial, or even a predominant, amount of its business and revenue from outside Washington. These companies may be impacted to a significant degree by events and conditions in those areas outside of Washington where significant amounts of its business or revenue are generated. See the Statement of Additional Information, “State-Specific Risk Factors,” for a summary of some of the more specific risk factors associated with investing in the Fund.  

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold Washington StateShares™. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

 

 

 

109

 

 

 


 

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $__________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of the number of Creation Unit shares redeemed.( The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $_________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $__________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

 

110

 

 

 


 

1 YEAR

3 YEARS

$___

$___

 

 

 

111

 

 

 


 

StateShares™ Composite Exchange-Traded Fund

Trading Symbol:

 

CUSIP Number:

 

Underlying Index (Symbol):

S&P Custom/StateShares™ Composite Index (_______)

Inception Date:

[To Be Determined]

INVESTMENT OBJECTIVE

The Fund seeks to track the performance, before fees and expenses, of the S&P Custom/StateShares™ Composite Index. The Fund’s investment objective is not fundamental and may be changed without shareholder approval. Shareholders will be given 60 days notice of any change in investment objective.

PRINCIPAL INVESTMENT STRATEGIES

The Fund employs a “passive management” investment strategy designed to track the performance of the S&P Custom/StateShares™ Composite Index, an index of the 500 largest companies by market capitalization that are part of the following Indices; the S&P Custom/StateShares™ California 50 Index, the S&P Custom/StateShares™ Colorado 50 Index, the S&P Custom/StateShares™ Connecticut 50 Index, the S&P Custom/StateShares™ Florida 50 Index, the S&P Custom/StateShares™ Georgia 50 Index, the S&P Custom/StateShares™ Illinois 50 Index, the S&P Custom/StateShares™ Indiana 50 Index, the S&P Custom/StateShares™ Maryland 50 Index, the S&P Custom/StateShares™ Massachusetts 50 Index, the S&P Custom/StateShares™ Michigan 50 Index, the S&P Custom/StateShares™ Minnesota 50 Index, the S&P Custom/StateShares™ Missouri 50 Index, the S&P Custom/StateShares™ New Jersey 50 Index, the S&P Custom/StateShares™ New York 50 Index, the S&P Custom/StateShares™ North Carolina 50 Index, the S&P Custom/StateShares™ Ohio 50 Index, the S&P Custom/StateShares™ Pennsylvania 50 Index, the S&P Custom/StateShares™ Tennessee 50 Index, the S&P Custom/StateShares™ Texas 50 Index, the S&P Custom/StateShares™ Virginia 50 Index and the S&P Custom/StateShares™ Washington 50 Index.

 

As its primary strategy, the Fund attempts to replicate the Underlying Index by investing substantially all of its assets in the stocks that make up the Underlying Index, holding each stock in approximately the same proportion as its weighting in the Underlying Index. The Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because the Underlying Index is comprised of only stocks of Composite companies, this means that the Fund will invest at least 90% of its assets in Composite companies, as discussed above. The Fund will provide shareholders with at least 60 days’ notice of any change in these policies. The Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents, such as money market instruments (subject to applicable limitations of the 1940 Act). The Fund may also sample, rather than replicate, the Underlying Index by holding stocks that, in the aggregate, are intended to approximate the Underlying Index in terms of key characteristics, such as price/earnings ratio, earnings growth, and dividend yield. If the Fund

 

 

112

 

 

 


 

pursues a sampling strategy, it will continue to invest at least 90% of its assets in the common stocks of companies in the Underlying Index.

PRINCIPAL RISKS

The Fund is subject to certain risks. Certain of these risks are described below. For a more detailed discussion of some of these risks, see “Additional Information Regarding the Funds, their Principal Strategies and Related Risks” below.

The Fund is subject to stock market risk, which is the risk that stock prices overall will decline over a given period of time. The Fund’s total return, like stock prices generally, will fluctuate within a wide range, so an investor could lose money over short or even long periods. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

The Fund is subject to index risk, which is the risk that stocks in the Underlying Index may under-perform fixed income investments or stock market investments that track other markets, segments or sectors. The Advisor does not actively manage the Fund and therefore does not attempt to analyze, quantify or control the risks associated with investing in stocks of companies in the Underlying Index.

The Fund is subject to investment style risk, which is the risk that, to the extent that the Fund’s assets are invested in small- and mid-capitalization stocks, the returns from these small- and mid-capitalization stocks will trail returns from the overall stock market. Historically, these stocks have been more volatile in price than the large-capitalization stocks.

The Fund is subject to index sampling risk, which is the risk that, when employing a sampling strategy, the stocks held by the Fund will not provide investment performance tracking the Underlying Index.

The Fund is subject to market price risk, which is the risk associated with the fact that the StateShares™ are listed on the New York Stock Exchange (NYSE) and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell StateShares™.

The Fund may be subject to geographic concentration risk. The Fund will invest substantially all of its assets in the securities of the 500 largest companies by market capitalization contained in the state designated StateShares™ Indices. This may result from time to time in the Fund investing a significant portion of its portfolio in the securities of companies with headquarters located in a particular State. These companies may also generate significant revenue from, and conduct a significant amount of business within, that State. As a result, these companies may be impacted by events and conditions impacting that State and its economy to a greater extent than a company

 

 

113

 

 

 


 

whose headquarters or principal place of business is not located in that State. For example, political and economic conditions and changes in regulatory, tax, or economic policy in a state could significantly affect companies doing business in that State. However, companies whose headquarters or principal place of business are located in a particular State may be national or international in nature and may therefore generate a substantial, or even a predominant, amount of its business and revenue form outside that State. These companies may be impacted to a significant degree by events and conditions in those areas outside of the State where significant amounts of its business or revenue are generated. See the Statement of Additional Information for a more thorough discussion of some of the risks associated with investing in companies headquartered in a particular state.

The Fund is subject to secondary market risk. Although the StateShares™ are listed for trading on the NYSE, it is possible that an active trading market may not be maintained. Trading of the StateShares™ on the NYSE may be halted if NYSE officials deem such action appropriate, if the StateShares™ are delisted from the NYSE or if the activation of market-wide “circuit breakers” halts stock trading generally. See “More Information About the Funds’ Principal Risks – Secondary Market Risks” of this Prospectus for further information regarding the secondary market risks associated with investing in the Fund.

The Fund is subject to derivatives risk, which is the risk associated with stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes.

PERFORMANCE INFORMATION

The Fund has not yet begun operations, so performance information is not available.

FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and hold StateShares™ Composite shares in the Fund. Transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Operating Expenses are expressed as a percentage of average daily net assets and are based upon estimated amounts for the current fiscal year.

SHAREHOLDER FEES
(fees paid directly from your investment)

 

 

 

Sales Charge (Load) Imposed on Purchases:

None

Transaction Fee on Purchases and Redemptions:

Varies1

 

 

 

ANNUAL FUND OPERATING EXPENSES
(expenses deducted from the Fund’s assets)

 

 

 

 

114

 

 

 


 

 

 

 

Management Fee2:

______%

12b-1 Distribution Fee3:

.25%

Other Expenses4:

______%

TOTAL ANNUAL FUND OPERATING EXPENSES:

______%

 

1 An investor purchasing or redeeming Creation Units of the Fund will pay to the Fund a transaction fee of $500, plus an additional fee of up to $2,500 if the investor does not create or redeem through the NSCC (for a total of up to $3,000). An investor buying or selling the Fund in the secondary market will pay a commission to his broker in an amount established by the broker. Investors who hold Creation Units will also pay the annual fund operating expenses described in the table above.

2 The Fund pays the Advisor a single, unified management fee for arranging for certain non-distribution related services necessary for the Fund to operate. For more information about the unified management fee, see “Investment Advisor” under “Fund Management”.

3 The Fund has adopted a Distribution and Service (12b-1) Plan pursuant to which payments of up to .25% of average daily net assets may be made by the Fund. The Board of Directors of the Fund has determined that no such payments will be made for the twelve month period following commencement of operations.

4Other Expenses” are based on estimated amounts for the current fiscal year.

The Fund sells and redeems StateShares™ only in Creation Units and principally on an in-kind basis for portfolio securities of the Underlying Index. STATESHARES™ IN LESS THAN CREATION UNIT AGGREGATIONS ARE NOT REDEEMABLE. The following example is intended to help retail investors compare the cost of investing in the Fund with the cost of investing in other funds. It illustrates the hypothetical expenses that such investors would incur over various periods if they invest $10,000 in the Fund. The example assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example does not include the brokerage commissions that retail investors will pay to buy and sell StateShares™. It also does not include the transaction fees on purchases and redemptions of Creation Units, because these fees will not be imposed on retail investors.

1 YEAR

3 YEARS

$___

$___

 

These examples should not be considered to represent actual expenses or performance from the past or for the future. Actual future expenses may be higher or lower than those shown.

CREATION UNIT TRANSACTIONS FEES AND REDEMPTION TRANSACTION FEES

The Fund issues and redeems shares at NAV and only in Creation Unit blocks of 100,000. As a practical matter, only institutions or large investors purchase or redeem Creation Units. A standard Creation Unit transaction fee of $_________ is charged for each purchase of Creation Units, regardless of the number of Creation Unit shares acquired. An investor redeeming Creation Unit shares will be charged a standard redemption transaction fee of $500, regardless of

 

 

115

 

 

 


 

the number of Creation Unit shares redeemed.* The value of a Creation Unit of the Fund, as of the date of this Prospectus, was approximately $__________. Investors holding Creation Units will also pay the Annual Fund Operating Expenses described in the table above. Assuming an investment in a Creation Unit of $________, a 5% return, and assuming that the Fund’s operating expenses remain the same and the Creation Units are redeemed at the end of each period, a purchaser of Creation Units will incur the following costs:

1 YEAR

3 YEARS

$___

$___

 

 

_________________________

If a Creation Unit is purchased or redeemed outside of usual process through the NSCC or for cash an additional fee of up to five times will apply.

 

 

116

 

 

 


 

ADDITIONAL INFORMATION ABOUT THE FUNDS, THEIR PRINCIPAL STRATEGIES AND RELATED RISKS

The following section provides more information about the Funds, the Underlying Indexes and the principal investment strategies and risks that are common to each Fund.

ADDITIONAL INVESTMENT STRATEGIES

Under normal circumstances, each Fund will invest at least 90% of its assets in common stocks of companies in the Underlying Index. Because each Underlying Index, with the exception of S&P Custom/StateShares™ Composite Index, is comprised only of stocks as indicated by its name (e.g., only “Indiana” companies are contained in the S&P Custom/StateShares™ Indiana 50 Index), this means that each Fund will invest at least 90% of its assets in such companies. The Funds will provide shareholder with at least 60 days’ notice of any change in these policies. The StateShares™ Composite Exchange-Traded Fund will invest at least 90% of its assets in companies contained in the State-Specific Indices. Each Fund may also invest up to 10% of its assets in futures contracts, options on futures contracts, options, swaps on securities of companies in the Underlying Index, as well as cash and cash equivalents such as money market instruments (subject to applicable limitations of the 1940 Act). Each Fund’s investment objective is not fundamental and may be changed without a shareholder vote. Shareholders will be given 60 days notice of any change in investment objective.

In addition to the Funds’ principal investment strategies, each Fund may, from time to time, use certain other strategies or engage in certain other investment practices that are not principal strategies. In addition to these strategies and practices, each Fund may invest in investment-grade debt securities (i.e., debt obligations classified within the four highest ratings of a nationally recognized statistical rating organization such as Moody’s Investors Service (“Moody’s”) or Standard & Poor’s (“S&P”) or, if unrated, determined by the Advisor to be of comparable quality). Each Fund may also hold cash and/or invest a portion of its assets in U.S. Government securities, high-quality money market instruments and repurchase agreements collateralized by the foregoing obligations. These other investments and strategies are described in detail in the Funds’ Statement of Additional Information.

MORE INFORMATION ABOUT THE FUNDS’ PRINCIPAL RISKS

Index Risk. The Funds employ a “passive management” or indexing investment approach. Each Fund attempts to track the investment performance of its Underlying Index. Whenever practicable, each Fund uses the replication method as its primary strategy, meaning that it holds the same stocks, in approximately the same proportions, as the stocks in the Underlying Index, regardless of their investment merit. Because each Fund is a passively managed index fund, the Advisor does not attempt to analyze individual companies or to quantify, manage or control the risks associated with investing in individual companies or in a portfolio that replicates the Underlying Index. Although index funds, by their nature, tend to be tax-efficient investment vehicles, tax ramifications are not considered in the passive management of index funds like the Funds. This risk is known as Index Risk.

 

 

117

 

 

 


 

Index Sampling Risk. From time to time, however, regulatory constraints or other legal considerations may prevent a Fund from replicating precisely an Underlying Index. This may occur for a number of reasons. For example, the Funds are taxed as regulated investment companies under the Internal Revenue Code of 1986, as amended (the “Code”), and the Code imposes certain percentage limitations applicable to investments by regulated investment companies. To the extent a strict application of the replication methodology would result in a violation of the Code, the Fund would be prevented from replicating the Underlying Index. Similarly, other regulatory constraints, such as limitations on the ability of a Fund to invest more than a certain percentage in illiquid securities, may also prevent the Fund from precisely replicating an Underlying Index. In these circumstances, the Fund will employ a strategy known as “sampling” whereby the Fund will invest in securities that, in the aggregate, are deemed by the Advisor to approximate the Underlying Index in terms of key characteristics. The Advisor will not use a sampling strategy in an attempt to manage the portfolio but will do so only when it is required to do so by regulatory or legal considerations. To the extent the Fund employs a sampling strategy, it is subject to index sampling risk, which is the risk that the securities selected by the Advisor pursuant to this strategy may not, in fact, provide investment performance that closely tracks the Underlying Index.

Stock Market Risk. The Funds are subject to stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to be volatile, with periods of rising prices and periods of falling prices.

Investment Style Risk. Each Fund invests across large-, mid-, and small-capitalization companies depending on the composition of the Underlying Index. The Advisor makes no effort to manage the capitalization exposure of the Fund’s portfolio. The Index Methodology with respect to each Underlying Index, however, generally requires a minimum capitalization of at least $100 million for at least two of the three preceding quarters. From time to time, depending on the construction of the Underlying Index, a Fund may invest a substantial portion of its assets in and medium-size companies. Such investments entail greater risk than investments in larger, more established companies. Medium-size companies often have narrower markets and more limited managerial and financial resources than larger, more established companies. As a result of these risks and uncertainties, an investor may lose some or all of his investment in the Funds.

Geographic Concentration Risk. Because the StateShares™ Exchange-Traded Funds will invest all of their assets in the securities of companies whose headquarters or principal place of business are located in a single state, with the exception of the StateShares™ Composite Fund, such Funds may be impacted by events or conditions affecting that state to a greater extent than a fund that did not focus its investments on companies whose headquarters or principal place of business are located in a single state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in a state could significantly affect the market in that state. To the extent a Fund invests in these types of companies, it is subject to these risks.  However, companies whose headquarters or principal place of business are located in a particular state may be national or international in nature and may therefore generate a substantial, or even a predominant, amount of its business and revenue from outside that state. These companies may be impacted to a lesser degree by events and conditions impacting that state and its economy and would be impacted to a much greater degree by events and conditions in those areas where significant amounts of its business or revenue are generated. See the Statement of Additional

 

 

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Information, “State-Specific Risk Factors,” for some of the more specific risk factors associated with investing in each Fund.

Derivatives Risk. Each Fund may invest, to a limited extent, in derivatives. Derivatives may involve risks different from, and possibly greater than, those of traditional investments. To track their Underlying Indexes as closely as possible, the Funds attempt to remain fully invested in stocks. The Funds may invest, to a limited extent, in stock futures and options contracts, warrants, convertible securities, and swap agreements, which are types of derivatives. Generally speaking, a derivative is a financial contract whose value is based on the value of a traditional security (such as a stock or bond), an asset (such as a commodity like gold), or a market index (such as the S&P 500 Index). Investments in derivatives may subject a Fund to risks different from, and possibly greater than, those of the underlying securities, assets, or market indexes. Losses (or gains) involving futures can sometimes be substantial--in part because a relatively small price movement in a futures contract may result in an immediate and substantial loss (or gain) for a Fund. Similar risks exist for warrants (securities that permit their owners to purchase a specific number of stock shares at a predetermined price), convertible securities (securities that may be exchanged for another asset), and swap agreements (contracts between parties in which each agrees to make payments to the other based on the return of a specified index or asset). The Funds will not use derivatives for speculation or for the purpose of leveraging (magnifying) investment returns.

Market Price Risk. The market price of shares of the Funds may differ from the Fund’s NAV. StateShares™ are listed for trading on the NYSE and can be bought and sold in the secondary market at market prices. Although it is expected that the market price of the StateShares™ typically will approximate its NAV, there may be times when the market price and the NAV differ significantly. Thus, you may pay more than NAV when buying StateShares™ on the secondary market, and you may receive less than NAV when you sell those StateShares™.

The market price of StateShares™, like the price of any exchange-traded security, includes a “bid-asked spread” charged by the exchange specialist and other market-makers that cover the particular security. While the Fund cannot predict, and does not control, whether or when the StateShares™ will trade at a premium or a discount to NAV, it is likely that in times of severe market disruption, the bid-asked spread will increase significantly and the StateShares™ would most likely be traded at a discount to NAV. In addition, any discount is likely to be greatest when the price of StateShares™ is falling fastest—and this may be the time that you most want to sell your StateShares™. The Funds’ website at http://www.StateSharesinc.com will show the prior day’s closing NAV and closing market price for the Funds’ shares. In addition, the Funds’ website will contain the following information, on a per share basis, for each Fund: (a) the prior business day’s net asset value and the Bid/Ask Price and a calculation of the premium or discount of the Bid/Ask Price at the time of calculation of the net asset value against such net asset value; and (b) data in chart format displaying the frequency distribution of discounts and premiums of the daily Bid/Ask Price against the net asset value, within appropriate ranges, for each of the four previous calendar quarters. In addition, the Funds’ website contains information regarding the premiums and discounts at which shares of the Funds have traded.

Secondary Market Risk. An active secondary market for the StateShares™ may not exist. Although the StateShares™ are listed on the NYSE, it is possible that an active trading market

 

 

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may not be maintained. In addition, trading in the StateShares™ on the NYSE will be halted whenever trading in equity securities generally is halted by the activation of market-wide “circuit breakers,” which are tied to large decreases in the Dow Jones Industrial Average. Trading of the StateShares™ also will be halted if (1) the shares are delisted from the NYSE without first being listed on another exchange, or (2) NYSE officials determine that such action is appropriate in the interest of a fair and orderly market or to protect investors. If trading is halted, eligible investors (see below) will still be able to purchase Creation Units of the Funds directly and redeem such units with the Funds. If StateShares™ are delisted from the NYSE, the Company will consider what appropriate action to take, which may include, among other things, seeking to list StateShares™ on another national securities exchange, converting the Fund to a traditional mutual fund, or redeeming the Shares at NAV.

SHARES OF THE FUNDS ARE NOT INDIVIDUALLY REDEEMABLE. They can be redeemed with the issuing Fund directly at NAV only in large lots known as Creation Units. You would incur brokerage costs in purchasing enough shares of the Fund to constitute a Creation Unit.

MORE INFORMATION ABOUT THE UNDERLYING INDEXES

Each Underlying Index was created and developed by XG based on its own proprietary intellectual model. In developing each Underlying Index, XG has established specific characterization/inclusion/exclusion criteria governing the stocks that are included in each Underlying Index. XG has engaged Standard & Poor’s as the index administrator (the “Index Administrator”) to maintain each Underlying Index based on this criteria. Each Underlying Index is generally reconstituted on an annual basis. Decisions regarding additions to, and removals from, each individual Underlying Index are made by the Index Administrator, on a annual basis, in its sole discretion. See “Information About the Underlying Index and Index Administrator” in the Statement of Additional Information. The Advisor has engaged BNY Investment Advisors (the “Sub-Advisor”) for the day-to day-management of the Funds. See “Sub-Advisor” below. The Sub-Advisor will generally employ only the replication method in adjusting the Funds’ portfolio in response to changes in the Underlying Index. To the extent that it is necessary to employ a sampling strategy with respect to a Fund’s portfolio, the Advisor, and not the Sub-Advisor, will generally be responsible for determining which securities to invest in as part of that strategy. The Funds are not actively managed and the actions of Advisor and the Sub-Advisor will not result in the active management of the Funds. The service marks of each Underlying Index are the service marks of the Advisor. The Advisor has licensed the use of these service marks to the Company in connection with its use by the Funds.

Each Fund reserves the right to substitute a different index for the Underlying Index if the Underlying Index is discontinued, if the Index Creator’s index agreement with the Index Administrator is terminated, or for any other reason determined in good faith by the Funds’ Board of Directors. If the Index Creator’s arrangements with the Index Administrator are terminated, the Index Creator will seek to engage a replacement index administrator meeting applicable legal requirements. Should it prove impractical for the Index Creator to engage another index administrator, the Company will take whatever action is deemed to be in the best interests of the Funds’ shareholders.

 

 

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BUYING AND SELLING FUND SHARES

BUYING AND SELLING SHARES ON THE SECONDARY MARKET

Shares can be bought or sold throughout the trading day like shares of any publicly traded security. When buying or selling shares through a broker, you will incur customary brokerage commissions and charges. The price at which you buy or sell Fund shares (i.e., the market price) may be more or less than the NAV of the shares. Unless imposed by your broker, there is no minimum dollar amount you must invest and no minimum number of Fund shares you must buy.

StateShares™ are listed on the New York Stock Exchange (the “NYSE”). The NYSE is generally open Monday through Friday and is closed for weekends and the following holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

BUYING SHARES DIRECTLY FROM A FUND

You can purchase shares directly from a Fund only in Creation Units or multiples thereof. Each Fund issues Creation Units in blocks of 100,000 shares. For any particular Fund, the number of Fund shares in a Creation Unit will not change over time, except in the event that the Fund splits or revalues its shares. The Funds will not issue fractional Creation Units. Creation Units may be purchased only in exchange for a basket of securities – known as the In-Kind Creation Basket and cash equal to the Cash Component, as discussed further below. The Funds reserve the right to reject any purchase request at any time, for any reason, and without notice. The Funds can stop selling shares or postpone payment of redemption proceeds at times when the NYSE is closed or under any emergency circumstances as determined by the SEC.

To purchase shares directly from a Fund, you must be a Participating Organization or you must purchase through a broker that is a Participating Organization. A Participating Organization is a participant of the Continuous Net Settlement System of the National Securities Clearing Corporation (“NSCC”) or the Depository Trust Company (“DTC”) that has executed a Participant Agreement with the Fund’s distributor. Most Participating Organizations are expected to be brokerage firms.

-

In-Kind Creation Basket. On each business day, prior to the opening of trading on the NYSE, the Fund’s Advisor will post on the NSCC bulletin board the In-Kind Creation Basket for each Fund for that day. The In-Kind Creation Basket will identify the name and number of shares of each security that must be contributed to the Fund for each Creation Unit purchased. Each Fund reserves the right to accept a nonconforming creation basket.

-

Cash Component. In addition to the in-kind deposit of securities, you will either pay to, or receive from, the Fund an amount of cash (the Balancing Amount) equal to the difference between the NAV of a Creation Unit and the value of the securities in the creation basket. The Balancing Amount ensures that the consideration paid by an investor for a Creation Unit is exactly equal to the value of the Creation Unit. The

 

 

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Fund’s Advisor will publish, on a daily basis, information about the previous day’s Balancing Amount. You also must pay a transaction fee, described below, in cash. The Balancing Amount and the transaction fee, taken together, are referred to as the Cash Component.

-

Placement of Purchase Orders. All purchase orders must be placed through a Participating Organization. Purchase orders will be processed either through a manual clearing process run by DTC or through an enhanced clearing process that is available only to those DTC participants that also are participants in the Continuous Net Settlement System of the NSCC. Participating Organizations that do not use the NSCC’s enhanced clearing process will be charged a higher transaction fee (discussed below). A purchase order must be received by the Fund’s Distributor prior to the close of regular trading on the NYSE (generally 4:00 p.m., Eastern time) on the day the order is placed, and all other procedures set forth in the Participant Agreement must be followed, in order for you to receive the NAV determined on that day.

-

Transaction Fee on Purchase of Creation Units. The Funds impose a transaction fee in the amount of $500 on each purchase of Creation Units effected through the NSCC’s enhanced clearing process, regardless of the number of units purchased. For an investor purchasing Creation Units through the manual DTC clearing process, the transaction fee would be as much as $2,500. Investors permitted to tender a nonconforming creation basket would be subject to an additional charge commensurate with the cost to the Fund. The transaction fee is paid to the Fund, not to the distributor, the Advisor or a third party. The fee protects existing shareholders of the Fund from the costs associated with issuing Creation Units.

Shares of the Funds are held in book entry form, which means that no stock certificates are issued. The DTC, or its nominee, will be the registered owner of all outstanding shares of the Fund. Your beneficial ownership of shares will be shown on the records of DTC or its participants through which you hold the shares. Neither the Advisor nor the Distributor will have any record of your ownership. Therefore, to exercise any right as an owner of shares, you must rely on the procedures of DTC and its participants. Your account information will be maintained by your broker, which will provide you with account statements, confirmations of your purchases and sales of Fund shares, and tax information. Your broker also will be responsible for distributing income and capital gains distributions and for ensuring that you receive shareholder reports and other communications from the Fund whose shares you own. You will receive other services (e.g., dividend reinvestment and average cost information) only if your broker offers these services.

 

 

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REDEEMING SHARES DIRECTLY FROM A FUND

You may redeem shares of the Funds only in Creation Units or multiples thereof. To redeem shares directly with a Fund, you must be a Participating Organization or you must redeem through a broker that is a Participating Organization. Units may be redeemed only in exchange for a basket of securities – known as the In-Kind Redemption Basket and cash equal to the Cash Component, as discussed further below.

-

In-Kind Redemption Basket. Redemption proceeds will be paid in kind with a basket of securities known as the In-Kind Redemption Basket. In most cases, the In-Kind Redemption basket will be the same as the In-Kind Creation Basket for that same day. There will be times, however, when the creation and redemption baskets differ. The composition of the In-Kind Redemption Basket will be available on the NSCC bulletin board. Each Fund reserves the right to honor a redemption request with a nonconforming redemption basket, with the consent of the redeeming investor.

-

Cash Component. Depending on whether the NAV of a Creation Unit is higher or lower than the value of the redemption securities, you will either receive from or pay to the Fund a Balancing Amount in cash. If you are due to receive a Balancing Amount, the amount you actually receive will be reduced by the amount of the applicable transaction fee. You also must pay a transaction fee, described below, in cash. The Balancing Amount and the transaction fee, taken together, are referred to as the Cash Component.

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Placement of Redemption Orders. As with purchases, redemptions must be processed either through the DTC process or the enhanced NSCC process. A redemption order is deemed received on the date of transmittal if it is received by the distributor prior to the close of regular trading on the NYSE on that date, and if all other procedures set forth in the Participant Agreement are followed.

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Transaction Fee on Redemption of Creation Units. The Funds impose a transaction fee on each redemption of Creation Units. The amount of the transaction fee on redemptions effected through the NSCC and the DTC, and on nonconforming redemptions, is the same as the fee imposed on comparable purchases (see previous section). As with the transaction fee on purchases, the transaction fee on redemptions is paid to the Fund, not to the Advisor, the distributor or a third party. The fee protects existing shareholders of the Fund from the costs associated with redeeming Creation Units.

You should be aware of certain legal risks unique to investors purchasing Creation Units directly from the Fund. Because new Fund shares may be issued on an ongoing basis, a “distribution” of Fund shares could be occurring at any time. Certain activities that you perform as a dealer could, depending on the circumstances, result in you being deemed a participant in the distribution, in a manner that could render you a statutory underwriter and subject you to the prospectus delivery and liability provisions of the Securities Act of 1933 (the “Securities Act”). For example, you could be deemed a statutory underwriter if you purchase Creation Units from the issuing Fund, break them down into the constituent Fund shares, and sell those shares directly to customers, or if you choose to couple the creation of a supply of new Fund shares with an active selling effort involving solicitation of secondary-market demand for Fund shares. Whether a person is an

 

 

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underwriter depends upon all of the facts and circumstances pertaining to that person’s activities, and the examples mentioned here should not be considered a complete description of all the activities that could cause you to be deemed an underwriter.

Dealers who are not “underwriters” but are participating in a distribution (as opposed to engaging in ordinary secondary-market transactions), and thus dealing with Fund shares as part of an “unsold allotment” within the meaning of Section 4(3)(C) of the Securities Act, will be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities Act.

Section 12(d)(1) of the 1940 Act restricts investments by registered investment companies in securities of other registered investment companies, including the Funds. The acquisition of Fund shares by registered investment companies is subject to the restrictions of Section 12(d)(1) of the 1940 Act, except as may at some future time be permitted by an exemptive order that permits registered investment companies to invest in a Fund beyond the limits of Section 12(d)(1), subject to certain terms and conditions, including that the registered investment company enter into an agreement with the Fund regarding the terms of the investment.

EXCHANGES

Shares of one Fund may not be exchanged for shares of another Fund.

FREQUENT TRADING

Unlike frequent trading of shares of a traditional open-end mutual funds (i.e., not exchange-traded) shares, frequent trading of shares of the Funds on the secondary market does not disrupt portfolio management, increase the Funds’ trading costs, lead to realization of capitalization gains, or otherwise harm fund shareholders because these trades do not involve the Funds directly. A few institutional investors are authorized to purchase and redeem the Funds’ shares directly with the Funds. Because these trades are effected in-kind (i.e., for securities, and not for cash), they do not cause any of the harmful effects (noted above) that may result from frequent cash trades. Moreover, each Fund imposes transaction fees on in-kind purchases and redemptions of the Fund to cover the custodial and other costs incurred by the Fund in effecting in-kind trades. These fees increase if an investor substitutes cash in part or in whole for securities, reflecting the fact that the Fund’s trading costs increase in those circumstances. For these reasons, the Board of Directors has determined that it is not necessary to adopt policies and procedures to detect and deter frequent trading and market-timing in shares of the Funds.

PORTFOLIO TURNOVER RATE

The Funds are passively managed to their Underlying Indexes and may sell securities regardless of how long they have been held in order to replicate its Underlying Index. In some cases, the Funds’ annual turnover rate may exceed 100%. A higher rate of portfolio turnover will result in higher transaction costs, including brokerage commissions. Also, to the extent that higher

 

 

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portfolio turnover results in more frequently realized net gains to a Fund, the Fund’s distributions of taxable income may increase.

DISTRIBUTION AND SERVICE PLAN

Each Fund has adopted a Distribution and Service Plan (the “Rule 12b-1 Plan”) pursuant to which each Fund may pay financial intermediaries a fee of up to .25% of its average daily net assets for distribution and other services provided by that intermediary in accordance with the terms of the Rule 12b-1 Plan. The Board of Directors has determined that no payments will be made by the Funds under the Rule 12b-1 Plan for the twelve-month period following commencement of operations. If such fees are paid in the future, they would increase the costs associated with your investments in the Funds and decrease each Funds’ NAV because these fees are paid by the Funds. These fees, if paid in the future, would be paid out of the Funds’ assets on an on-going basis, and therefore, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.

PORTFOLIO HOLDINGS

Each Fund publicly disseminates its full portfolio holdings each day the Funds are open for business through its internet web site at http://www.StateSharesinc.com. Each Fund may terminate or modify this policy at any time without further notice to shareholders. In addition, the In-Kind Creation Basket and In-Kind Redemption Basket, which identify the securities and share quantities which are delivered in exchange for purchases and redemptions of Creation Units, are publicly disseminated daily prior to the open of the NYSE via the NSCC. A description of the Funds’ policies and procedures with respect to the disclosure of the Funds’ portfolio securities is available in the Statement of Additional Information.

FUND MANAGEMENT

INVESTMENT ADVISOR

XShares Advisors LLC serves as investment advisor to the Funds with overall responsibility for the general management and administration of the Funds, subject to the supervision of the Funds’ Board of Directors. Under the Investment Advisory Agreement, the Advisor is responsible for arranging sub-advisory, transfer agency, custody, fund administration, and all other non-distribution related services for the Funds to operate. The Advisor will also be responsible for employing any sampling strategy for the Funds.

For the services it provides to the Funds, the Advisor receives a unified advisory fee based on a percentage of the daily net assets of each Fund. The advisory fee is calculated daily and paid monthly in arrears. Out of the advisory fee, the Advisor pays all fees and expenses of the Sub-Advisor, Transfer Agent, the Administrator and Accounting Agent and the Custodian. The Fund is responsible for the payment of all other expenses associated with its operation, including but not limited to, brokerage expenses, taxes, interest, fees and expenses of counsel to the Funds,

 

 

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fees and expenses of the Disinterested Directors (including legal counsel fees), fees and expenses of the Chief Compliance Officer and expenses associated with the Funds’ compliance program, litigation expenses, fees and expenses of the Funds’ independent auditors, registration fees, expenses associated with compliance by the Fund with regulatory requirements, including those relating to the development and distribution of its prospectus and shareholder reports, and extraordinary expenses. Pursuant to the Investment Advisory Agreement, the Advisor is authorized to engage one or more sub-advisors to perform any of the services contemplated to be performed by the Advisor under the Investment Advisory Agreement. The Advisor is responsible for payment of the Sub-Advisory fee, as discussed below.

The Advisor is a newly organized investment advisor located at 420 Lexington Avenue, New York, New York 10170. The Advisor’s parent company is XShares Group LLC, the creator of the Underlying Indexes. The Advisor has no prior experience managing exchange-traded funds or registered investment companies. For its services provided to the Funds under the Investment Advisory Agreement, each Fund pays the Advisor a fee equal to [ ] of each Fund’s average daily net assets. The fee is accrued daily and paid monthly.

SUB-ADVISOR

BNY Investment Advisors (“Sub-Advisor”), a separate identifiable division of The Bank of New York, a New York State banking corporation, having its principal office and place of business at 1633 Broadway, 13th Floor, New York 10019, acts as investment sub-advisor to the Funds. Pursuant to a Sub-Advisory Agreement between the Advisor and the Sub-Advisor, the Sub-Advisor will be responsible for the day-to-day management of the Funds, subject to the supervision of the Advisor and the Funds’ Board of Directors. In this regard, the Sub-Advisor will be responsible for implementing the replication strategy for each Fund with regard to its Underlying Index and for general administration, compliance and management services as may be agreed between the Advisor and the Sub-Advisor from time to time. The Sub-Advisor has substantial prior experience in acting as sub-advisor to ETFs.

In accordance with the terms of the Sub-Advisory Agreement, the Advisor pays the Sub-Advisor, out if its own resources a fee based on a percentage of the average daily net assets of each of the StateShares™ Funds. Such fees are paid in accordance with the following schedule:

 

[                                                                                                                                     ]

There is a minimum annual fee of $[

] per StateShares™ fund.

A discussion regarding the basis for the Board of Directors approval of the Investment Advisory Agreement and Sub-Advisory Agreement will be available in the Funds’ annual or semi-annual report.

PORTFOLIO MANAGERS

Each Fund is managed by o

 

 

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Each Portfolio Manager is responsible for various functions related to portfolio management, including, but not limited to, investing cash inflows, implementing investment strategy, researching and reviewing investment strategy, and overseeing members of his or her portfolio management team with more limited responsibilities. Each Portfolio Manager has appropriate limitations on his or her authority for risk management and compliance purposes.

The Statement of Additional Information has more detailed information about the portfolio managers’ compensation, other accounts managed by the portfolio managers and the portfolio managers’ ownership of securities of the Funds.

ADMINISTRATION, CUSTODIAN AND TRANSFER AGENT

The Bank of New York serves as the Administrator to the Funds. The Administrator’s principal address is 101 Barclay Street, New York, New York 10286.

The Bank of New York serves as the Custodian to the Funds. The Custodian’s principal address is 101 Barclay Street, New York, New York 10286.

The Bank of New York serves as the Transfer Agent to the Funds. The Transfer Agent’s principal address is 101 Barclay Street, New York, New York 10286.

DISTRIBUTOR

[ ] serves as the distributor of Creation Units for each Fund on an agency basis. The Distributor’s principal address is ____________________. The Distributor does not maintain a secondary market in shares of the Funds.

DIVIDENDS, CAPITAL GAINS, AND TAXES

FUND DISTRIBUTIONS

Each Fund pays out dividends from its net investment income to investors annually. Each Fund distributes any net capital gains annually.

DIVIDEND REINVESTMENT SERVICE

Brokers may make available to their customers who own Fund shares the DTC book-entry dividend reinvestment service. If this service is available and used, dividend distributions of both income and capital gains will automatically be reinvested in additional whole and fractional Fund shares of the same Fund. Without this service, investors would receive their distributions in cash. To determine whether the dividend reinvestment service is available and whether there is a commission or other charge for using this service, consult your broker. Brokers may require Fund shareholders to adhere to specific procedures and timetables. If this service is available and used, dividend distributions of both income and realized gains will be automatically reinvested in additional whole shares of the same Fund purchased in the secondary market.

 

 

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TAXES

As with any investment, you should consider how your investment in shares of the Funds will be taxed. The tax information in this Prospectus is provided as general information. You should consult your own tax professional about the tax consequences of an investment in shares of the Funds.

Unless your investment in shares is made through a tax-exempt entity or tax-deferred retirement account, such as an IRA plan, you need to be aware of the possible tax consequences when a Fund makes distributions and when you sell your shares of a Fund.

TAXES ON DISTRIBUTIONS

Distributions from a Fund’s net investment income (other than qualified dividend income), including distributions out of the Fund’s net short-term capital gains, if any, and distributions of income from securities lending, are taxable to you as ordinary income. Distributions by the Fund of net long-term capital gains in excess of net short-term capital losses (capital gain dividends) are taxable to you as long-term capital gains, regardless of how long you have held a Fund’s shares. Distributions by the Fund that qualify as qualified dividend income are taxable to you at long-term capital gain rates. In order for a distribution by the Fund to be treated as qualified dividend income, a Fund must meet holding period and other requirements with respect to its dividend paying stocks and you must meet holding period requirements and other requirements with respect to the Fund’s shares. In general, your distributions are subject to federal income tax for the year when they are paid. Certain distributions paid in January, however, may be treated as paid on December 31 of the prior year.

If you are neither a resident nor a citizen of the United States or if you are a foreign entity, the Fund’s ordinary income dividends (which include distributions of net short-term capital gains) will generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate applies, provided, however, that for taxable years of the Fund beginning after December 31, 200_, but not beginning after December 31, 200_, interest related dividends and short-term capital gain dividends generally will not be subject to such U.S. withholding tax.

If you are a resident or a citizen of the United States, by law, back-up withholding will apply to your distributions and proceeds if you have not provided a taxpayer identification number or social security number and made other required certifications.

TAXES WHEN SHARES ARE SOLD

Currently, any capital gain or loss realized upon a sale of shares is generally treated as a long-term gain or loss if shares have been held for more than one year. Any capital gain or loss realized upon a sale of shares held for one year or less is generally treated as a short-term gain or loss, except that any capital loss on the sale of 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 shares.

 

 

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The foregoing discussion summarizes some of the consequences under current federal tax law of an investment in the Funds. It is not a substitute for personal tax advice. You may also be subject to state and local taxation on Fund distributions and sales of shares. Consult your personal tax advisor about the potential tax consequences of an investment in shares of a Fund under all applicable tax laws.

DAILY PRICING

The net asset value, or NAV, of each Fund’s shares is calculated each business day as of the close of regular trading on the NYSE, generally 4:00 p.m., Eastern Time. NAV per share is computed by dividing the net assets by the number of shares outstanding.

If you buy or sell Fund shares on the secondary market, you will pay or receive the market price, which may be higher or lower than NAV. Your transaction will be priced at NAV only if you purchase or redeem your Fund shares in Creation Unit blocks.

The approximate value of shares of each Fund is disseminated every fifteen seconds throughout the trading day by the national securities exchange on which the Fund’s shares are listed or by other information providers, such as Reuters. This approximate value should not be viewed as a “real-time” update of the NAV, because the approximate value may not be calculated in the same manner as the NAV, which is computed once a day. The approximate value generally is determined by using both current market quotations and/or price quotations obtained from broker-dealers that may trade in the portfolio securities held by the Funds. The Funds are not involved in, or responsible for, the calculation or dissemination of the approximate value and make no warranty as to its accuracy.

When calculating the NAV of the Funds’ shares, stocks held by the fund are valued at their market value when reliable market quotations are readily available. Certain short-term debt instruments used to manage a Fund’s cash are valued on the basis of amortized cost.

When reliable market quotations are not readily available, securities are priced at their fair value, which is the price a security’s owner might reasonably expect to receive upon its sale. Fair-value pricing may also be used by each Fund to value restricted securities held by the Funds or certain small-capitalization or mid-capitalization securities with little or no trading activity for extended periods of time. Although rare, fair-value pricing also may be used if (1) trading in a security is halted and does not resume before the Fund’s pricing time or if a security does not trade in the course of a day, and (2) the Fund holds enough of the security that its price could affect the Fund’s NAV.

Fair-value prices are determined by the Advisor according to procedures adopted by the Board of Directors. When fair-value pricing is employed, the prices of securities used by a Fund to calculate its NAV may differ from quoted or published prices for the same securities.

 

 

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DELIVERY OF FUND DOCUMENTS

HOUSEHOLDING

Householding is an option available to certain investors of the Funds. Householding is a method of delivery, based on the preference of the individual investor, in which a single copy of certain shareholder documents can be delivered to investors who share the same address, even if their accounts are registered under different names. Householding for the Funds is available through certain broker-dealers. If you are interested in enrolling in householding and receiving a single copy of the Prospectus and other shareholder documents, please contact your broker-dealer. If you are currently enrolled in householding and wish to change your householding status, please contact your broker-dealer.

FINANCIAL HIGHLIGHTS

Performance information is not presented for the Funds since they have no operating history.

 

 

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STATESHARES™ INC.

420 Lexington Avenue

New York, New York 10170

FOR MORE INFORMATION

If you would like more information about the StateShares™, Inc., the following documents are available free, upon request:

ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS

Additional information about the Funds’ investments will be available in the Funds’ annual and semi-annual reports to shareholders. In the annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds’ performance during their last fiscal year.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI provides more detailed information about the Funds.

The annual and semi-annual reports will be incorporated by reference into this Prospectus and the SAI is incorporated by reference into, and is thus legally a part of, this Prospectus.

To receive a free copy of the latest annual or semi-annual report, when available, or the SAI, or to request additional information about the Funds, please contact us as follows:

 

Call:

1-800-925-2870

Monday through Friday

9:00 a.m. to 5:00 p.m. (Eastern Time)

 

Write:

StateShares™, Inc.

420 Lexington Avenue

New York, New York 10170

 

 

Visit:

www.StateSharesinc.com

INFORMATION PROVIDED BY THE SECURITIES AND EXCHANGE COMMISSION

You can review and copy information about the Funds (including the SAI) at the SEC’s Public Reference Room in Washington, DC. To find out more about this public service, call the SEC at 1-202-551-8090. Reports and other information about the Funds are also available in the EDGAR Database on the SEC’s Internet site at http://www.sec.gov, or you can receive copies of this information, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the Public Reference Section, Securities and Exchange Commission, 100 F Street, N.E., Washington, DC 20549-0102.

The Company’s Investment Company Act file number:

811-22000

© 2006 XShares Advisors LLC

 

 

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STATESHARES™, INC.

StateShares™ California 50 Exchange-Traded Fund

StateShares™ Colorado 50 Exchange-Traded Fund

StateShares™ Connecticut 50 Exchange-Traded Fund

StateShares™ Florida 50 Exchange-Traded Fund

StateShares™ Georgia 50 Exchange-Traded Fund

StateShares™ Illinois 50 Exchange-Traded Fund

StateShares™ Indiana 50 Exchange-Traded Fund

StateShares™ Maryland 50 Exchange-Traded Fund

StateShares™ Massachusetts 50 Exchange-Traded Fund

StateShares™ Michigan 50 Exchange-Traded Fund

StateShares™ Minnesota 50 Exchange-Traded Fund

StateShares™ Missouri 50 Exchange-Traded Fund

StateShares™ New Jersey 50 Exchange-Traded Fund

StateShares™ New York 50 Exchange-Traded Fund

StateShares™ North Carolina 50 Exchange-Traded Fund

StateShares™ Ohio 50 Exchange-Traded Fund

StateShares™ Pennsylvania 50 Exchange-Traded Fund

StateShares™ Tennessee 50 Exchange-Traded Fund

StateShares™ Texas 50 Exchange-Traded Fund

StateShares™ Virginia 50 Exchange-Traded Fund

StateShares™ Washington 50 Exchange-Traded Fund

StateShares™ Composite Exchange-Traded Fund

 

Statement of Additional Information

__________, 2007

This Statement of Additional Information, which is not a prospectus, contains additional information about StateShares™, Inc. (the “Company”). This Statement of Additional Information should be read in conjunction with the Company’s current Prospectus, dated _________, 2007, as it may be revised from time to time. Capitalized terms used herein that are not defined have the same meaning ascribed to them as in the Prospectus.

The audited financial statements and related reports of [ ], the Company’s independent registered public accounting firm, are included herein. A copy of the Prospectus may be obtained without charge, by contacting the Company’s Distributor, [ ].

 

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TABLE OF CONTENTS

I.

GENERAL INFORMATION ABOUT THE COMPANY

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II.

INVESTMENT POLICIES AND RELATED RISKS

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III.

STATE-SPECIFIC RISK FACTORS

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IV.

FUNDAMENTAL INVESTMENT LIMITATIONS

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V.

MANAGEMENT

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VI.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

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VII.

CODE OF ETHICS

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VIII.

PROXY VOTING POLICIES

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IX.

PORTFOLIO HOLDINGS DISCLOSURE POLICIES AND PROCEDURES

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X.

PORTFOLIO TRANSACTIONS

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XI.

SHARE PRICE

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XII.

INFORMATION ABOUT STATESHARES™

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XIII.

CAPITAL STOCK AND OTHER SECURITIES

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XIV.

DIVIDENDS AND DISTRIBUTIONS

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XV.

TAXATION

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XVI.

FINANCIAL STATEMENTS

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GENERAL INFORMATION ABOUT THE COMPANY

StateShares™, Inc. (the “Company”) was organized as a Maryland corporation on December 26, 2006. The Company is comprised of 22 different portfolios (each, a “Fund” and together, the “Funds”). Each Fund currently offers one class of shares known as StateShares™. The Company may create additional Funds or classes of shares. There is no limit on the number of full and fractional shares that each Fund may issue. The Funds currently comprising the Company are as follows:

StateShares™ California 50 Exchange-Traded Fund

StateShares™ Colorado 50 Exchange-Traded Fund

StateShares™ Connecticut 50 Exchange-Traded Fund

StateShares™ Florida 50 Exchange-Traded Fund

StateShares™ Georgia 50 Exchange-Traded Fund

StateShares™ Illinois 50 Exchange-Traded Fund

StateShares™ Indiana 50 Exchange-Traded Fund

StateShares™ Maryland 50 Exchange-Traded Fund

StateShares™ Massachusetts 50 Exchange-Traded Fund

StateShares™ Michigan 50 Exchange-Traded Fund

StateShares™ Minnesota 50 Exchange-Traded Fund

StateShares™ Missouri 50 Exchange-Traded Fund

StateShares™ New Jersey 50 Exchange-Traded Fund

StateShares™ New York 50 Exchange-Traded Fund

StateShares™ North Carolina 50 Exchange-Traded Fund

StateShares™ Ohio 50 Exchange-Traded Fund

StateShares™ Pennsylvania 50 Exchange-Traded Fund

StateShares™ Tennessee 50 Exchange-Traded Fund

StateShares™ Texas 50 Exchange-Traded Fund

StateShares™ Virginia 50 Exchange-Traded Fund

StateShares™ Washington 50 Exchange-Traded Fund

StateShares™ Composite Exchange-Traded Fund

 

The Funds are registered with the United States Securities and Exchange Commission (the “SEC”) under the Investment Company Act of 1940 (the “1940 Act”) as open-end, non-diversified management investment companies.

Each Fund offers and issues StateShares™ at net asset value only in aggregations of a specified number of Shares, generally in exchange for a basket of equity securities included in the Underlying Index, together with the deposit of a specified cash payment. StateShares™ have been approved for listing and secondary trading on the New York Stock Exchange (the “NYSE”), subject to notice of issuance. StateShares™ will trade on the NYSE at market prices that may be below, at, or above NAV. StateShares™ are redeemable only in Creation Unit Aggregations, and, generally, in exchange for portfolio securities and a specified cash payment. Creation Units are aggregations of 100,000 Shares. In the event of the liquidation of a Fund, the Company may lower the number of Shares in a Creation Unit.

 

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The Company reserves the right to offer a “cash” option for creations and redemptions of StateShares™, although it has no current intention of doing so. StateShares™ may be issued in advance of receipt of Deposit Securities subject to various conditions including a requirement to maintain on deposit with the Company cash at least equal to 115% of the market value of the missing Deposit Securities. See the “Creation and Redemption of Creation Unit Aggregations” section. In each instance of such cash creations or redemptions, transaction fees may be imposed that will be higher than the transaction fees associated with in-kind creations or redemptions. In all cases, such fees will be limited in accordance with SEC requirements applicable to management investment companies offering redeemable securities.

II.  INVESTMENT POLICIES AND RELATED RISKS

Each Fund’s investment objective and principal investment strategies and risks are set forth in the Prospectus. The following information supplements the information contained in the Prospectus. In addition to the Funds’ principal investment strategies, each Fund may, from time to time, use certain other strategies or engage in certain other investment practices that are not principal strategies. Some of these strategies and practices, and their associated risks, are described below. In addition to these strategies and practices, each Fund may invest in investment-grade debt securities (i.e., debt obligations classified within the four highest ratings of a nationally recognized statistical rating organization such as Moody’s Investors Service (“Moody’s”) or Standard & Poor’s (“S&P”) or, if unrated, determined by the Advisor to be of comparable quality), warrants, options and futures instruments as described in more detail below. Each Fund may also hold cash and/or invest a portion of its assets in U.S. Government securities, high-quality money market instruments and repurchase agreements collateralized by the foregoing obligations.

Limitations and restrictions on the level of investment in securities that are discussed in the Prospectus or in this Statement of Additional Information and that are expressed in terms of percentage limitations are measured at the time of investment, unless specifically indicated otherwise. Changes in market values, net assets, or other circumstances that cause a percentage limitation to be exceeded will not necessarily require that any security be sold.

BORROWING. Each Fund may borrow money from banks or through reverse repurchase agreements in amounts up to one-third of its total assets. A Fund that borrows will pay interest on the borrowed money and may incur additional transaction costs and will be subject to the risk that the return realized from the investment of borrowed money will not exceed these interest and transaction costs. With respect to borrowings, a Fund is required to maintain continuous asset coverage (i.e., total assets including borrowings, less liabilities exclusive of borrowings) of 300% of the amount borrowed. If the required 300% asset coverage should decline as a result of market fluctuations or for other reasons, a Fund may be required to sell some of its portfolio holdings to raise cash and reduce the amount borrowed so as to restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time. In addition to these borrowings, each Fund may borrow from banks up to 5% of the Fund’s total assets for temporary or emergency purposes. Borrowings of up to 5% for temporary and emergency purposes are not subject to the requirements to maintain continuous asset coverage of 300%.

 

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COMMON STOCK. The Funds will invest in common stock. Common stock represents an equity or ownership interest in an issuer. In the event an issuer is liquidated or declares bankruptcy, the claims of owners of the issuer’s bonds, other debt holders, and owners of preferred stock take precedence over the claims of those who own common stock.

GEOGRAPHIC CONCENTRATION. Because the StateShares™ Exchange-Traded Funds will invest all of their assets in the securities of companies whose headquarters or principal place of business are located in a single state, with the exception of the StateShares™ Composite Fund, such Funds may be impacted by events or conditions affecting that state to a greater extent than a fund that did not focus its investments on companies whose headquarters or principal place of business are located in a single state. For example, political and economic conditions and changes in regulatory, tax, or economic policy in a state could significantly affect the market in that state. To the extent a Fund invests in these types of companies, it is subject to these risks. However, companies whose headquarters or principal place of business are located in a particular state may be national or international in nature and may therefore generate a substantial, or even a predominant, amount of its business and revenue from outside that state. These companies may be impacted to a lesser degree by events and conditions impacting that state and its economy and would be impacted to a much greater degree by events and conditions in those areas where significant amounts of its business or revenue are generated. See “State-Specific Risk Factors” for a summary of the some of the more significant inherent risk factors relating to investing in each series of the StateShares™ Exchange-Traded Funds.  

 

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Funds may enter into futures contracts and options on futures contracts. The Funds will only enter into futures contracts and options on futures contracts that are standardized and traded on a U.S. exchange, board of trade, or similar entity, or quoted on an automated quotation system. The Funds will not use futures or options on futures for speculative purposes.

A futures contract is an agreement between two parties to buy or sell at a specific time in the future a specific quantity of a commodity at a specific price. The commodity may consist of an asset, a reference rate, or an index. The value of a futures contract tends to increase and decrease in tandem with the value of the underlying commodity. When entering into a futures contract, a Fund would be required to make a good faith margin deposit in cash or U.S. Government securities with a broker or custodian to initiate and maintain open positions in futures contracts. A margin deposit is intended to assure completion of the contract if it is not terminated prior to its specified delivery date. Brokers may establish deposit requirements which are higher than the exchange minimums. Initial margin deposits are typically calculated as a percentage of the contract’s market value.

After a futures contract position is opened, the value of the contract is marked to market daily. If the futures contract value changes, or if the value of the securities placed in margin deposit with the broker changes, to the extent that margin deposit requirements are no longer satisfied, the Fund will be required to make payment of additional “variation margin.” Conversely, contract value changes or changes in the value of margin securities may occur in such a way as to result in “excess margin,” which would typically be repaid to the Fund. When investing in futures contracts, the Funds must satisfy certain asset segregation requirements to ensure that the use of futures is not leveraged. When a Fund takes a long position in a futures

 

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contract, it must segregate liquid assets equal to the purchase price of the contract, less any margin or deposit. When a Fund takes a short position in a futures contract, the Fund must segregate liquid assets in an amount equal to the market value of the securities underlying such contract (less any margin or deposit), which amount must be at least equal to the market price at which the short position was established. Asset segregation requirements are not applicable when a Fund “covers” an options or futures position generally by entering into an offsetting position.

An option on a futures contract (or futures option) conveys the right, but not the obligation, to purchase (in the case of a call option) or sell (in the case of a put option) a specific futures contract at a specific price (called the “exercise” or “strike” price) any time before the option expires. The seller of an option is called an option writer. The purchase price of an option is called the premium. The potential loss to an option buyer is limited to the amount of the premium plus transaction costs. This will be the case, for example, if the option is held and not exercised prior to its expiration date. Generally, an option writer sells options with the goal of obtaining the premium paid by the option buyer. If an option sold by an option writer expires without being exercised, the writer retains the full amount of the premium. The option writer, however, has unlimited economic risk because its potential loss, except to the extent offset by the premium received when the option was written, is equal to the amount the option is “in-the-money” at the expiration date. A call option is in-the-money if the value of the underlying futures contract exceeds the exercise price of the option. A put option is in-the-money if the exercise price of the option exceeds the value of the underlying futures contract. Generally, any profit realized by an option buyer represents a loss for the option writer.

Each Fund may engage in futures contracts and options on futures contracts only to the extent permitted by the Commodity Futures Trading Commission (“CFTC”) and the SEC. In this regard, the Funds have claimed an exclusion from registration as a “commodity pool operator” under the Commodity Exchange Act. Each Fund intends to limit its hedging transactions in futures contracts so that immediately after any such transaction, the aggregate initial margin that is required to be posted by a Fund under the rules of the exchange on which the futures contract (or futures option) is traded, plus any premiums paid by such Fund on its open futures options positions, does not exceed 5% of such Fund’s total assets, after taking into account any unrealized profits and unrealized losses on the Fund’s open contracts (and excluding the amount that a futures option is “in-the-money” at the time of purchase). An option to buy a futures contract is “in-the-money” if the then-current purchase price of the underlying futures contract exceeds the exercise or strike price; an option to sell a futures contract is “in-the-money” if the exercise or strike price exceeds the then-current purchase price of the contract that is the subject of the option.

The risk of loss in trading futures contracts and in writing futures options can be substantial, because of the low margin deposits required, the extremely high degree of leverage involved in futures and options pricing, and the potential high volatility of the futures markets. As a result, a relatively small price movement in a futures position may result in immediate and substantial loss (or gain) to the investor. For example, if at the time of purchase, 10% of the value of the futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss

 

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equal to 150% of the original margin deposit if the contract were closed out. Thus, a purchase or sale of a futures contract, and the writing of a futures option, may result in losses in excess of the amount invested in the position. In the event of adverse price movements, a Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if the Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements (and segregation requirements, if applicable) at a time when it may be disadvantageous to do so. In addition, on the settlement date, a Fund may be required to make delivery of the instruments underlying the futures positions it holds.

A Fund could suffer losses if it is unable to close out a futures contract or a futures option because of an illiquid secondary market. Futures contracts and futures options may be closed out only on an exchange which provides a secondary market for such products. However, there can be no assurance that a liquid secondary market will exist for any particular futures product at any specific time. Thus, it may not be possible to close a futures or option position. Moreover, most futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day’s settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of future positions and subjecting some futures traders to substantial losses. The inability to close futures and options positions also could have an adverse impact on the ability to hedge a portfolio investment or to establish a substitute for a portfolio investment.

A Fund bears the risk that the Advisor will incorrectly predict future market trends. If the Advisor attempts to use a futures contract or a futures option as a hedge against, or as a substitute for, a portfolio investment, the Fund will be exposed to the risk that the futures position will have or will develop imperfect or no correlation with the portfolio investment. This could cause substantial losses for the Fund. While hedging strategies involving futures products can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other Fund investments.

A Fund could lose margin payments it has deposited with its futures broker, if, for example, the broker breaches its agreement with the Fund or becomes insolvent or goes into bankruptcy. In that event, the Fund may be entitled to return of margin owed to it only in proportion to the amount received by the broker’s other customers, potentially resulting in losses to the Fund.

GOVERNMENT OBLIGATIONS. The Funds may invest in U.S. Government obligations, including U.S. Treasury bonds, notes and bills and the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing Administration, the Farmers Home Administration, the Export-Import Bank of the United States, the Small Business Administration, the Government National Mortgage Association, the Federal National Mortgage Association, the General Services Administration, the Student Loan

 

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Marketing Association, the Central Bank for Cooperatives, the Federal Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks and the Maritime Administration. Obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the Government National Mortgage Association, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency’s obligations; still others, such as those of the Student Loan Marketing Association, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law.

Securities issued or guaranteed by the U.S. government have historically involved little risk of loss of principal if held to maturity. However, due to fluctuations in interest rates, the market value of such securities may vary during the period a shareholder owns shares of a Fund.

OPTIONS. The Funds may purchase put and call options. An option on a security (or index) is a contract that gives the holder of the option, in return for the payment of a “premium,” the right, but not the obligation, to buy from (in the case of a call option) or sell to (in the case of a put option) the writer of the option the security underlying the option (or the cash value of the index) at a specified exercise price prior to the expiration date of the option. The writer of an option on a security has the obligation upon exercise of the option (1) to deliver the underlying security upon payment of the exercise price (in the case of a call option) or (2) to pay the exercise price upon delivery of the underlying security (in the case of a put option). The writer of an option on an index has the obligation upon exercise of the option to pay an amount equal to the cash value of the index minus the exercise price, multiplied by a specified multiplier for the index option. Unlike exchange-traded options, which are standardized, the terms of OTC options (options not traded on exchanges) generally are established through negotiation with the other party to the option contract. While this type of arrangement allows the purchaser or writer greater flexibility to tailor an option to its needs, OTC options generally involve greater credit risk than exchange-traded options, which are guaranteed by the clearing organization of the exchanges where they are traded.

A call option grants to the holder the right to buy (and obligates the writer to sell) the underlying security at the strike price. A put option grants to the holder the right to sell (and obligates the writer to buy) the underlying security at the strike price. The purchase price of an option is called the “premium.” The potential loss to an option buyer is limited to the amount of the premium plus transaction costs. This will be the case if the option is held and not exercised prior to its expiration date. Generally, an option writer sells options with the goal of obtaining the premium paid by the option buyer, but that person could also seek to profit from an anticipated rise or decline in option prices. If an option sold by an option writer expires without being exercised, the writer retains the full amount of the premium. The option writer, however, has unlimited economic risk because its potential loss, except to the extent offset by the premium received when the option was written, is equal to the amount the option is “in-the-money” at the expiration date. A call option is in-the-money if the value of the underlying position exceeds the exercise price of the option. A put option is in-the-money if the exercise price of the option exceeds the value of the underlying position. Generally, any profit realized by an option buyer represents a loss for the option writer. The writing of an option will not be considered to

 

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constitute the issuance of a “senior security” by a Fund for purposes of the 1940 Act, and such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a Fund, if the Fund segregates liquid assets in a segregated account in sufficient amount to cover the transaction.

If a trading market in particular options were to become unavailable, investors in those options (such as the Funds) would be unable to close out their positions until trading resumes, and they may be faced with substantial losses if the value of the underlying interest moves adversely during that time. Even if the market were to remain available, there may be times when options prices will not maintain their customary or anticipated relationships to the prices of the underlying interests and related interests. Lack of investor interest, changes in volatility, or other factors or conditions might adversely affect the liquidity, efficiency, continuity, or even the orderliness of the market for particular options.

A Fund bears the risk that the Advisor will not accurately predict future market trends. If the Advisor attempts to use an option as a hedge against, or as a substitute for, a portfolio investment, the Fund will be exposed to the risk that the option will have or will develop imperfect or no correlation with the portfolio investment. This could cause substantial losses for the Fund. While hedging strategies involving options can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other Fund investments. Many options, in particular OTC options, are complex and often valued based on subjective factors. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to a Fund.

PREFERRED STOCK. The Funds may invest in preferred stock. Preferred stock represents an equity or ownership interest in an issuer. Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. In the event an issuer is liquidated or declares bankruptcy, however, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. Preferred stock, unlike common stock, often has a stated dividend rate. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of such stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as provisions allowing the stock to be called or redeemed, which can limit the benefit of a decline in interest rates. Preferred stock is subject to many of the risks to which common stock and debt securities are subject.

REPURCHASE AGREEMENTS. The Funds may enter into repurchase agreements. A repurchase agreement is an agreement under which a Fund acquires a fixed income security (generally a security issued by the U.S. government or an agency thereof, a banker’s acceptance, or a certificate of deposit) from a commercial bank, broker, or dealer, and simultaneously agrees to resell such security to the seller at an agreed upon price and date (normally, the next business day). Because the security purchased constitutes collateral for the repurchase obligation, a repurchase agreement may be considered a loan that is collateralized by the security purchased. The resale price reflects an agreed upon interest rate effective for the period the instrument is held by a Fund and is unrelated to the interest rate on the underlying instrument. In these transactions, the securities acquired by a Fund (including accrued interest earned thereon) must have a total value in excess of the value of the repurchase agreement and be held by a custodian

 

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bank until repurchased. In addition, the Advisor will monitor a Fund’s repurchase agreement transactions generally and will evaluate the creditworthiness of any bank, broker, or dealer party to a repurchase agreement relating to a fund. The use of repurchase agreements involves certain risks. One risk is the seller’s ability to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the Fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under the bankruptcy laws, the disposition of the collateral may be delayed or limited. For example, if the other party to the agreement becomes insolvent and subject to liquidation or reorganization under the bankruptcy or other laws, a court may determine that the underlying security is collateral for a loan by the Fund not within its control and therefore the realization by the Fund on such collateral may be automatically stayed. Finally, it is possible that the Fund may not be able to substantiate its interest in the underlying security and may be deemed an unsecured creditor of the other party to the agreement. Repurchase agreements are usually for short periods, seven days or less, but can be for longer periods. A Fund will not enter into a repurchase agreement of a duration of more than seven days if, taken together with other illiquid securities, more than 15% of a Fund’s net assets would be so invested.

RESTRICTED AND ILLIQUID SECURITIES. Each Fund may acquire investments that are illiquid or have limited liquidity, such as private placements or investments that are not registered under the Securities Act of 1933, as amended (the “1933 Act”), and cannot be offered for public sale in the United States without first being registered under the 1933 Act. An illiquid investment is any investment that cannot be disposed of within seven days in the normal course of business at approximately the amount at which it is valued by a Fund. The price a Fund pays for illiquid securities or receives upon resale may be lower than the price paid or received for similar securities with a more liquid market. A Fund will not invest more than 15% of the value of its net assets in securities that are illiquid.

Historically, illiquid securities have included securities subject to contractual or legal restrictions on resale because they have not been registered under the 1933 Act, securities which are otherwise not readily marketable and repurchase agreements having a maturity of longer than seven days. Securities which have not been registered under the 1933 Act are referred to as private placements or restricted securities and are purchased directly from the issuer or in the secondary market. Limitations on resale may have an adverse effect on the marketability of portfolio securities and a Fund might be unable to dispose of restricted or other illiquid securities promptly or at reasonable prices and might thereby experience difficulty satisfying redemptions within seven days. A Fund might also have to register such restricted securities in order to dispose of them which, if possible at all, would result in additional expense and delay. Adverse market conditions could impede such a public offering of securities.

Certain of the Funds may, from time to time, purchase other non-publicly traded securities, private placements and restricted securities. These securities may involve a higher degree of business and financial risk that can result in substantial losses. As a result of the absence of a public trading market for these securities, they may be less liquid than publicly-traded securities. Although these securities may be resold in privately negotiated transactions, the prices realized from sales could be less than those originally paid by a Fund or less than what may be considered the fair value of such securities. Furthermore, companies whose securities are not publicly traded may not be subject to the disclosure and other investor protection

 

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requirements which might be applicable if their securities were publicly-traded. If such securities are required to be registered under the securities laws of one or more jurisdictions before being resold, a Fund may be required to bear the expenses of registration.

A large institutional market has developed for certain securities that are not registered under the 1933 Act, including repurchase agreements, commercial paper, foreign securities, municipal securities and corporate bonds and notes. Institutional investors depend on an efficient institutional market in which the unregistered security can be readily resold or on an issuer’s ability to honor a demand for repayment. The fact that there are contractual or legal restrictions on resale of such investments to the general public or to certain institutions may not be indicative of their liquidity.

Each Fund may purchase Rule 144A securities sold to institutional investors without registration under the 1933 Act. Rule 144A allows a broader institutional trading market for securities otherwise subject to restriction on their resale to the general public. Rule 144A establishes a “safe harbor” from the registration requirements of the 1933 Act for resales of certain securities to qualified institutional buyers.

Rule 144A securities may be determined to be liquid in accordance with guidelines established and approved by the Board of Directors of the Funds. If trading in Rule 144A securities were to decline, these securities could become illiquid after being purchased, increasing the level of illiquidity of a Fund. As a result, a Fund holding these securities might not be able to sell these securities when the Advisor wishes to do so, or might have to sell them at less than fair value.

REVERSE REPURCHASE AGREEMENTS. The Funds may invest in reverse repurchase agreements. In a reverse repurchase agreement, a Fund sells a security to another party, such as a bank or broker-dealer, in return for cash and agrees to repurchase that security at an agreed-upon price and time. The repurchase price will include an interest element. A reverse repurchase agreement is considered to be a borrowing for purposes of the 1940 Act. A Fund will typically invest the cash received from the reverse repurchase agreement and will also continue to receive any principal and interest payments on the security loaned to the reverse repurchase agreement counterparty during the term of the agreement. Reverse repurchase agreements involve the risk that a Fund will not realize earnings from the investment of the cash proceeds obtained from the transaction in sufficient amount to offset the interest paid to the reverse repurchase agreement counterparty. The Funds’ custodian bank will be required segregate liquid assets in a segregated account in sufficient amount to cover a Fund’s obligation to repurchase the securities under the contract. A Fund will enter into reverse repurchase agreements only with parties whose creditworthiness has been reviewed and found satisfactory by the Advisor.

SECURITIES LENDING. A Fund may lend its investment securities to qualified institutional investors (typically brokers, dealers, banks, or other financial institutions). A Fund receives collateral equal to at least 105% of the current market value of the loaned securities and that collateral is marked to market daily. By lending its investment securities, a Fund attempts to increase its net investment income through the receipt of interest on the collateral received. The Funds will pay reasonable administration and custodial fees in connection with the loan of securities. If the borrower defaults on its obligation to return the securities lent because of

 

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insolvency or other reasons, a Fund could experience delays and costs in recovering the securities lent or in gaining access to the collateral. If a Fund is not able to recover the securities lent, a Fund may sell the collateral and purchase a replacement investment in the market. The value of the collateral could decrease below the value of the replacement investment by the time the replacement investment is purchased. Cash received as collateral through loan transactions may be invested in other eligible securities. Investing this cash subjects that investment to market appreciation or depreciation. Loans of portfolio securities may not exceed 33 1/3% of a Fund’s total assets.

SWAP AGREEMENTS. A swap agreement is an agreement between two parties to exchange payments at specified dates (periodic payment dates) on the basis of a specified amount (notional amount) with the payments calculated with reference to a specified asset, reference rate, or index. Examples of swap agreements include, but are not limited to, interest rate swaps, credit default swaps, equity swaps, commodity swaps, foreign currency swaps, index swaps, and total return swaps. Most swap agreements provide that when the periodic payment dates for both parties are the same, payments are netted, and only the net amount is paid to the counterparty entitled to receive the net payment. Consequently, a Fund’s current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement, based on the relative values of the positions held by each counterparty. Swap agreements allow for a wide variety of transactions. For example, fixed rate payments may be exchanged for floating rate payments; U.S. dollar-denominated payments may be exchanged for payments denominated in a different currency; and payments tied to the price of one asset, reference rate, or index may be exchanged for payments tied to the price of another asset, reference rate, or index. A Fund is required to maintain liquid assets in a segregated account in an amount sufficient to cover its obligations under the swap agreement.

The use of swap agreements by a Fund entails certain risks, which may be different from, or possibly greater than, the risks associated with investing directly in the securities and other investments that are the referenced asset for the swap agreement. For example, if the counterparty under a swap agreement defaults on its obligation to make payments due from it, as a result of its bankruptcy or otherwise, a Fund may lose such payments altogether, or collect only a portion thereof, which collection could involve costs or delays. Swaps are highly specialized instruments that require investment techniques, risk analyses, and tax planning different from those associated with stocks, bonds, and other traditional investments. The use of a swap requires an understanding not only of the referenced asset, reference rate, or index but also of the swap itself, without the benefit of observing the performance of the swap under all possible market conditions.

Swap agreements may be subject to liquidity risk, which exists when a particular swap is difficult to purchase or sell. If a swap transaction is particularly large or if the relevant market is illiquid (as is the case with many OTC swaps), it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses. In addition, swap transaction may be subject to a Fund’s limitation on investments in illiquid securities. Swap agreements may be subject to pricing risk, which exists when a particular swap becomes extraordinarily expensive (or cheap) relative to historical prices or the prices of corresponding cash market instruments. Under certain market conditions, it may not be

 

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economically feasible to initiate a transaction or liquidate a position in time to avoid a loss or take advantage of an opportunity or to realize the intrinsic value of the swap agreement.

The swaps market is a relatively new market and is largely unregulated. It is possible that developments in the swaps market, including potential government regulation, could adversely affect a Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements.

III. STATE-SPECIFIC RISK FACTORS

Set forth below is a summary of information that bears upon the risk of investing in each Fund, with the exception of the StateShares™ Composite Fund. This information was obtained from official statements of issuers located in the respective states as well as from other publicly available official documents and statements. The Funds have not independently verified any of the information contained in such statements and documents. The information in the Prospectus and set forth below is intended only as a general summary and is not intended as a discussion of any specific factor that may affect any particular issuer.

StateShares™ California 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in California and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in California to a greater extent than companies not located in the State. Some of these more significant risks are as follows: The economy of the State of California is the largest among the 50 States and is one of the largest in the world, with prominence in the high technology, trade, entertainment, agriculture, manufacturing, tourism, construction, and services sectors. A disruption to any of these key industries could have a significant effect on the State’s economy. Historically, California’s economy has been more volatile than the nation as a whole. For example, a significant downturn in the U.S. stock market prices could adversely affect California’s economy by reducing household spending and business investment, particularly in the important high technology sector. As a high wealth state, California relies more heavily on tax revenues generated from capital gains than most other states. This, coupled with a progressive income tax structure, makes the State’s economy more vulnerable to swings in asset prices than most other States.

 

Beginning in early 2001, California’s economy slid into recession, and thousands of jobs were lost and capital gains taxes on stock transfers dropped. The sectors greatest impacted by the recession were in the high technology, internet, and telecommunications sectors, especially in Northern California. At the same time, the State experienced weakened exports and large stock market declines, including, declines in stock option values and capital gains realizations. The State’s economy began to improve in 2004 and continued to grow at a solid pace throughout 2006. California Legislative Analyst’s Office (“LAO”), a nonpartisan agency, notes that most of the recent revenue growth in the State’s General Fund is coming from volatile sources such as business earnings and investment income, which would fall off quickly in an economic slowdown. Nonetheless, the California economy strengthened and generally outperformed expectations in 2005, growing 4.4%. In early 2006, the Governor’s office predicted that moderate economic growth will continue in 2006 and 2007, although at a more subdued pace

 

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than in 2005. The State’s economic growth slowed in the first half of 2006 due to rising energy costs, increased interest rates and a cooling housing market. In addition, it is impossible to predict the time, magnitude or location of a major earthquake or its effect on the California economy. In January 1994, a major earthquake struck the Los Angeles area, causing significant damage in a four county area. The possibility exists that another such earthquake could create a major dislocation of the California economy.              

 

StateShares™ Colorado 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in Colorado and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in Colorado to a greater extent than companies not located in the State. Some of these more significant risks are as follows: During the mid-1980’s, Colorado’s economy was adversely affected by numerous factors, including the contraction of the energy sector, layoffs by advanced technology firms and an excess supply of both residential and nonresidential buildings causing employment in the construction sector to decline. During the 1990’s, Colorado’s economy became increasingly diversified moving from an economy formerly reliant on agriculture and mining to one based on services, communications, transportation, tourism, health care, high-tech and manufacturing, with small businesses predominating. During this period the economy steadily improved. In 2001 Colorado’s economy, like the national economy, began to weaken, taking a share downturn in the wake of the September 11, 2001 terrorist attacks. Personal income growth, wage and salary income growth, retail trade sales and population growth all slowed at this time. Presently, although economic signals are encouraging, the possibility exists that an event, such as another terrorist attack, may create a major dislocation of the Colorado economy and significantly affect the State’s economy.

 

Overall, Colorado’s economy is expanding at a healthy pace, as measured by job growth, consumer spending, and nonresidential construction. One area of concern, however, is housing, where the number of single-family permits is dropping and the pace of home appreciation is slowing. Colorado government officials believe future growth will be fueled by Colorado’s position in the advanced technology, defense and natural resources industries. Although it is expanding, any disruption to these important industries would have a significant impact on Colorado’s economy and, as such, inhibit sustainable economic growth at its current levels.

 

StateShares™ Connecticut 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in Connecticut and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in Connecticut to a greater extent than companies not located in the State. Some of these more significant risks are as follows: Though expanding, Connecticut’s economy is growing slower than the nation as a whole, constrained by high costs and slow population growth. The State’s economy is heavily influenced by the high-wage financial services industry, a major reason why Connecticut enjoys the highest per capita income in the nation. On a percentage basis, no other state, including New York, is more dependent on financial services. Any disruption to this important industry would

 

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have an outsized impact on Connecticut. Defense spending also figures prominently into Connecticut’s economy. Despite its relatively small size, Connecticut ranks 5th among the 50 states in defense dollars awarded. Therefore, cutbacks in defense spending would likely impact Connecticut disproportionately. The federal submarine base at New London and General Dynamic’s Electric Boat submarine facility are among Connecticut’s largest employers and important contributors to the State’s economy. The Defense Department’s Base Realignment and Closure Commission initially targeted New London for closure and although the base is now slated to remain open, there is no assurance that the Federal Government might not target it again in the future. Manufacturing, another important component of the State’s economy, has lagged in recent years, and is likely to remain under pressure in the near term.

 

While improving, Connecticut’s finances are still somewhat weak, with the State’s General Fund reporting a sizable negative unreserved fund balance at the end of fiscal year 2005. This reflects the severity of the impact that the recent recession had on the State’s finances. As a high wealth state, Connecticut relies more heavily on tax revenues generated from capital gains and is therefore more vulnerable to swings in asset prices than most other states.

 

StateShares™ Florida 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in Florida and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in Florida to a greater extent than companies not located in the State. Some of these more significant risks are as follows: Florida is the nation’s fourth most populous State behind California, Texas and New York. The Census Bureau projects that Florida will become the nation’s third largest state in 2011. Although the population growth has strengthened the economy, it has also caused a greater need for government services such as education and health care. As more senior citizens continue to move to Florida, demand for health care and social services will grow. While the state economy has diversified, it continues to rely on the tourism industry, which is subject to cyclical fluctuation. In addition, construction and services are main causes of Florida’s growing economy due to the housing boom in the State. Also, because Florida has a proportionately greater retirement age population, property income (dividends, interest and rent) and transfer payments (social security and pension benefits) are an important source of income. The dependency on these revenues leaves the State vulnerable to a decline in these revenues. Florida is also highly dependent on its sales tax making it somewhat vulnerable to economic slowdowns.

 

Although Florida currently does not impose an income tax on individuals, the State does impose a corporate income tax on the net income of corporations, organizations, associations and other artificial entities for the privilege of conducting business, deriving income or existing within the State. In addition, due to Florida’s location, the State is uniquely vulnerable to hurricanes and tropical storms which could create a major disruption to Florida’s economy and significantly affect State and local governmental budgets.

 

 

 

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StateShares™ Georgia 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in Georgia and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in Georgia to a greater extent than companies not located in the State. Some of these more significant risks are as follows: Georgia has a high level of exposure to the shrinking textile industry, which could make the State subject to higher unemployment in the future. While Georgia benefits from the Department of Defense’s Base Realignment and Closure process, its exposure to the military makes it more susceptible to any future military changes. Delta Airlines, Georgia’s fifth largest employer, is currently in Chapter 11 bankruptcy and the effects may be felt throughout the local economy. Georgia has a below average per capita income level at 90% of the national average for 2005. In addition, the State and its various subdivisions may face increasing financial pressure from costs relating to pensions and other post employment benefits.

 

StateShares™ Illinois 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in Illinois and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in Illinois to a greater extent than companies not located in the State. Some of these more significant risks are as follows: With the 5th highest overall gross state product in the nation, Illinois is one of the nation’s manufacturing leaders, with prominence in chemical manufacturing, fabricated metal products, plastics and rubber products, transportation equipment and computer and electronic products. The $71 billion gross output of the 16,400 manufacturers operating in Illinois represents 13.6% of the Illinois’ gross state product and, as such, makes the State’s economy particularly vulnerable to trends in the manufacturing sector. With a skilled work-force, available capital, a dynamic business climate and an established technology infrastructure, Illinois is also a top location for high technology industry and is the home to hundreds of federal research labs, including, Argonne National Laboratory, the leading federal laboratory in the State, focusing on advanced materials, chemicals and energy technologies, as well as transportation technology and biotechnology. Illinois is also a global leader in the securities and brokerage, and banking and insurance sectors, with two of the world’s top 10 international exchanges in Chicago, including the Chicago Board of Trade, which recently merged with the Chicago Mercantile Exchange, and the Chicago Board Options Exchange. Contributing nearly $1 billion into the State’s economy each year, the coal mining industry is also a vital component of the State’s economy. In addition, Illinois ranks 3rd among the states in percent of national retail sales. Any disruptions to these important industries would make the State’s economy susceptible to economic slowdowns.

 

StateShares™ Indiana 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in Indiana and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in Indiana to a greater extent than companies not located in the State. Some of these more significant risks are as follows: Due in large part to the State’s low taxes, conservative labor laws, and the presence of a large skilled

 

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workforce, Indiana is thought to have one of the most business-friendly economies in the nation. The growth rate of Indiana’s economy, ranked at 46th in the nation, lags behind the national average. Manufacturing is by far the largest contributor to Indiana’s economy, accounting for more than 30% of the gross state product. The State’s sluggish economic growth is attributed, in part, to a significant reduction in the manufacturing sector’s labor force, both on a local and national scale. The manufacturing sector is likely to remain under pressure in the near term. In addition to manufacturing, agriculture, in particular corn, soy and tobacco, is a significant sector of the economy and, as such, the State’s economy is sensitive to trends in those industries.

 

StateShares™ Maryland 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in Maryland and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in Maryland to a greater extent than companies not located in the State. Some of these more significant risks are as follows: Due to the proximity to Washington D.C., the federal government plays an important role in the State’s economy. Maryland also relies heavily on the healthcare and higher education sectors, with Johns Hopkins Hospital, Johns Hopkins University, and the University of Maryland Health System ranking among the State’s largest employers. This makes the State more vulnerable to changes in military and government spending, as well as any changes in the hospital and higher education sectors. While Maryland’s population growth remains higher than most of the surrounding region, migration to the State has slowed as housing has appreciated in value and becomes less affordable. Maryland runs the risk that it will become less attractive should its housing costs become cost prohibitive. On the other hand, a sudden drop in housing prices could slow consumer spending.

 

StateShares™ Massachusetts 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in Massachusetts and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in Massachusetts to a greater extent than companies not located in the Commonwealth. Some of these more significant risks are as follows: Though expanding, the Massachusetts economy is growing more slowly than the nation as a whole, constrained by high business costs and slow population growth. Employment growth is slow, and the Commonwealth is not projected to recover all the jobs lost in the recent recession until after 2010. Massachusetts has passed legislation essentially mandating healthcare insurance for all residents. Those residents unable to secure insurance on their own will have their premiums subsidized by the Commonwealth. Firms with more than 10 workers will be required to provide insurance to their employees or pay a fee to the Commonwealth. It is unknown at this time what impact this legislation will have on the economy or on the profitability of employers.

 

StateShares™ Michigan 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in Michigan and, therefore, may be significantly impacted by political, economic, or

 

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regulatory developments that affect companies headquartered in Michigan to a greater extent than companies not located in the State. Some of these more significant risks are as follows: The Michigan economy is more dependent on manufacturing with 15.8% of employment in manufacturing as compared to the national average of 10.9%. General Motors Corporation, Ford Motor Company, and Chrysler Group continue to comprise the top 3 employers in the State. Demographics remain weak with slow population growth and a high unemployment rate. The continuing layoffs by the auto and related industries continue to leave the State in a weakened financial state. Although per capita income is at 96% of the national average, it is at the lowest level that it has been relative to the national average since the Great Depression.

 

Michigan has a significant tax on employers, which causes the State to have an above average cost of business. The State Senate is debating the elimination of Michigan’s Single Business Tax. There can be no assurance, however, that this tax legislation will be adopted. In addition, the State and its various subdivisions may face increasing financial pressure from costs relating to pensions and other post employment benefits.

 

StateShares™ Minnesota 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in Minnesota and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in Minnesota to a greater extent than companies not located in the State. Some of these more significant risks are as follows: The structure of Minnesota’s economy parallels the structure of the United States economy as a whole. For 2005, state employment in 14 major sectors was distributed in approximately the same proportions as national employment. Some unique characteristics of the State’s economy are apparent in employment concentrations in industries that comprise the durable goods and non-durable goods manufacturing categories. In the durable goods industries, the State’s employment was highly concentrated in the fabricated metals, machinery and computers and electronics categories. Of particular importance is the computers and electronics category in which 24.3% of the State’s durable goods employment was concentrated in 2005, as compared to 14.7% for the United States as a whole. The emphasis is partly explained by the location in the State of Unisys, IBM, Seagate Technology, and other computer equipment manufacturers that are included in the computers and electronics classification. Any disruption to this important industry would have an outsized impact on Minnesota. In the non-durable goods industries, the State’s employment was concentrated in food manufacturing. Food manufacturing relies heavily on renewable resources in Minnesota. Over half of the State’s acreage is devoted to agricultural purposes. Printing and related activities are also relatively more important in the State than elsewhere in the U.S. Although mining is currently a less significant factor in the State economy than it once was, the State retains vast quantities of taconite as well as cooper, nickel, cobalt, and peat, which may be utilized in the future. Although the State’s per capita personal income has generally remained above the national average, and the State’s monthly unemployment rate has generally averaged less than the national average over the same period, it is not possible to forecast whether these trends will continue.

 

 

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StateShares™ Missouri 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in Missouri and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in Missouri to a greater extent than companies not located in the State. Some of these more significant risks are as follows: A number of the State’s large employers are in the automotive industry, which continues to struggle. In addition, the State’s employment is concentrated in the defense industry, which could weaken should military spending decline. Demographics are below average with population growth slow and migration weak, all of which could affect the State’s economy in the long run. In addition, the State and its various subdivisions may face increasing financial pressure from costs relating to pensions and other post employment benefits.

 

StateShares™ New Jersey 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in New Jersey and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in New Jersey to a greater extent than companies not located in the State. Some of these more significant risks are as follows: New Jersey’s economic base is diversified, consisting of a variety of manufacturing, construction and service industries, supplemented by rural areas with selective commercial agriculture. Though expanding, New Jersey’s economy is growing slower than the nation’s as a whole. Unemployment in the State has been rising and is now above national levels. Reasons cited for this increase include weakness in the State’s important pharmaceutical and telecom industries, as well as the State’s high cost nature and slow population growth. Tax increases are anticipated and will add to the State’s already high tax burden, further reducing its competitive position. The State and its various subdivisions may also face increasing financial pressure from costs relating to pensions and other post employment benefits.

 

StateShares™ New York 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in New York and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in New York to a greater extent than companies not located in the State. Some of these more significant risks are as follows: New York is the third most populous State in the nation and historically has been one of the wealthiest. For decades, however, the State has grown more slowly than the nation as a whole, gradually eroding its relative economic affluence. Statewide, urban centers have experienced significant changes involving migration of the more affluent to the suburbs and an influx of generally less affluent residents. Northeast cities, including, for example, the City of New York (the “City”), have suffered because of the relative success the South and the West have had in attracting people and business. The City also has had to face greater competition as other major cities have developed financial and business capabilities which make them less dependent on the specialized services traditionally available almost exclusively in the City. Though large and diversified, the State’s economy is heavily influenced by the high-wage financial services industry. While Wall Street represents only 4% of the State’s employment, it is estimated that it

 

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accounts for approximately 20% of all wages in the State. Any disruption to the financial services industry will have an outsized impact on both the State and the City, such as the devastating impact on the New York economy following the September 11 attacks. Recent economic growth has been concentrated in the New York City metropolitan area, as many upstate communities continue to suffer from declining manufacturing and population bases.

 

The attacks of September 11 and the lingering effects of the national recession are expected to have continued adverse financial consequences for the State. The threat of future terrorist acts against the U.S. still remains. Another attack targeted at New York City would once again disproportionately affect the State economy, resulting in lower income and employment growth than presently forecasted. In the long term, consequently, the most significant risk is the possible loss of important economic activity in the State due to the lingering effects of the September 11 terrorist attacks coupled with the threat of future terrorist acts.

 

StateShares™ North Carolina 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in North Carolina and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in North Carolina to a greater extent than companies not located in the State. Some of these more significant risks are as follows: North Carolina’s economy consists of a combination of services, agriculture, trade, manufacturing and tourism. In recent years, the State has seen significant increases in population, labor force, and per capita income. Despite having a large number of urban centers, the State remains predominantly rural. The services industry sector constitutes the single largest employment sector of the State’s economy and employed approximately 80% of the State’s total nonfarm employment in February 2006. This industry includes a broad base of different occupations throughout the State, including banking, accounting, legal services, health services and technology services. Charlotte, the State’s largest city, is the second largest financial center in the United States, serving as headquarters for several major financial institutions. Bank of America Corporation, BB&T Corporation and Wachovia Corporation, all headquartered in Charlotte, are three of the nation’s ten largest bank holding companies. Any disruption to the services industry sector and, more particularly, the financial services industry, will have a significant impact on the State’s economy. Agriculture is diversified among hogs, poultry, greenhouse/nursery operations, tobacco, and turkeys. Tourism is concentrated in the western and coastal parts of the State. U.S. Military bases located in North Carolina also constitute a significant part of the economy. Recently, North Carolina’s economy has experienced growth led by government employment, financial services and technology sectors, as the State has continued to transition from declining old-line industries such as textiles and furniture manufacturing. However, manufacturing of all types still accounts for a large percentage of the State’s employment putting North Carolina at risk for any volatility in the manufacturing sector. Although the technology, banking and service industries are expected to continue to buoy the State’s economy, and the State’s many universities are expected to attract business professionals and venture capital, North Carolina’s economy is uniquely vulnerable to trends in those industries.

 

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StateShares™ Ohio 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in Ohio and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in Ohio to a greater extent than companies not located in the State. Some of these more significant risks are as follows: Ohio’s economy is growing slowly and is one of the weakest in the nation. Population growth remains very low and Ohio is one of the four slowest growing States in the nation. Ohio’s large exposure to the auto industry has been a drag on its economy as the industry continues to struggle. Ohio ranks among the nation’s highest for personal bankruptcy filing, mortgage foreclosures, and mortgage delinquency rates according to FDIC.

 

StateShares™ Pennsylvania 50 Exchange-Traded Fund

 

The Fund concentrates its investments in securities of companies with headquarters located in Pennsylvania and, therefore, may be significantly impacted by political, economic, or regulatory developments that affect companies headquartered in Pennsylvania to a greater extent than companies not located in the Commonwealth. Some of these more significant risks are as follows: Though the Pennsylvania economy is exhibiting moderate growth, mirroring the nation as a whole, there is the possibility that it may not sustain its current growth levels. Current major sources of economic growth in Pennsylvania are in the service sector, including trade, medical, health services, education and financial institutions. Health services and education now represent the largest sectors of total employment for Pennsylvania. Pennsylvania’s agriculture industries also are an important component of the Commonwealth’s economic structure, accounting for more than $4.8 billion in crop and livestock products annually. Pennsylvania ranks among the top ten states in the production of a variety of agricultural products, with over 58,000 farms forming the backbone of the Commonwealth’s agricultural economy. In 2004, agribusiness and food related industries reached record export sales surpassing $1 billion in economic activity. Farmland in Pennsylvania includes over four million acres of harvested cropland and three million acres of pasture and farm woodlands – nearly one-third of the Commonwealth’s total land area. The Commonwealth’s extensive public and private forests provide a vast resource of material for the lumber, furniture and paper products industries. The forestry and related industries account for 1.5% of employment with economic activity of nearly $5 billion in domestic and international trade. Other natural resources include major deposits of coal, petroleum and natural gas. Any disruption to these industries would make the State somewhat vulnerable to economic slowdowns. Unemployment in the Commonwealth has been relatively stable over the past year, matching the national rate for July 2006 at 4.8%. Job losses in manufacturing have been offset to a great extent by growth in the service industry,