485APOS 1 v208582_485apos.htm Unassociated Document
As filed with the Securities and Exchange Commission on February 3, 2011
 
Securities Act File No. 333-146327
Investment Company Act File No. 811-22128

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM N-1A
 
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
x
Pre-Effective Amendment No.
¨
Post-Effective Amendment No. 20
x
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
x
Amendment No. 21
x
 (Check appropriate box or boxes.)
 


FOCUSSHARES TRUST
(Exact Name of Registrant as Specified in Charter)
 

 
210 Summit Avenue
Suite C-11
Montvale, NJ 07645
(Address of Principal Executive Offices) (Zip Code)
 
Registrant’s Telephone Number, including Area Code:  (201) 930-8500
 


Erik Liik
FocusShares, LLC
210 Summit Avenue
Suite C-11
Montvale, NJ 07645
(Name and Address of Agent for Service)
 
With a copy to:
 
Peter J. Shea, Esq.
Katten Muchin Rosenman LLP
575 Madison Avenue
 New York, New York 10022-2511
 
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box):
¨  Immediately upon filing pursuant to paragraph (b)
¨  On ______________ pursuant to paragraph (b)
x  60 days after filing pursuant to paragraph (a)(1)
¨  On (date) pursuant to paragraph (a)(1)
o  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.

 
 

 
 
The information in this prospectus is not complete and may be changed. We may not sell these securities until the Registration Statement filed with the Securities and Exchange Commission (“SEC”) is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
 Preliminary Prospectus
 
Subject to Completion, dated [ • ] [ • ], 2011
 
[LOGO]
 
FocusShares Trust (the “Trust”) is a investment company that consists of separate investment portfolios called “Funds.” This prospectus relates to the following Funds:
 
Fund
 
CUSIP
 
Ticker
   
 
   
Focus Morningstar US Market Index ETF
 
34416W502
 
FMU
Focus Morningstar Large Cap Index ETF
 
34416W601
 
FLG
Focus Morningstar Mid Cap Index ETF
 
34416W700
 
FMM
Focus Morningstar Small Cap Index ETF
 
34416W809
 
FOS
Focus Morningstar Basic Materials Index ETF
 
34416W882
 
FBM
Focus Morningstar Communication Services Index ETF
 
34416W874
 
FCQ
Focus Morningstar Consumer Cyclical Index ETF
 
34416W866
 
FCL
Focus Morningstar Consumer Defensive Index ETF
 
34416W858
 
FCD
Focus Morningstar Energy Index ETF
 
34416W841
 
FEG
Focus Morningstar Financial Services Index ETF
 
34416W833
 
FFL
Focus Morningstar Health Care Index ETF
 
34416W825
 
FHC
Focus Morningstar Industrials Index ETF
 
34416W817
 
FIL
Focus Morningstar Real Estate Index ETF
 
34416W791
 
FRL
Focus Morningstar Technology Index ETF
 
34416W783
 
FTQ
Focus Morningstar Utilities Index ETF
 
34416W775
 
FUI
 
Each Fund is an exchange-traded fund (“ETF”). This means that shares of the Funds are listed on the NYSE Arca, Inc. and trade at market prices. The market price for a Fund’s shares may be different from its net asset value per share (the “NAV”). Each Fund has its own CUSIP number and exchange trading symbol.
 
An investment in shares of the Fund is not a deposit or other obligation of, or issued, endorsed or guaranteed by, Scottrade Bank or any of its affiliates and is not insured, guaranteed, or endorsed by the U.S. Government, the Federal Deposit Insurance Corporation, or any other government agency. An investment in shares of a Fund involves investment risks, including possible loss of principal.
 
Prospectus
[●], 2011
 
FocusShares Trust
Distributor: Foreside Fund Services, LLC

Neither the Securities and Exchange Commission 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.

 

 

Table of Contents
 
Focus Morningstar US Market Index ETF
  1
Focus Morningstar Large Cap Index ETF
  4
Focus Morningstar Mid Cap Index ETF
  7
Focus Morningstar Small Cap Index ETF
  10
Focus Morningstar Basic Materials Index ETF
  13
Focus Morningstar Communication Services Index ETF
  16
Focus Morningstar Consumer Cyclical Index ETF
  19
Focus Morningstar Consumer Defensive Index ETF
  22
Focus Morningstar Energy Index ETF
  25
Focus Morningstar Financial Services Index ETF
  28
Focus Morningstar Health Care Index ETF
  31
Focus Morningstar Industrials Index ETF
  34
Focus Morningstar Real Estate Index ETF
  37
Focus Morningstar Technology Index ETF
  40
Focus Morningstar Utilities Index ETF
  43
Additional Description of the Principal Strategies of the Funds
  46
Additional Description of the Principal Risks of the Funds
  46
Additional Investment Strategies
  50
Additional Risks
  51
Continuous Offering
  52
Creation and Redemption of Creation Units
  53
Buying and Selling Shares in the Secondary Market
  53
Management
  54
Shareholder Information
  56
Frequent Trading
  57
Dividends, Distributions and Taxes
  58
License Agreement
  60
Code of Ethics
  61
Fund Website and Disclosure of Portfolio Holdings
  61
General Information
  61
Financial Highlights
  62
FocusShares Trust Privacy Policy
  63
 
Morningstar® is a registered trademark of Morningstar, Inc.  Morningstar Basic MaterialsSM, Morningstar Communication ServicesSM, Morningstar Consumer CyclicalSM, Morningstar Consumer DefensiveSM, Morningstar EnergySM, Morningstar Financial ServicesSM, Morningstar Health CareSM, Morningstar IndustrialsSM, Morningstar Large CapSM, Morningstar Mid CapSM, Morningstar Real EstateSM, Morningstar Small CapSM, Morningstar TechnologySM, Morningstar US MarketSM, Morningstar UtilitiesSM are service marks of Morningstar, Inc.

 

 

FOCUS MORNINGSTAR US MARKET INDEX ETF
 
Investment Objective
 
The Focus Morningstar US Market Index ETF (the “Fund”) seeks to provide investment results that correspond, before fees and expenses, generally to the price and yield performance of the Morningstar US Market Index (the “Underlying Index”).  The Underlying Index measures the performance of United States (“US”), publicly traded companies as determined by Morningstar, Inc.’s (“Morningstar”) proprietary index methodology.
 
Fees and Expenses
 
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund (“Shares”).  Investors purchasing Shares through a broker-dealer on a national securities exchange or in the over-the-counter market (the “Secondary Market”) may be subject to customary brokerage commissions charged by their broker which are not reflected in the table set forth below.
 
Shareholder Fees (Fees Paid Directly from your Investment)
 
No shareholder fees are levied by the Fund for purchases and sales made on the Secondary Market.
 
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
 
Management Fees
   
[·]
%
Distribution and Service (12b-1) Fees
    0.00 %
Other Expenses(a)
   
[·]
%
Total Annual Fund Operating Expenses
    [·] %
 

 
 
(a)
The Fund is new and Other Expenses are based on estimated amounts for the current fiscal year.
 
Example
 
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
 
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same.  Although your actual costs may be higher or lower, based on these assumptions your approximate costs would be:

YEAR
 
EXPENSES
1
 
$[·]
3
 
$[·]

Portfolio Turnover
 
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.

Because the Fund has not yet commenced operations, no portfolio turnover information is presented.

 
1

 
 
Principal Investment Strategies
 
The Morningstar US Market Index measures the performance of 1,536 stocks issued by large-, mid-, and small-capitalization companies that are domiciled or principally traded in the US. The Morningstar index methodology defines the “US Market” as those stocks that form the top 97% of the market capitalization of the stocks eligible to be included in the Underlying Index. As of December 20, 2010, the Underlying Index, which is considered diversified, was comprised of component securities with market capitalizations greater than $344.72 million that have a daily average traded volume of at least 536,751 over the past three months.  The total market capitalization of the Underlying Index as of December 20, 2010 was in excess of $14.04 trillion.
 
Indexing Investment Approach. The Fund is not managed according to traditional methods of “active” investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment.  Instead, the Fund, utilizing a “passive” or indexing investment approach, attempts to approximate the investment performance of the Underlying Index by investing in a portfolio of securities that generally replicates the Underlying Index.  The Fund may or may not hold all of the securities in the Underlying Index and may, from time to time, engage in a representative sampling strategy.
 
The Fund generally will invest at least 90% of its assets in securities of the Underlying Index. The Fund may invest less than 90% of its assets in the securities of the Underlying Index only to the extent that the Fund’s investment advisor, FocusShares LLC (the “Advisor”), needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and other regulatory requirements.
 
Principal Risks of Investing in the Fund
 
As with any investment, you could lose all or part of your investment in the Fund, and the Fund’s performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective.  A more complete description of principal risks is included in the Prospectus under the heading “Additional Description of the Principal Risk Factors of the Fund.”
 
The principal risks associated with the Fund are:

Index Risk.  The performance of the Underlying Index and the Fund may deviate from that of the market the Underlying Index seeks to track due to changes that are reflected more quickly in the market than in the Underlying Index, which will rebalance its component securities only on a quarterly basis.
 
Index Tracking Risk.  Although the Fund attempts to track the performance of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons.  To the extent the Advisor uses a representative sampling indexing strategy to manage the Fund, index tracking risk will be higher than if a replication strategy were implemented.
 
Market Risk.  The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value.  An investment in the Fund may lose money.
 
Mid-Capitalization Companies Risk. The Fund invests in the securities of mid-capitalization companies, the value of which may be more volatile than those of larger companies.
 
Small-Capitalization Companies Risk. The Fund invests in the securities of small capitalization companies, the value of which may be more volatile than those of larger companies.
 
Equity Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes such as fixed-income securities.
 
New Fund Risk.  The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, Inc. (“NYSE Arca”), there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.
 
Performance
 
As of the date of this prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.  For current performance information, please visit www.focusshares.com.

 
2

 
 
Investment Advisor
 
FocusShares, LLC serves as the investment advisor to the Fund.
 
Portfolio Managers
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor.  Mr. Wallace has been with the Advisor since 2010.
 
Travis Trampe is a Portfolio Manager of the Advisor.  Mr. Trampe has been with the Advisor since 2010.
 
Purchase and Sale of Fund Shares
 
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at net asset value (“NAV”), only in blocks of 50,000 Shares or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally in-kind for securities included in the Fund. Retail investors may acquire Shares only on NYSE Arca through a broker-dealer. Shares of the Fund will trade at market price rather than NAV.  As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
 
Tax Information
 
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains.
 
Financial Intermediary Compensation
 
If you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s Web site for more information.

 
3

 

FOCUS MORNINGSTAR LARGE CAP INDEX ETF
 
Investment Objective
 
The Focus Morningstar Large Cap Index ETF (the “Fund”) seeks to provide investment results that correspond, before fees and expenses, generally to the price and yield performance of the Morningstar Large Cap Index (the “Underlying Index”).  The Underlying Index measures the performance of stocks issued by large-capitalization companies as determined by Morningstar, Inc.’s (“Morningstar”) proprietary index methodology.
 
Fees and Expenses
 
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund (“Shares”).  Investors purchasing Shares through a broker-dealer on a national securities exchange or in the over-the-counter market (the “Secondary Market”) may be subject to customary brokerage commissions charged by their broker which are not reflected in the table set forth below.
 
Shareholder Fees (Fees Paid Directly from your Investment)
 
No shareholder fees are levied by the Fund for purchases and sales made on the Secondary Market.
 
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
 
Management Fees
   
[·]
%
Distribution and Service (12b-1) Fees
    0.00 %
Other Expenses(a)
   
[·]
%
Total Annual Fund Operating Expenses
   
[·]
%
 


 
(a)
The Fund is new and Other Expenses are based on estimated amounts for the current fiscal year.
 
Example
 
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
 
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same.  Although your actual costs may be higher or lower, based on these assumptions your approximate costs would be:

     
YEAR
 
EXPENSES
1
 
$[·]
3
 
$[·]
 
Portfolio Turnover
 
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.

Because the Fund has not yet commenced operations, no portfolio turnover information is presented.

 
4

 
 
Principal Investment Strategies
 
The Morningstar Large Cap Index measures the performance of stocks issued by large-capitalization companies that are domiciled or principally traded in the United States, as determined by Morningstar, Inc.’s (“Morningstar”) proprietary index methodology that meet specific criteria developed by Morningstar, and is determined on the basis of capital value of component securities that are publicly held, which typifies a “float adjusted” capitalization index. The Morningstar index methodology defines “large-capitalization” stocks as those stocks that form the top 70% of the market capitalization of the stocks eligible to be included in the Morningstar US Market Index (a diversified broad market index that represents approximately 97% of the market capitalization of publicly-traded US stocks).  As of December 20, 2010, the Underlying Index, which is considered diversified, was comprised of 259 component securities with market capitalizations greater than $9.74 billion that have a daily average traded volume of at least 57.75 million over the past three months.  The total market capitalization of the Underlying Index as of December 20, 2010 was in excess of $10.09 trillion.

 
The Fund generally will invest at least 90% of its assets in securities of the Underlying Index. The Fund may invest less than 90% of its assets in the securities of the Underlying Index only to the extent that the Fund’s investment advisor, FocusShares LLC (the “Advisor”), needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and other regulatory requirements.
 
Principal Risks of Investing in the Fund
 
As with any investment, you could lose all or part of your investment in the Fund, and the Fund’s performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective.  A more complete description of principal risks is included in the Prospectus under the heading “Additional Description of the Principal Risk Factors of the Fund.”
 
The principal risks associated with the Fund are:

Index Risk.  The performance of the Underlying Index and the Fund may deviate from that of the market the Underlying Index seeks to track due to changes that are reflected more quickly in the market than in the Underlying Index, which will rebalance its component securities only on a quarterly basis.
 
Index Tracking Risk.  Although the Fund attempts to track the performance of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons.  To the extent the Advisor uses a representative sampling indexing strategy to manage the Fund, index tracking risk will be higher than if a replication strategy were implemented.
 
Market Risk.  The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value.  An investment in the Fund may lose money.
 
Equity Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes such as fixed-income securities.
 
New Fund Risk.  The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, Inc. (“NYSE Arca”), there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.
 
Performance
 
As of the date of this prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.  For current performance information, please visit www.focusshares.com.

 
5

 
 
Investment Advisor
 
FocusShares, LLC serves as the investment advisor to the Fund.
 
Portfolio Managers
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor.  Mr. Wallace has been with the Advisor since 2010.
 
Travis Trampe is a Portfolio Manager of the Advisor.  Mr. Trampe has been with the Advisor since 2010.
 
Purchase and Sale of Fund Shares
 
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at net asset value (“NAV”), only in blocks of 50,000 Shares or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally in-kind for securities included in the Fund. Retail investors may acquire Shares only on NYSE Arca through a broker-dealer. Shares of the Fund will trade at market price rather than NAV.  As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
 
Tax Information
 
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains.
 
Financial Intermediary Compensation
 
If you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s Web site for more information.

 
6

 

FOCUS MORNINGSTAR MID CAP INDEX ETF
 
Investment Objective
 
The Focus Morningstar Mid Cap Index ETF (the “Fund”) seeks to provide investment results that correspond, before fees and expenses, generally to the price and yield performance of the Morningstar Mid Cap Index (the “Underlying Index”).  The Underlying Index measures the performance of stocks issued by middle-capitalization companies as determined by Morningstar, Inc.’s (“Morningstar”) proprietary index methodology.
 
Fees and Expenses
 
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund (“Shares”).  Investors purchasing Shares through a broker-dealer on a national securities exchange or in the over-the-counter market (the “Secondary Market”) may be subject to customary brokerage commissions charged by their broker which are not reflected in the table set forth below.
 
Shareholder Fees (Fees Paid Directly from your Investment)
 
No shareholder fees are levied by the Fund for purchases and sales made on the Secondary Market.
 
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
 
Management Fees
   
[·]
%
Distribution and Service (12b-1) Fees
    0.00 %
Other Expenses(a)
   
[·]
%
Total Annual Fund Operating Expenses
   
[·]
%


 
 
(a)
The Fund is new and Other Expenses are based on estimated amounts for the current fiscal year.
 
Example
 
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
 
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same.  Although your actual costs may be higher or lower, based on these assumptions your approximate costs would be:

     
YEAR
 
EXPENSES
1
 
$[·]
3
 
$[·]

Portfolio Turnover
 
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.

Because the Fund has not yet commenced operations, no portfolio turnover information is presented.

 
7

 
 
Principal Investment Strategies
 
The Morningstar Mid Cap Index measures the performance of stocks issued by middle-capitalization companies that are domiciled or principally traded in the United States, as determined by Morningstar, Inc.’s (“Morningstar”) proprietary index methodology that meet specific criteria developed by Morningstar, and is determined on the basis of capital value of component securities that are publicly held, which typifies a “float adjusted” capitalization index. The Morningstar index methodology defines “middle-capitalization” stocks as those stocks between the bottom 70th and 90th percentile of the market capitalization of the stocks eligible to be included in the Morningstar US Market Index (a diversified broad market index that represents approximately 97% of the market capitalization of publicly-traded US stocks). As of December 20, 2010, the Underlying Index, which is considered diversified, was comprised of 558 component securities with market capitalizations between $1.48 billion and $11.94 billion that have a daily average traded volume of at least 536,751 over the past three months.  The total market capitalization of the Underlying Index as of December 20, 2010 was in excess of $2.89 trillion.

Indexing Investment Approach. The Fund is not managed according to traditional methods of “active” investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment.  Instead, the Fund, utilizing a “passive” or indexing investment approach, attempts to approximate the investment performance of the Underlying Index by investing in a portfolio of securities that generally replicates the Underlying Index.  The Fund may or may not hold all of the securities in the Underlying Index and may, from time to time, engage in a representative sampling strategy.
 
The Fund generally will invest at least 90% of its assets in securities of the Underlying Index. The Fund may invest less than 90% of its assets in the securities of the Underlying Index only to the extent that the Fund’s investment advisor, FocusShares LLC (the “Advisor”), needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and other regulatory requirements.
 
Principal Risks of Investing in the Fund
 
As with any investment, you could lose all or part of your investment in the Fund, and the Fund’s performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective.  A more complete description of principal risks is included in the Prospectus under the heading “Additional Description of the Principal Risk Factors of the Fund.”
 
The principal risks associated with the Fund are:

Index Risk.  The performance of the Underlying Index and the Fund may deviate from that of the market the Underlying Index seeks to track due to changes that are reflected more quickly in the market than in the Underlying Index, which will rebalance its component securities only on a quarterly basis.
 
Index Tracking Risk.  Although the Fund attempts to track the performance of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons.  To the extent the Advisor uses a representative sampling indexing strategy to manage the Fund, index tracking risk will be higher than if a replication strategy were implemented.
 
Market Risk.  The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value.  An investment in the Fund may lose money.
 
Mid-Capitalization Companies Risk.  The Fund invests in the securities of mid-capitalization companies, the value of which may be more volatile than those of larger companies.
 
Equity Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes such as fixed-income securities.
 
New Fund Risk.  The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, Inc. (“NYSE Arca”), there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.

 
8

 
 
Performance
 
As of the date of this prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.  For current performance information, please visit www.focusshares.com.
 
Investment Advisor
 
FocusShares, LLC serves as the investment advisor to the Fund.
 
Portfolio Managers
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor.  Mr. Wallace has been with the Advisor since 2010.
 
Travis Trampe is a Portfolio Manager of the Advisor.  Mr. Trampe has been with the Advisor since 2010.
 
Purchase and Sale of Fund Shares
 
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at net asset value (“NAV”), only in blocks of 50,000 Shares or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally in-kind for securities included in the Fund. Retail investors may acquire Shares only on NYSE Arca through a broker-dealer. Shares of the Fund will trade at market price rather than NAV.  As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
 
Tax Information
 
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains.
 
Financial Intermediary Compensation
 
If you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s Web site for more information.

 
9

 

FOCUS MORNINGSTAR SMALL CAP INDEX ETF
 
Investment Objective
 
The Focus Morningstar Small Cap Index ETF (the “Fund”) seeks to provide investment results that correspond, before fees and expenses, generally to the price and yield performance of the Morningstar Small Cap Index (the “Underlying Index”).  The Underlying Index measures the performance of stocks issued by small-capitalization companies as determined by Morningstar, Inc.’s (“Morningstar”) proprietary index methodology
 
Fees and Expenses
 
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund (“Shares”).  Investors purchasing Shares through a broker-dealer on a national securities exchange or in the over-the-counter market (the “Secondary Market”) may be subject to customary brokerage commissions charged by their broker which are not reflected in the table set forth below.
 
Shareholder Fees (Fees Paid Directly from your Investment)
 
No shareholder fees are levied by the Fund for purchases and sales made on the Secondary Market.
 
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
 
Management Fees
   
[·]
%
Distribution and Service (12b-1) Fees
    0.00 %
Other Expenses(a)
   
[·]
%
Total Annual Fund Operating Expenses
   
[·]
%


 
 
(a)
The Fund is new and Other Expenses are based on estimated amounts for the current fiscal year.
 
Example
 
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
 
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same.  Although your actual costs may be higher or lower, based on these assumptions your approximate costs would be:
     
YEAR
 
EXPENSES
1
 
$[·]
3
 
$[·]
 
Portfolio Turnover
 
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.

Because the Fund has not yet commenced operations, no portfolio turnover information is presented.

 
10

 
 
Principal Investment Strategies
 
The Morningstar Small Cap Index measures the performance of stocks issued by small-capitalization companies that are domiciled or principally traded in the United States, as determined by Morningstar, Inc.’s (“Morningstar”) proprietary index methodology that meet specific criteria developed by Morningstar, and is determined on the basis of capital value of component securities that are publicly held, which typifies a “float adjusted” capitalization index. The Underlying Index methodology defines “small-capitalization” stocks as those stocks between the bottom 90th and 97th percentile of the market capitalization of the stocks eligible to be included in the Morningstar US Market Index (a diversified broad market index that represents approximately 97% of the market capitalization of publicly-traded US stocks).  As of December 20, 2010, the Underlying Index, which is considered diversified, was comprised of 719 component securities with market capitalizations between $344.72 million and $3.34 billion that have a daily average traded volume of at least 610,610 over the past three months.  The total market capitalization of the Underlying Index as of December 20, 2010 was in excess of $1.06 trillion.

Indexing Investment Approach. The Fund is not managed according to traditional methods of “active” investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment.  Instead, the Fund, utilizing a “passive” or indexing investment approach, attempts to approximate the investment performance of the Underlying Index by investing in a portfolio of securities that generally replicates the Underlying Index.  The Fund may or may not hold all of the securities in the Underlying Index and may, from time to time, engage in a representative sampling strategy.
 
The Fund generally will invest at least 90% of its assets in securities of the Underlying Index. The Fund may invest less than 90% of its assets in the securities of the Underlying Index only to the extent that the Fund’s investment advisor, FocusShares LLC (the “Advisor”), needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and other regulatory requirements.
 
Principal Risks of Investing in the Fund
 
As with any investment, you could lose all or part of your investment in the Fund, and the Fund’s performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective.  A more complete description of principal risks is included in the Prospectus under the heading “Additional Description of the Principal Risk Factors of the Fund.”
 
The principal risks associated with the Fund are:

Index Risk.  The performance of the Underlying Index and the Fund may deviate from that of the market the Underlying Index seeks to track due to changes that are reflected more quickly in the market than in the Underlying Index, which will rebalance its component securities only on a quarterly basis.
 
Index Tracking Risk.  Although the Fund attempts to track the performance of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons.  To the extent the Advisor uses a representative sampling indexing strategy to manage the Fund, index tracking risk will be higher than if a replication strategy were implemented.
 
Market Risk.  The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value.  An investment in the Fund may lose money.
 
Small-Capitalization Companies Risk.  The Fund invests in the securities of small capitalization companies, the value of which may be more volatile than those of larger companies.
 
Equity Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes such as fixed-income securities.
 
New Fund Risk.  The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, Inc. (“NYSE Arca”), there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.

 
11

 
 
Performance
 
As of the date of this prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.  For current performance information, please visit www.focusshares.com.
 
Investment Advisor
 
FocusShares, LLC serves as the investment advisor to the Fund.
 
Portfolio Managers
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor.  Mr. Wallace has been with the Advisor since 2010.
 
Travis Trampe is a Portfolio Manager of the Advisor.  Mr. Trampe has been with the Advisor since 2010.
 
Purchase and Sale of Fund Shares
 
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at net asset value (“NAV”), only in blocks of 50,000 Shares or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally in-kind for securities included in the Fund. Retail investors may acquire Shares only on NYSE Arca through a broker-dealer. Shares of the Fund will trade at market price rather than NAV.  As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
 
Tax Information
 
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains.
 
Financial Intermediary Compensation
 
If you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s Web site for more information.

 
12

 

FOCUS MORNINGSTAR BASIC MATERIALS INDEX ETF
 
Investment Objective
 
The Focus Morningstar Basic Materials Index ETF (the “Fund”) seeks to provide investment results that correspond, before fees and expenses, generally to the price and yield performance of the Morningstar Basic Materials Index (the “Underlying Index”).  The Underlying Index is a subset of the Morningstar US Market Index and consists of companies that manufacture chemicals, building materials and paper products. This sector also includes companies engaged in commodities exploration and processing.
 
Fees and Expenses
 
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund (“Shares”). Investors purchasing Shares through a broker-dealer on a national securities exchange or in the over-the-counter market (the “Secondary Market”) may be subject to customary brokerage commissions charged by their broker which are not reflected in the table set forth below.
 
Shareholder Fees (Fees Paid Directly from your Investment)
 
No shareholder fees are levied by the Fund for purchases and sales made on the Secondary Market.
 
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
 
Management Fees
   
[·]
%
Distribution and Service (12b-1) Fees
    0.00 %
Other Expenses(a)
   
[·]
%
Total Annual Fund Operating Expenses
   
[·]
%
 

 
 
(a)
The Fund is new and Other Expenses are based on estimated amounts for the current fiscal year.
 
Example
 
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.

The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same.  Although your actual costs may be higher or lower, based on these assumptions your approximate costs would be:
     
YEAR
 
EXPENSES
1
 
$[·]
3
 
$[·]
 
Portfolio Turnover
 
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.

 
13

 

Because the Fund has not yet commenced operations, no portfolio turnover information is presented.
 
Principal Investment Strategies
 
The Morningstar Basic Materials Index is determined on the basis of capital value of component securities that are publicly held, which typifies a “float adjusted” capitalization index and is a subset of the Morningstar US Market Index (a diversified broad market index that represents approximately 97% of the market capitalization of publicly-traded companies that are domiciled or principally traded in the United States).  The Underlying Index consists of companies that manufacture chemicals, building materials and paper products. This sector also includes companies engaged in commodities exploration and processing that meet specific criteria developed by Morningstar, Inc. (“Morningstar”) based on the standard industrial classification (“SIC”) codes attributable to the industries covered by the Underlying Index. As of December 20, 2010, the Underlying Index was comprised of 97 component securities with market capitalizations greater than $743.71 million that have a daily average traded volume of at least 536,751 over the past three months.  The total market capitalization of the Underlying Index as of December 20, 2010 was in excess of $581.87 billion.

Indexing Investment Approach. The Fund is not managed according to traditional methods of “active” investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment.  Instead, the Fund, utilizing a “passive” or indexing investment approach, attempts to approximate the investment performance of the Underlying Index by investing in a portfolio of securities that generally replicates the Underlying Index.  The Fund may or may not hold all of the securities in the Underlying Index and may, from time to time, engage in a representative sampling strategy.
 
The Fund generally will invest at least 90% of its assets in securities of the Underlying Index. The Fund may invest less than 90% of its assets in the securities of the Underlying Index only to the extent that the Fund’s investment advisor, FocusShares LLC (the “Advisor”), needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and other regulatory requirements.
 
Principal Risks of Investing in the Fund
 
As with any investment, you could lose all or part of your investment in the Fund, and the Fund’s performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective.  A more complete description of principal risks is included in the Prospectus under the heading “Additional Description of the Principal Risk Factors of the Fund.”
 
The principal risks associated with the Fund are:

Index Risk.  The Underlying Index is new and has limited historical performance data that is not predictive of future results. The performance of the Underlying Index and the Fund may deviate from that of the sector the Underlying Index seeks to track due to changes that are reflected more quickly in the sector than in the Underlying Index, which will rebalance its component securities only on a quarterly basis.
 
Index Tracking Risk.  Although the Fund attempts to track the performance of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons.  To the extent the Advisor uses a representative sampling indexing strategy to manage the Fund, index tracking risk will be higher than if a replication strategy were implemented.
 
Concentration Risk.  To the extent that the Underlying Index is concentrated in a particular industry, the Fund also will be concentrated in that industry.  Concentrated Fund investments will subject the Fund to a greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different industry sectors.
 
Non-Diversified Risk. The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940 (the “1940 Act”) and is subject to the risk that it will be more volatile than a diversified fund because the Fund may invest its assets in a smaller number of issuers or may invest larger proportions of its assets in a single industry that comprises the Underlying Index.
 
Market Risk.  The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value.  An investment in the Fund may lose money.
 
Equity Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes such as fixed-income securities.
 
Basic Materials Industry Risk.  The Fund is subject to regulatory, geopolitical, competition and general industry risks faced by companies in the basic materials economic sector. Risks faced by companies in the basic materials economic sector include adverse effects from commodity price and exchange rate volatility, general market competition, and environmental, litigation risks, geopolitical and labor risks. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors and the overall stock market.

 
14

 

Interest Rate Risk.  The Underlying Index is heavily weighted in market sectors and an industry that are sensitive to interest rate fluctuations and, therefore, the Fund may be more sensitive to fluctuations in interest rates than other types of investments.
 
New Fund Risk.  The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, Inc. (“NYSE Arca”), there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.
 
 
As of the date of this prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.  For current performance information, please visit www.focusshares.com.
 
Investment Advisor
 
FocusShares, LLC serves as the investment advisor to the Fund.
 
Portfolio Managers
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor.  Mr. Wallace has been with the Advisor since 2010.
 
Travis Trampe is a Portfolio Manager of the Advisor.  Mr. Trampe has been with the Advisor since 2010.
 
Purchase and Sale of Fund Shares
 
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at net asset value (“NAV”), only in blocks of 50,000 Shares or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally in-kind for securities included in the Fund. Retail investors may acquire Shares only on NYSE Arca through a broker-dealer. Shares of the Fund will trade at market price rather than NAV.  As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
 
Tax Information
 
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains.
 
Financial Intermediary Compensation
 
If you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s Web site for more information.

 
15

 

FOCUS MORNINGSTAR COMMUNICATION SERVICES INDEX ETF
 
Investment Objective
 
The Focus Morningstar Communication Services Index ETF (the “Fund”) seeks to provide investment results that correspond, before fees and expenses, generally to the price and yield performance of the Morningstar Communication Services Index (the “Underlying Index”).  The Underlying Index is a subset of the Morningstar US Market Index and consists of companies that provide communication services using fixed-line networks or those that provide wireless access and services. This sector also includes companies that provide internet services such as access, navigation and internet related software and services.
 
Fees and Expenses
 
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund (“Shares”).  Investors purchasing Shares through a broker-dealer on a national securities exchange or in the over-the-counter market (the “Secondary Market”) may be subject to customary brokerage commissions charged by their broker which are not reflected in the table set forth below.
 
Shareholder Fees (Fees Paid Directly from your Investment)
 
No shareholder fees are levied by the Fund for purchases and sales made on the Secondary Market.
 
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
 
Management Fees
   
[·]
%
Distribution and Service (12b-1) Fees
    0.00 %
Other Expenses(a)
   
[·]
%
Total Annual Fund Operating Expenses
   
[·]
%
 

 
 
(a)
The Fund is new and Other Expenses are based on estimated amounts for the current fiscal year.
 
Example
 
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
 
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same.  Although your actual costs may be higher or lower, based on these assumptions your approximate costs would be:
     
YEAR
 
EXPENSES
1
 
$[·]
3
 
$[·]

Portfolio Turnover
 
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.

 
16

 

Because the Fund has not yet commenced operations, no portfolio turnover information is presented.
 
Principal Investment Strategies
 
The Morningstar Communication Services Index is determined on the basis of capital value of component securities that are publicly held, which typifies a “float adjusted” capitalization index and is a subset of the Morningstar US Market Index (a diversified broad market index that represents approximately 97% of the market capitalization of publicly-traded companies that are domiciled or principally traded in the United States).  The Underlying Index consists of companies that provide internet services such as access, navigation and internet related software and services that meet specific criteria developed by Morningstar, Inc. (“Morningstar”) based on the standard industrial classification (“SIC”) codes attributable to the industries covered by the Underlying Index. As of December 20, 2010, the Underlying Index was comprised of 31 component securities with market capitalizations greater than $804.07 million that have a daily average traded volume of at least 2.44 million over the past three months.  The total market capitalization of the Underlying Index as of December 20, 2010 was in excess of $509.67 billion.

Indexing Investment Approach.  The Fund is not managed according to traditional methods of “active” investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment.  Instead, the Fund, utilizing a “passive” or indexing investment approach, attempts to approximate the investment performance of the Underlying Index by investing in a portfolio of securities that generally replicates the Underlying Index.  The Fund may or may not hold all of the securities in the Underlying Index and may, from time to time, engage in a representative sampling strategy.
 
The Fund generally will invest at least 90% of its assets in securities of the Underlying Index. The Fund may invest less than 90% of its assets in the securities of the Underlying Index only to the extent that the Fund’s investment advisor, FocusShares LLC (the “Advisor”), needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and other regulatory requirements.
 
Principal Risks of Investing in the Fund
 
As with any investment, you could lose all or part of your investment in the Fund, and the Fund’s performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective.  A more complete description of principal risks is included in the Prospectus under the heading “Additional Description of the Principal Risk Factors of the Fund.”
 
The principal risks associated with the Fund are:

Index Risk.  The Underlying Index is new and has limited historical performance data that is not predictive of future results. The performance of the Underlying Index and the Fund may deviate from that of the sector the Underlying Index seeks to track due to changes that are reflected more quickly in the sector than in the Underlying Index, which will rebalance its component securities only on a quarterly basis.
 
Index Tracking Risk.  Although the Fund attempts to track the performance of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons.  To the extent the Advisor uses a representative sampling indexing strategy to manage the Fund, index tracking risk will be higher than if a replication strategy were implemented.
 
Concentration Risk.  To the extent that the Underlying Index is concentrated in a particular industry, the Fund also will be concentrated in that industry.  Concentrated Fund investments will subject the Fund to a greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different industry sectors.
 
Non-Diversified Risk. The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940 (the “1940 Act”) and is subject to the risk that it will be more volatile than a diversified fund because the Fund may invest its assets in a smaller number of issuers or may invest larger proportions of its assets in a single industry that comprises the Underlying Index.
 
Market Risk.  The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value.  An investment in the Fund may lose money.
 
Equity Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes such as fixed-income securities.
 
Communication Services Industry Risk.  The Fund is subject to regulatory, competition and general industry risks faced by companies in the telecommunications economic sector to the same extent as the Underlying Index is concentrated in such sector. Risks faced by companies in the telecommunications economic sector include adverse effects from increased competition and regulation, capital investment requirements and risks relating to rapid technological innovation. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors and the overall stock market.

 
17

 

New Fund Risk.  The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, Inc. (“NYSE Arca”), there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.
 
Performance
 
As of the date of this prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.  For current performance information, please visit www.focusshares.com.
 
Investment Advisor
 
FocusShares, LLC serves as the investment advisor to the Fund.
 
Portfolio Managers
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor.  Mr. Wallace has been with the Advisor since 2010.
 
Travis Trampe is a Portfolio Manager of the Advisor.  Mr. Trampe has been with the Advisor since 2010.
 
Purchase and Sale of Fund Shares
 
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at net asset value (“NAV”), only in blocks of 50,000 Shares or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally in-kind for securities included in the Fund. Retail investors may acquire Shares only on NYSE Arca through a broker-dealer. Shares of the Fund will trade at market price rather than NAV.  As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
 
Tax Information
 
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains.
 
Financial Intermediary Compensation
 
If you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s Web site for more information.

 
18

 

FOCUS MORNINGSTAR CONSUMER CYCLICAL INDEX ETF
 
Investment Objective
 
The Focus Morningstar Consumer Cyclical Index ETF (the “Fund”) seeks to provide investment results that correspond, before fees and expenses, generally to the price and yield performance of the Morningstar Consumer Cyclical Index (the “Underlying Index”).  The Underlying Index is a subset of the Morningstar US Market Index and includes retail stores, auto & auto parts manufacturers, companies engaged in residential construction, lodging facilities, restaurants and entertainment companies.
 
Fees and Expenses
 
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund (“Shares”).  Investors purchasing Shares through a broker-dealer on a national securities exchange or in the over-the-counter market (the “Secondary Market”) may be subject to customary brokerage commissions charged by their broker which are not reflected in the table set forth below.
 
Shareholder Fees (Fees Paid Directly from your Investment)
 
No shareholder fees are levied by the Fund for purchases and sales made on the Secondary Market.
 
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
 
Management Fees
   
[·]
%
Distribution and Service (12b-1) Fees
    0.00 %
Other Expenses(a)
   
[·]
%
Total Annual Fund Operating Expenses
   
[·]
%
 

 
 
(a)
The Fund is new and Other Expenses are based on estimated amounts for the current fiscal year.
 
Example
 
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
 
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same.  Although your actual costs may be higher or lower, based on these assumptions your approximate costs would be:
     
YEAR
 
EXPENSES
1
 
$[·]
3
 
$[·]

Portfolio Turnover
 
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.

Because the Fund has not yet commenced operations, no portfolio turnover information is presented.

 
19

 
 
Principal Investment Strategies
 
The Morningstar Consumer Cyclical Index is determined on the basis of capital value of component securities that are publicly held, which typifies a “float adjusted” capitalization index and is a subset of the Morningstar US Market Index (a diversified broad market index that represents approximately 97% of the market capitalization of publicly-traded companies that are domiciled or principally traded in the United States).  The Underlying Index consists of retail stores, auto & auto parts manufacturers, companies engaged in residential construction, lodging facilities, restaurants and entertainment companies that meet specific criteria developed by Morningstar, Inc. (“Morningstar”) based on the standard industrial classification (“SIC”) codes attributable to the industries covered by the Underlying Index. As of December 20, 2010, the Underlying Index was comprised of 231 component securities with market capitalizations greater than $388.25 million that have a daily average traded volume of at least 1.09 million over the past three months.  The total market capitalization of the Underlying Index as of December 20, 2010 was in excess of $1.50 trillion.

Indexing Investment Approach.  The Fund is not managed according to traditional methods of “active” investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment.  Instead, the Fund, utilizing a “passive” or indexing investment approach, attempts to approximate the investment performance of the Underlying Index by investing in a portfolio of securities that generally replicates the Underlying Index.  The Fund may or may not hold all of the securities in the Underlying Index and may, from time to time, engage in a representative sampling strategy.
 
The Fund generally will invest at least 90% of its assets in securities of the Underlying Index. The Fund may invest less than 90% of its assets in the securities of the Underlying Index only to the extent that the Fund’s investment advisor, FocusShares LLC (the “Advisor”), needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and other regulatory requirements.
 
Principal Risks of Investing in the Fund
 
As with any investment, you could lose all or part of your investment in the Fund, and the Fund’s performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective.  A more complete description of principal risks is included in the Prospectus under the heading “Additional Description of the Principal Risk Factors of the Fund.”
 
The principal risks associated with the Fund are:

Index Risk.  The Underlying Index is new and has limited historical performance data that is not predictive of future results. The performance of the Underlying Index and the Fund may deviate from that of the sector the Underlying Index seeks to track due to changes that are reflected more quickly in the sector than in the Underlying Index, which will rebalance its component securities only on a quarterly basis.
 
Index Tracking Risk.  Although the Fund attempts to track the performance of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons.  To the extent the Advisor uses a representative sampling indexing strategy to manage the Fund, index tracking risk will be higher than if a replication strategy were implemented.
 
Concentration Risk.  To the extent that the Underlying Index is concentrated in a particular industry, the Fund also will be concentrated in that industry.  Concentrated Fund investments will subject the Fund to a greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different industry sectors.
 
Non-Diversified Risk. The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940 (the “1940 Act”) and is subject to the risk that it will be more volatile than a diversified fund because the Fund may invest its assets in a smaller number of issuers or may invest larger proportions of its assets in a single industry that comprises the Underlying Index.
 
Market Risk.  The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value.  An investment in the Fund may lose money.
 
Equity Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes such as fixed-income securities.
 
Consumer Cyclical Industry Risk.  The Fund is subject to competition and general market and industry risks faced by companies in the consumer cyclical industry sector to the same extent as the Underlying Index is concentrated in such sector. Risks faced by companies in the consumer cyclical industry include adverse effects from general domestic and international economic downturns, changes in interest rates, competition, consumer confidence and consumer tastes. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors and the overall stock market.

 
20

 

Interest Rate Risk.  The Underlying Index is heavily weighted in market sectors and an industry that are sensitive to interest rate fluctuations and, therefore, the Fund may be more sensitive to fluctuations in interest rates than other types of investments.
 
New Fund Risk.  The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, Inc. (“NYSE Arca”), there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.
 
 
As of the date of this prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.  For current performance information, please visit www.focusshares.com.
 
Investment Advisor
 
FocusShares, LLC serves as the investment advisor to the Fund.
 
Portfolio Managers
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor.  Mr. Wallace has been with the Advisor since 2010.
 
Travis Trampe is a Portfolio Manager of the Advisor.  Mr. Trampe has been with the Advisor since 2010.
 
Purchase and Sale of Fund Shares
 
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at net asset value (“NAV”), only in blocks of 50,000 Shares or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally in-kind for securities included in the Fund. Retail investors may acquire Shares only on NYSE Arca through a broker-dealer. Shares of the Fund will trade at market price rather than NAV.  As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
 
Tax Information
 
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains.
 
Financial Intermediary Compensation
 
If you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s Web site for more information.

 
21

 

FOCUS MORNINGSTAR CONSUMER DEFENSIVE INDEX ETF
 
Investment Objective
 
The Focus Morningstar Consumer Defensive Index ETF (the “Fund”) seeks to provide investment results that correspond, before fees and expenses, generally to the price and yield performance of the Morningstar Consumer Defensive Index (the “Underlying Index”).  The Underlying Index is a subset of the Morningstar US Market Index and consists of companies engaged in the manufacturing of food, beverages, household and personal products, packaging, or tobacco. This sector also includes companies that provide services such as education & training services.
 
Fees and Expenses
 
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund (“Shares”).  Investors purchasing Shares through a broker-dealer on a national securities exchange or in the over-the-counter market (the “Secondary Market”) may be subject to customary brokerage commissions charged by their broker which are not reflected in the table set forth below.
 
Shareholder Fees (Fees Paid Directly from your Investment)
 
No shareholder fees are levied by the Fund for purchases and sales made on the Secondary Market.
 
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
 
Management Fees
   
[·]
%
Distribution and Service (12b-1) Fees
    0.00 %
Other Expenses(a)
   
[·]
%
Total Annual Fund Operating Expenses
   
[·]
%
 

 
 
(a)
The Fund is new and Other Expenses are based on estimated amounts for the current fiscal year.
 
Example
 
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
 
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same.  Although your actual costs may be higher or lower, based on these assumptions your approximate costs would be:
     
YEAR
 
EXPENSES
1
 
$[·]
3
 
$[·]

Portfolio Turnover
 
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.

 
22

 

Because the Fund has not yet commenced operations, no portfolio turnover information is presented.
 
Principal Investment Strategies
 
The Morningstar Consumer Defensive Index is determined on the basis of capital value of component securities that are publicly held, which typifies a “float adjusted” capitalization index and a subset of the Morningstar US Market Index (a diversified broad market index that represents approximately 97% of the market capitalization of publicly-traded companies that are domiciled or principally traded in the United States).  The Underlying Index consists of companies engaged in the manufacturing of food, beverages, household and personal products, packaging, or tobacco.  This sector also includes companies that provide services such as education & training services that meet specific criteria developed by Morningstar, Inc. (“Morningstar”) based on the standard industrial classification (“SIC”) codes attributable to the industries covered by the Underlying Index. As of December 20, 2010, the Underlying Index was comprised of 98 component securities with market capitalizations greater than $701.30 million that have a daily average traded volume of at least 1.36 million over the past three months.  The total market capitalization of the Underlying Index as of December 20, 2010 was in excess of $1.49 trillion.

Indexing Investment Approach. The Fund is not managed according to traditional methods of “active” investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment.  Instead, the Fund, utilizing a “passive” or indexing investment approach, attempts to approximate the investment performance of the Underlying Index by investing in a portfolio of securities that generally replicates the Underlying Index.  The Fund may or may not hold all of the securities in the Underlying Index and may, from time to time, engage in a representative sampling strategy.
 
The Fund generally will invest at least 90% of its assets in securities of the Underlying Index. The Fund may invest less than 90% of its assets in the securities of the Underlying Index only to the extent that the Fund’s investment advisor, FocusShares LLC (the “Advisor”), needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and other regulatory requirements.
 
Principal Risks of Investing in the Fund
 
As with any investment, you could lose all or part of your investment in the Fund, and the Fund’s performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective.  A more complete description of principal risks is included under the heading “Additional Description of the Principal Risk Factors of the Fund.”
 
The principal risks associated with the Fund are:

Index Risk.  The Underlying Index is new and has limited historical performance data that is not predictive of future results. The performance of the Underlying Index and the Fund may deviate from that of the sector the Underlying Index seeks to track due to changes that are reflected more quickly in the sector than in the Underlying Index, which will rebalance its component securities only on a quarterly basis.
 
Index Tracking Risk.  Although the Fund attempts to track the performance of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons.  To the extent the Advisor uses a representative sampling indexing strategy to manage the Fund, index tracking risk will be higher than if a replication strategy were implemented.
 
Concentration Risk.  To the extent that the Underlying Index is concentrated in a particular industry, the Fund also will be concentrated in that industry.  Concentrated Fund investments will subject the Fund to a greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different industry sectors.
 
Non-Diversified Risk. The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940 (the “1940 Act”) and is subject to the risk that it will be more volatile than a diversified fund because the Fund may invest its assets in a smaller number of issuers or may invest larger proportions of its assets in a single industry that comprises the Underlying Index.
 
Market Risk.  The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value.  An investment in the Fund may lose money.
 
Small-Capitalization Companies Risk. The Fund invests in the securities of small capitalization companies, the value of which may be more volatile than those of larger companies.
 
Equity Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes such as fixed-income securities.
 
Consumer Defensive Industry Risk.  The Fund is subject to regulatory, geopolitical competition and general industry risks faced by companies in the consumer sector to the same extent as the Underlying Index is concentrated in such sector. Risks faced by companies in the consumer defensive industry include adverse effects from governmental regulation, new laws or litigation affecting tobacco companies, changes in consumer tastes, competition and geopolitical risks that may affect companies deriving a substantial portion of their net income from international markets. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors and the overall stock market.

 
23

 

Interest Rate Risk.  The Underlying Index is heavily weighted in market sectors and an industry that are sensitive to interest rate fluctuations and, therefore, the Fund may be more sensitive to fluctuations in interest rates than other types of investments.
 
New Fund Risk.  The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, Inc. (“NYSE Arca”), there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.
 
Performance
 
As of the date of this prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.  For current performance information, please visit www.focusshares.com.
 
Investment Advisor
 
FocusShares, LLC serves as the investment advisor to the Fund.
 
Portfolio Managers
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor.  Mr. Wallace has been with the Advisor since 2010.
 
Travis Trampe is a Portfolio Manager of the Advisor.  Mr. Trampe has been with the Advisor since 2010.
 
Purchase and Sale of Fund Shares
 
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at net asset value (“NAV”), only in blocks of 50,000 Shares or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally in-kind for securities included in the Fund. Retail investors may acquire Shares only on NYSE Arca through a broker-dealer. Shares of the Fund will trade at market price rather than NAV.  As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
 
Tax Information
 
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains.
 
Financial Intermediary Compensation
 
If you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s Web site for more information.

 
24

 

FOCUS MORNINGSTAR ENERGY INDEX ETF
 
Investment Objective
 
The Focus Morningstar Energy Index ETF (the “Fund”) seeks to provide investment results that correspond, before fees and expenses, generally to the price and yield performance of the Morningstar Energy Index (the “Underlying Index”).  The Underlying Index is a subset of the Morningstar US Market Index and consists of companies that produce or refine oil and gas, oil field services and equipment companies, and pipeline operators. This sector also includes companies engaged in the mining of coal.
 
Fees and Expenses
 
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund (“Shares”).  Investors purchasing Shares through a broker-dealer on a national securities exchange or in the over-the-counter market (the “Secondary Market”) may be subject to customary brokerage commissions charged by their broker which are not reflected in the table set forth below.
 
Shareholder Fees (Fees Paid Directly from your Investment)
 
No shareholder fees are levied by the Fund for purchases and sales made on the Secondary Market.
 
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
 
Management Fees
   
[·]
%
Distribution and Service (12b-1) Fees
    0.00 %
Other Expenses(a)
   
[·]
%
Total Annual Fund Operating Expenses
   
[·]
%
 

 
 
(a)
The Fund is new and Other Expenses are based on estimated amounts for the current fiscal year.
 
Example
 
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
 
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same.  Although your actual costs may be higher or lower, based on these assumptions your approximate costs would be:
     
YEAR
 
EXPENSES
1
 
$[·]
3
 
$[·]

Portfolio Turnover
 
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.

Because the Fund has not yet commenced operations, no portfolio turnover information is presented.

 
25

 
 
Principal Investment Strategies
 
The Morningstar Energy Index is determined on the basis of capital value of component securities that are publicly held, which typifies a “float adjusted” capitalization index and a subset of the Morningstar US Market Index (a diversified broad market index that represents approximately 97% of the market capitalization of publicly-traded companies that are domiciled or principally traded in the United States).  The Underlying Index consists of companies that produce or refine oil and gas, oil field services and equipment companies, and pipeline operators.  This sector also includes companies engaged in the mining of coal that meet specific criteria developed by Morningstar, Inc. (“Morningstar”) based on the standard industrial classification (“SIC”) codes attributable to the industries covered by the Underlying Index.  As of December 20, 2010, the Underlying Index was comprised of 97 component securities with market capitalizations greater than $769.76 million that have a daily average traded volume of at least 4.22 million over the past three months.  The total market capitalization of the Underlying Index as of December 20, 2010 was in excess of $1.48 trillion.

Indexing Investment Approach. The Fund is not managed according to traditional methods of “active” investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment.  Instead, the Fund, utilizing a “passive” or indexing investment approach, attempts to approximate the investment performance of the Underlying Index by investing in a portfolio of securities that generally replicates the Underlying Index.  The Fund may or may not hold all of the securities in the Underlying Index and may, from time to time, engage in a representative sampling strategy.
 
The Fund generally will invest at least 90% of its assets in securities of the Underlying Index. The Fund may invest less than 90% of its assets in the securities of the Underlying Index only to the extent that the Fund’s investment advisor, FocusShares LLC (the “Advisor”), needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and other regulatory requirements.
 
Principal Risks of Investing in the Fund
 
As with any investment, you could lose all or part of your investment in the Fund, and the Fund’s performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective.  A more complete description of principal risks is included in the Prospectus under the heading “Additional Description of the Principal Risk Factors of the Fund.”
 
The principal risks associated with the Fund are:

Index Risk.  The Underlying Index is new and has limited historical performance data that is not predictive of future results. The performance of the Underlying Index and the Fund may deviate from that of the sector the Underlying Index seeks to track due to changes that are reflected more quickly in the sector than in the Underlying Index, which will rebalance its component securities only on a quarterly basis.
 
Index Tracking Risk.  Although the Fund attempts to track the performance of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons.  To the extent the Advisor uses a representative sampling indexing strategy to manage the Fund, index tracking risk will be higher than if a replication strategy were implemented.
 
Concentration Risk.  To the extent that the Underlying Index is concentrated in a particular industry, the Fund also will be concentrated in that industry.  Concentrated Fund investments will subject the Fund to a greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different industry sectors.
 
Non-Diversified Risk. The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940 (the “1940 Act”) and is subject to the risk that it will be more volatile than a diversified fund because the Fund may invest its assets in a smaller number of issuers or may invest larger proportions of its assets in a single industry that comprises the Underlying Index.
 
Market Risk.  The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value.  An investment in the Fund may lose money.
 
Small-Capitalization Companies Risk. The Fund invests in the securities of small capitalization companies, the value of which may be more volatile than those of larger companies.
 
Equity Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes such as fixed-income securities.
 
Energy Industry Risk.  The Fund is subject to regulatory, geopolitical, competition and general industry risks faced by companies in the energy sector to the same extent as the Underlying Index is concentrated in such sector. Risks faced by companies in the energy sector include adverse effects from changes in energy prices, exploration and production spending, exchange rates and government regulation, geopolitical and economic conditions and environmental damage claims. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors and the overall stock market.

 
26

 

Interest Rate Risk.  The Underlying Index is heavily weighted in market sectors and an industry that are sensitive to interest rate fluctuations and, therefore, the Fund may be more sensitive to fluctuations in interest rates than other types of investments.
 
New Fund Risk.  The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, Inc. (“NYSE Arca”), there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.
 
Performance
 
As of the date of this prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.  For current performance information, please visit www.focusshares.com.
 
Investment Advisor
 
FocusShares, LLC serves as the investment advisor to the Fund.
 
Portfolio Managers
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor.  Mr. Wallace has been with the Advisor since 2010.
 
Travis Trampe is a Portfolio Manager of the Advisor.  Mr. Trampe has been with the Advisor since 2010.
 
Purchase and Sale of Fund Shares
 
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at net asset value (“NAV”), only in blocks of 50,000 Shares or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally in-kind for securities included in the Fund. Retail investors may acquire Shares only on NYSE Arca through a broker-dealer. Shares of the Fund will trade at market price rather than NAV.  As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
 
Tax Information
 
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains.
 
Financial Intermediary Compensation
 
If you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s Web site for more information.

 
27

 

FOCUS MORNINGSTAR FINANCIAL SERVICES INDEX ETF
 
Investment Objective
 
The Focus Morningstar Financial Services Index ETF (the “Fund”) seeks to provide investment results that correspond, before fees and expenses, generally to the price and yield performance of the Morningstar Financial Services Index (the “Underlying Index”).  The Underlying Index is a subset of the Morningstar US Market Index and consists of companies that provide financial services which includes banks, savings and loans, asset management companies, credit services, investment brokerage firms, and insurance companies.
 
Fees and Expenses
 
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund (“Shares”).  Investors purchasing Shares through a broker-dealer on a national securities exchange or in the over-the-counter market (the “Secondary Market”) may be subject to customary brokerage commissions charged by their broker which are not reflected in the table set forth below.
 
Shareholder Fees (Fees Paid Directly from your Investment)
 
No shareholder fees are levied by the Fund for purchases and sales made on the Secondary Market.
 
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
 
Management Fees
   
[·]
%
Distribution and Service (12b-1) Fees
    0.00 %
Other Expenses(a)
   
[·]
%
Total Annual Fund Operating Expenses
   
[·]
%
 

 
 
(a)
The Fund is new and Other Expenses are based on estimated amounts for the current fiscal year.
 
Example
 
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
 
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same.  Although your actual costs may be higher or lower, based on these assumptions your approximate costs would be:
     
YEAR
 
EXPENSES
1
 
$[·]
3
 
$[·]

Portfolio Turnover
 
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.

Because the Fund has not yet commenced operations, no portfolio turnover information is presented.

 
28

 
 
Principal Investment Strategies
 
The Morningstar Financial Services Index is determined on the basis of capital value of component securities that are publicly held, which typifies a “float adjusted” capitalization index and a subset of the Morningstar US Market Index (a diversified broad market index that represents approximately 97% of the market capitalization of publicly-traded companies that are domiciled or principally traded in the United States).  The Underlying Index consists of companies that provide financial services which includes banks, savings and loans, asset management companies, credit services, investment brokerage firms, and insurance companies that meet specific criteria developed by Morningstar, Inc. (“Morningstar”) based on the standard industrial classification (“SIC”) codes attributable to the industries covered by the Underlying Index.  As of December 20, 2010, the Underlying Index was comprised of 205 component securities with market capitalizations greater than $344.72 million that have a daily average traded volume of at least 610,610 over the past three months.  The total market capitalization of the Underlying Index as of December 20, 2010 was in excess of $1.98 trillion.

Indexing Investment Approach.  The Fund is not managed according to traditional methods of “active” investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment.  Instead, the Fund, utilizing a “passive” or indexing investment approach, attempts to approximate the investment performance of the Underlying Index by investing in a portfolio of securities that generally replicates the Underlying Index.  The Fund may or may not hold all of the securities in the Underlying Index and may, from time to time, engage in a representative sampling strategy.
 
The Fund generally will invest at least 90% of its assets in securities of the Underlying Index. The Fund may invest less than 90% of its assets in the securities of the Underlying Index only to the extent that the Fund’s investment advisor, FocusShares LLC (the “Advisor”), needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and other regulatory requirements.
 
Principal Risks of Investing in the Fund
 
As with any investment, you could lose all or part of your investment in the Fund, and the Fund’s performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective.  A more complete description of principal risks is included in the Prospectus under the heading “Additional Description of the Principal Risk Factors of the Fund.”
 
The principal risks associated with the Fund are:

Index Risk.  The Underlying Index is new and has limited historical performance data that is not predictive of future results. The performance of the Underlying Index and the Fund may deviate from that of the sector the Underlying Index seeks to track due to changes that are reflected more quickly in the sector than in the Underlying Index, which will rebalance its component securities only on a quarterly basis.
 
Index Tracking Risk.  Although the Fund attempts to track the performance of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons.  To the extent the Advisor uses a representative sampling indexing strategy to manage the Fund, index tracking risk will be higher than if a replication strategy were implemented.
 
Concentration Risk.  To the extent that the Underlying Index is concentrated in a particular industry, the Fund also will be concentrated in that industry.  Concentrated Fund investments will subject the Fund to a greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different industry sectors.
 
Non-Diversified Risk. The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940 (the “1940 Act”) and is subject to the risk that it will be more volatile than a diversified fund because the Fund may invest its assets in a smaller number of issuers or may invest larger proportions of its assets in a single industry that comprises the Underlying Index.
 
Market Risk.  The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value.  An investment in the Fund may lose money.
 
Equity Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes such as fixed-income securities.
 
Financial Services Industry Risk.  The Fund is subject to regulatory, competition and general industry risks faced by companies in the financial services economic sector to the same extent as the Underlying Index is concentrated in such sector. Risks faced by companies in the financial services economic sector include adverse effects from extensive governmental regulation, increases in interest rates and loan losses, severe competition, and increased inter-industry consolidation. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors and the overall stock market.

 
29

 

Interest Rate Risk.  The Underlying Index is heavily weighted in market sectors and an industry that are sensitive to interest rate fluctuations and, therefore, the Fund may be more sensitive to fluctuations in interest rates than other types of investments.
 
New Fund Risk.  The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, Inc. (“NYSE Arca”), there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.
 
Performance
 
As of the date of this prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.  For current performance information, please visit www.focusshares.com.
 
Investment Advisor
 
FocusShares, LLC serves as the investment advisor to the Fund.
 
Portfolio Managers
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor.  Mr. Wallace has been with the Advisor since 2010.
 
Travis Trampe is a Portfolio Manager of the Advisor.  Mr. Trampe has been with the Advisor since 2010.
 
Purchase and Sale of Fund Shares
 
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at net asset value (“NAV”), only in blocks of 50,000 Shares or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally in-kind for securities included in the Fund. Retail investors may acquire Shares only on NYSE Arca through a broker-dealer. Shares of the Fund will trade at market price rather than NAV.  As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
 
Tax Information
 
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains.
 
Financial Intermediary Compensation
 
If you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s Web site for more information.

 
30

 

FOCUS MORNINGSTAR HEALTH CARE INDEX ETF
 
Investment Objective
 
The Focus Morningstar Health Care Index ETF (the “Fund”) seeks to provide investment results that correspond, before fees and expenses, generally to the price and yield performance of the Morningstar Health Care Index (the “Underlying Index”).  The Underlying Index is a subset of the Morningstar US Market Index and consist of companies involved in biotechnology, pharmaceuticals, research services, home health care, hospitals, long-term care facilities, and medical equipment and supplies.
 
Fees and Expenses
 
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund (“Shares”).  Investors purchasing Shares through a broker-dealer on a national securities exchange or in the over-the-counter market (the “Secondary Market”) may be subject to customary brokerage commissions charged by their broker which are not reflected in the table set forth below.
 
Shareholder Fees (Fees Paid Directly from your Investment)
 
No shareholder fees are levied by the Fund for purchases and sales made on the Secondary Market.
 
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
 
Management Fees
   
[·]
%
Distribution and Service (12b-1) Fees
    0.00 %
Other Expenses(a)
   
[·]
%
Total Annual Fund Operating Expenses
   
[·]
%
 

 
 
(a)
The Fund is new and Other Expenses are based on estimated amounts for the current fiscal year.
 
Example
 
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
 
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same.  Although your actual costs may be higher or lower, based on these assumptions your approximate costs would be:
     
YEAR
 
EXPENSES
1
 
$[·]
3
 
$[·]

Portfolio Turnover
 
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.

Because the Fund has not yet commenced operations, no portfolio turnover information is presented.

 
31

 
 
Principal Investment Strategies
 
The Morningstar Health Care Index is determined on the basis of capital value of component securities that are publicly held, which typifies a “float adjusted” capitalization index and a subset of the Morningstar US Market Index (a diversified broad market index that represents approximately 97% of the market capitalization of publicly-traded companies that are domiciled or principally traded in the United States).  The Underlying Index consists of companies involved in biotechnology, pharmaceuticals, research services, home health care, hospitals, long-term care facilities, and medical equipment and supplies that meet specific criteria developed by Morningstar, Inc. (“Morningstar”) based on the standard industrial classification (“SIC”) codes attributable to the industries covered by the Underlying Index. As of December 20, 2010, the Underlying Index was comprised of 133 component securities with market capitalizations greater than $640.72 million that have a daily average traded volume of at least 1.20 million over the past three months.  The total market capitalization of the Underlying Index as of December 20, 2010 was in excess of $1.48 trillion.

Indexing Investment Approach.  The Fund is not managed according to traditional methods of “active” investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment.  Instead, the Fund, utilizing a “passive” or indexing investment approach, attempts to approximate the investment performance of the Underlying Index by investing in a portfolio of securities that generally replicates the Underlying Index.  The Fund may or may not hold all of the securities in the Underlying Index and may, from time to time, engage in a representative sampling strategy.
 
The Fund generally will invest at least 90% of its assets in securities of the Underlying Index. The Fund may invest less than 90% of its assets in the securities of the Underlying Index only to the extent that the Fund’s investment advisor, FocusShares LLC (the “Advisor”), needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and other regulatory requirements.
 
Principal Risks of Investing in the Fund
 
As with any investment, you could lose all or part of your investment in the Fund, and the Fund’s performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective.  A more complete description of principal risks is included in the Prospectus under the heading “Additional Description of the Principal Risk Factors of the Fund.”
 
The principal risks associated with the Fund are:

Index Risk.  The Underlying Index is new and has limited historical performance data that is not predictive of future results. The performance of the Underlying Index and the Fund may deviate from that of the sector the Underlying Index seeks to track due to changes that are reflected more quickly in the sector than in the Underlying Index, which will rebalance its component securities only on a quarterly basis.
 
Index Tracking Risk.  Although the Fund attempts to track the performance of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons.  To the extent the Advisor uses a representative sampling indexing strategy to manage the Fund, index tracking risk will be higher than if a replication strategy were implemented.
 
Concentration Risk.  To the extent that the Underlying Index is concentrated in a particular industry, the Fund also will be concentrated in that industry.  Concentrated Fund investments will subject the Fund to a greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different industry sectors.
 
Non-Diversified Risk. The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940 (the “1940 Act”) and is subject to the risk that it will be more volatile than a diversified fund because the Fund may invest its assets in a smaller number of issuers or may invest larger proportions of its assets in a single industry that comprises the Underlying Index.
 
Market Risk.  The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value.  An investment in the Fund may lose money.
 
Equity Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes such as fixed-income securities.
 
Health Care Industry Risk.  The Fund is subject to regulatory, competition and general industry risks faced by companies in the health care economic sector to the same extent as the Underlying Index is concentrated in such sector. Risks faced by companies in the health care economic sector include adverse effects from heavy dependence on patent protection, competition, regulation by the Food and Drug Administration, labor shortages, susceptibility to product obsolescence, and thin capitalization and limited product lines and markets. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors and the overall stock market.

 
32

 

New Fund Risk.  The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, Inc. (“NYSE Arca”), there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.
 
Performance
 
As of the date of this prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.  For current performance information, please visit www.focusshares.com.
 
Investment Advisor
 
FocusShares, LLC serves as the investment advisor to the Fund.
 
Portfolio Managers
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor.  Mr. Wallace has been with the Advisor since 2010.
 
Travis Trampe is a Portfolio Manager of the Advisor.  Mr. Trampe has been with the Advisor since 2010.
 
Purchase and Sale of Fund Shares
 
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at net asset value (“NAV”), only in blocks of 50,000 Shares or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally in-kind for securities included in the Fund. Retail investors may acquire Shares only on NYSE Arca through a broker-dealer. Shares of the Fund will trade at market price rather than NAV.  As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
 
Tax Information
 
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains.
 
Financial Intermediary Compensation
 
If you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s Web site for more information.

 
33

 

FOCUS MORNINGSTAR INDUSTRIALS INDEX ETF
 
Investment Objective
 
The Focus Morningstar Industrials Index ETF (the “Fund”) seeks to provide investment results that correspond, before fees and expenses, generally to the price and yield performance of the Morningstar Industrials Index (the “Underlying Index”).  The Underlying Index is a subset of the Morningstar US Market Index and consists of companies that manufacture machinery, hand-held tools and industrial products. This sector also includes aerospace and defense firms as well as companied engaged in transportations and logistic services.
 
Fees and Expenses
 
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund (“Shares”).  Investors purchasing Shares through a broker-dealer on a national securities exchange or in the over-the-counter market (the “Secondary Market”) may be subject to customary brokerage commissions charged by their broker which are not reflected in the table set forth below.
 
Shareholder Fees (Fees Paid Directly from your Investment)
 
No shareholder fees are levied by the Fund for purchases and sales made on the Secondary Market.
 
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
 
Management Fees
   
[·]
%
Distribution and Service (12b-1) Fees
    0.00 %
Other Expenses(a)
   
[·]
%
Total Annual Fund Operating Expenses
   
[·]
%
 

 
 
(a)
The Fund is new and Other Expenses are based on estimated amounts for the current fiscal year.
 
Example
 
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
 
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same.  Although your actual costs may be higher or lower, based on these assumptions your approximate costs would be:
     
YEAR
 
EXPENSES
1
 
$[·]
3
 
$[·]

Portfolio Turnover
 
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.

Because the Fund has not yet commenced operations, no portfolio turnover information is presented.

 
34

 
 
Principal Investment Strategies
 
The Morningstar Industrials Index is determined on the basis of capital value of component securities that are publicly held, which typifies a “float adjusted” capitalization index and a subset of the Morningstar US Market Index (a diversified broad market index that represents approximately 97% of the market capitalization of publicly-traded companies that are domiciled or principally traded in the United States).  The Underlying Index consists of companies that manufacture machinery, hand-held tools and industrial products. This sector also includes aerospace and defense firms as well as companied engaged in transportations and logistic services that meet specific criteria developed by Morningstar, Inc. (“Morningstar”) based on the standard industrial classification (“SIC”) codes attributable to the industries covered by the Underlying Index. As of December 20, 2010, the Underlying Index was comprised of 246 component securities with market capitalizations greater than $410.03 million that have a daily average traded volume of at least 1.43 million over the past three months.  The total market capitalization of the Underlying Index as of December 20, 2010 was in excess of $1.79 trillion.

Indexing Investment Approach.  The Fund is not managed according to traditional methods of “active” investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment.  Instead, the Fund, utilizing a “passive” or indexing investment approach, attempts to approximate the investment performance of the Underlying Index by investing in a portfolio of securities that generally replicates the Underlying Index.  The Fund may or may not hold all of the securities in the Underlying Index and may, from time to time, engage in a representative sampling strategy.
 
The Fund generally will invest at least 90% of its assets in securities of the Underlying Index. The Fund may invest less than 90% of its assets in the securities of the Underlying Index only to the extent that the Fund’s investment advisor, FocusShares LLC (the “Advisor”), needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and other regulatory requirements.
 
Principal Risks of Investing in the Fund
 
As with any investment, you could lose all or part of your investment in the Fund, and the Fund’s performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective.  A more complete description of principal risks is included in the Prospectus under the heading “Additional Description of the Principal Risk Factors of the Fund.”
 
The principal risks associated with the Fund are:

Index Risk.  The Underlying Index is new and has limited historical performance data that is not predictive of future results. The performance of the Underlying Index and the Fund may deviate from that of the sector the Underlying Index seeks to track due to changes that are reflected more quickly in the sector than in the Underlying Index, which will rebalance its component securities only on a quarterly basis.
 
Index Tracking Risk.  Although the Fund attempts to track the performance of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons.  To the extent the Advisor uses a representative sampling indexing strategy to manage the Fund, index tracking risk will be higher than if a replication strategy were implemented.
 
Concentration Risk.  To the extent that the Underlying Index is concentrated in a particular industry, the Fund also will be concentrated in that industry.  Concentrated Fund investments will subject the Fund to a greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different industry sectors.
 
Non-Diversified Risk. The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940 (the “1940 Act”) and is subject to the risk that it will be more volatile than a diversified fund because the Fund may invest its assets in a smaller number of issuers or may invest larger proportions of its assets in a single industry that comprises the Underlying Index.
 
Market Risk.  The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value.  An investment in the Fund may lose money.
 
Equity Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes such as fixed-income securities.
 
Industrial Risk.  The Fund is subject to regulatory, competition and general market and industry risks faced by companies in the Industrial sector to the same extent as the Underlying Index is concentrated in such sector. Risks faced by companies in the industrial economic sector include adverse effects changes in the market supply and demand for products or services, rapid technological developments, government regulation, geopolitical and economic conditions, and risks for environmental damage and product liability claims. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors and the overall stock market.

 
35

 

New Fund Risk.  The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, Inc. (“NYSE Arca”), there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.
 
Performance
 
As of the date of this prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.  For current performance information, please visit www.focusshares.com.
 
Investment Advisor
 
FocusShares, LLC serves as the investment advisor to the Fund.
 
Portfolio Managers
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor.  Mr. Wallace has been with the Advisor since 2010.
 
Travis Trampe is a Portfolio Manager of the Advisor.  Mr. Trampe has been with the Advisor since 2010.
 
Purchase and Sale of Fund Shares
 
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at net asset value (“NAV”), only in blocks of 50,000 Shares or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally in-kind for securities included in the Fund. Retail investors may acquire Shares only on NYSE Arca through a broker-dealer. Shares of the Fund will trade at market price rather than NAV.  As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
 
Tax Information
 
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains.
 
Financial Intermediary Compensation
 
If you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s Web site for more information.

 
36

 

FOCUS MORNINGSTAR REAL ESTATE INDEX ETF
 
Investment Objective
 
The Focus Morningstar Real Estate Index ETF (the “Fund”) seeks to provide investment results that correspond, before fees and expenses, generally to the price and yield performance of the Morningstar Real Estate Index (the “Underlying index”).  The Underlying Index is a subset of the Morningstar US Market Index and consists of mortgage companies, property management companies and REITs.
 
Fees and Expenses
 
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund (“Shares”).  Investors purchasing Shares through a broker-dealer on a national securities exchange or in the over-the-counter market (the “Secondary Market”) may be subject to customary brokerage commissions charged by their broker which are not reflected in the table set forth below.
 
Shareholder Fees (Fees Paid Directly from your Investment)
 
No shareholder fees are levied by the Fund for purchases and sales made on the Secondary Market.
 
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
 
Management Fees
   
[·]
%
Distribution and Service (12b-1) Fees
    0.00 %
Other Expenses(a)
   
[·]
%
Total Annual Fund Operating Expenses
   
[·]
%
 

 
 
(a)
The Fund is new and Other Expenses are based on estimated amounts for the current fiscal year.
 
Example
 
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
 
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same.  Although your actual costs may be higher or lower, based on these assumptions your approximate costs would be:
     
YEAR
 
EXPENSES
1
 
$[·]
3
 
$[·]

Portfolio Turnover
 
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.

Because the Fund has not yet commenced operations, no portfolio turnover information is presented.

 
37

 
 
Principal Investment Strategies
 
The Morningstar Real Estate Index is determined on the basis of capital value of component securities that are publicly held, which typifies a “float adjusted” capitalization index and a subset of the Morningstar US Market Index (a diversified broad market index that represents approximately 97% of the market capitalization of publicly-traded companies that are domiciled or principally traded in the United States). The Underlying Index consists of mortgage companies, property management companies and REITs that meet specific criteria developed by Morningstar, Inc. (“Morningstar”) based on the standard industrial classification (“SIC”) codes attributable to the industries covered by the Underlying Index.  As of December 20, 2010, the Underlying Index was comprised of 85 component securities with market capitalizations greater than $730.99 million that have a daily average traded volume of at least 1.22 million over the past three months.  The total market capitalization of the Underlying Index as of December 20, 2010 was in excess of $312.51 billion.

Indexing Investment Approach.  The Fund is not managed according to traditional methods of “active” investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment.  Instead, the Fund, utilizing a “passive” or indexing investment approach, attempts to approximate the investment performance of the Underlying Index by investing in a portfolio of securities that generally replicates the Underlying Index.  The Fund may or may not hold all of the securities in the Underlying Index and may, from time to time, engage in a representative sampling strategy.
 
The Fund generally will invest at least 90% of its assets in securities of the Underlying Index. The Fund may invest less than 90% of its assets in the securities of the Underlying Index only to the extent that the Fund’s investment advisor, FocusShares LLC (the “Advisor”), needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and other regulatory requirements.
 
Principal Risks of Investing in the Fund
 
As with any investment, you could lose all or part of your investment in the Fund, and the Fund’s performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective.  A more complete description of principal risks is included in the Prospectus under the heading “Additional Description of the Principal Risk Factors of the Fund.”
 
The principal risks associated with the Fund are:

Index Risk.  The Underlying Index is new and has limited historical performance data that is not predictive of future results. The performance of the Underlying Index and the Fund may deviate from that of the sector the Underlying Index seeks to track due to changes that are reflected more quickly in the sector than in the Underlying Index, which will rebalance its component securities only on a quarterly basis.
 
Index Tracking Risk.  Although the Fund attempts to track the performance of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons.  To the extent the Advisor uses a representative sampling indexing strategy to manage the Fund, index tracking risk will be higher than if a replication strategy were implemented.
 
Concentration Risk.  To the extent that the Underlying Index is concentrated in a particular industry, the Fund also will be concentrated in that industry.  Concentrated Fund investments will subject the Fund to a greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different industry sectors.
 
Non-Diversified Risk. The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940 (the “1940 Act”) and is subject to the risk that it will be more volatile than a diversified fund because the Fund may invest its assets in a smaller number of issuers or may invest larger proportions of its assets in a single industry that comprises the Underlying Index.
 
Market Risk.  The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value.  An investment in the Fund may lose money.
 
Equity Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes such as fixed-income securities.
 
Real Estate Industry Risk.  The Fund is subject to regulatory, competition and general market risks faced by companies in the real estate industry to the same extent as the Underlying Index is concentrated in such sector. Risks faced by companies in the real estate sector include adverse effects from national, state or local real estate conditions, obsolescence of properties, changes in the availability, cost and terms of mortgage funds, the impact of environmental laws, compliance with the federal tax requirements affecting REITs. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors and the overall stock market.

 
38

 

Interest Rate Risk.  The Underlying Index is heavily weighted in market sectors and an industry that are sensitive to interest rate fluctuations and, therefore, the Fund may be more sensitive to fluctuations in interest rates than other types of investments.
 
New Fund Risk.  The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, Inc. (“NYSE Arca”), there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.
 
Performance
 
As of the date of this prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.  For current performance information, please visit www.focusshares.com.
 
Investment Advisor
 
FocusShares, LLC serves as the investment advisor to the Fund.
 
Portfolio Managers
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor.  Mr. Wallace has been with the Advisor since 2010.
 
Travis Trampe is a Portfolio Manager of the Advisor.  Mr. Trampe has been with the Advisor since 2010.
 
Purchase and Sale of Fund Shares
 
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at net asset value (“NAV”), only in blocks of 50,000 Shares or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally in-kind for securities included in the Fund. Retail investors may acquire Shares only on NYSE Arca through a broker-dealer. Shares of the Fund will trade at market price rather than NAV.  As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
 
Tax Information
 
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains.
 
Financial Intermediary Compensation
 
If you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s Web site for more information.

 
39

 

FOCUS MORNINGSTAR TECHNOLOGY INDEX ETF
 
Investment Objective
 
The Focus Morningstar Technology Index ETF (the “Fund”) seeks to provide investment results that correspond, before fees and expenses, generally to the price and yield performance of the Morningstar Technology Index (the “Underlying Index”).  The Underlying Index is a subset of the Morningstar US Market Index and consists of companies engaged in the design, development, and support of computer operating systems and applications. This sector also includes companies that provide computer technology consulting services and companies engaged in the manufacturing of computer equipment, data storage products, networking products, semiconductors, and components.
 
Fees and Expenses
 
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund (“Shares”).  Investors purchasing Shares through a broker-dealer on a national securities exchange or in the over-the-counter market (the “Secondary Market”) may be subject to customary brokerage commissions charged by their broker which are not reflected in the table set forth below.
 
Shareholder Fees (Fees Paid Directly from your Investment)
 
No shareholder fees are levied by the Fund for purchases and sales made on the Secondary Market.
 
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
 
Management Fees
   
[·]
%
Distribution and Service (12b-1) Fees
    0.00 %
Other Expenses(a)
   
[·]
%
Total Annual Fund Operating Expenses
   
[·]
%
 

 
 
(a)
The Fund is new and Other Expenses are based on estimated amounts for the current fiscal year.
 
Example
 
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
 
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same.  Although your actual costs may be higher or lower, based on these assumptions your approximate costs would be:
     
YEAR
 
EXPENSES
1
 
$[·]
3
 
$[·]
 
Portfolio Turnover
 
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.

 
40

 

Because the Fund has not yet commenced operations, no portfolio turnover information is presented.
 
Principal Investment Strategies
 
The Morningstar Technology Index is determined on the basis of capital value of component securities that are publicly held, which typifies a “float adjusted” capitalization index and a subset of the Morningstar US Market Index (a diversified broad market index that represents approximately 97% of the market capitalization of publicly-traded companies that are domiciled or principally traded in the United States).  The Underlying Index consists of companies engaged in the design, development, and support of computer operating systems and applications. This sector also includes companies that provide computer technology consulting services and companies engaged in the manufacturing of computer equipment, data storage products, networking products, semiconductors, and components that meet specific criteria developed by Morningstar, Inc. (“Morningstar”) based on the standard industrial classification (“SIC”) codes attributable to the industries covered by the Underlying Index. As of December 20, 2010, the Underlying Index was comprised of 238 component securities with market capitalizations greater than $733.97 million that have a daily average traded volume of at least 1.39 million over the past three months.  The total market capitalization of the Underlying Index as of December 20, 2010 was in excess of $2.43 trillion.

Indexing Investment Approach.  The Fund is not managed according to traditional methods of “active” investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment.  Instead, the Fund, utilizing a “passive” or indexing investment approach, attempts to approximate the investment performance of the Underlying Index by investing in a portfolio of securities that generally replicates the Underlying Index.  The Fund may or may not hold all of the securities in the Underlying Index and may, from time to time, engage in a representative sampling strategy.
 
The Fund generally will invest at least 90% of its assets in securities of the Underlying Index. The Fund may invest less than 90% of its assets in the securities of the Underlying Index only to the extent that the Fund’s investment advisor, FocusShares LLC (the “Advisor”), needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and other regulatory requirements.
 
Principal Risks of Investing in the Fund
 
As with any investment, you could lose all or part of your investment in the Fund, and the Fund’s performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective.  A more complete description of principal risks is included in the Prospectus under the heading “Additional Description of the Principal Risk Factors of the Fund.”
 
The principal risks associated with the Fund are:

Index Risk.  The Underlying Index is new and has limited historical performance data that is not predictive of future results. The performance of the Underlying Index and the Fund may deviate from that of the sector the Underlying Index seeks to track due to changes that are reflected more quickly in the sector than in the Underlying Index, which will rebalance its component securities only on a quarterly basis.
 
Index Tracking Risk.  Although the Fund attempts to track the performance of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons.  To the extent the Advisor uses a representative sampling indexing strategy to manage the Fund, index tracking risk will be higher than if a replication strategy were implemented.
 
Concentration Risk.  To the extent that the Underlying Index is concentrated in a particular industry, the Fund also will be concentrated in that industry.  Concentrated Fund investments will subject the Fund to a greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different industry sectors.
 
Non-Diversified Risk. The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940 (the “1940 Act”) and is subject to the risk that it will be more volatile than a diversified fund because the Fund may invest its assets in a smaller number of issuers or may invest larger proportions of its assets in a single industry that comprises the Underlying Index.
 
Market Risk.  The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value.  An investment in the Fund may lose money.
 
Equity Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes such as fixed-income securities.

 
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Technology Industry Risk.  The Fund is subject to regulatory, competition and general industry risks faced by companies in the technology industry sector to the same extent as the Underlying Index is concentrated in such sector.  A small number of companies represent a large portion of the technology industries as a whole, and these companies also are heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely affect profitability. Risks faced by companies in the technology industry include adverse effects from dependence on patent and intellectual property rights, intense competition, labor shortages, obsolescence of existing technology, general economic conditions and government regulation. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors and the overall stock market.
 
New Fund Risk.  The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, Inc. (“NYSE Arca”), there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.
 
Performance
 
As of the date of this prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.  For current performance information, please visit www.focusshares.com.
 
Investment Advisor
 
FocusShares, LLC serves as the investment advisor to the Fund.
 
Portfolio Managers
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor.  Mr. Wallace has been with the Advisor since 2010.
 
Travis Trampe is a Portfolio Manager of the Advisor.  Mr. Trampe has been with the Advisor since 2010.
 
Purchase and Sale of Fund Shares
 
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at net asset value (“NAV”), only in blocks of 50,000 Shares or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally in-kind for securities included in the Fund. Retail investors may acquire Shares only on NYSE Arca through a broker-dealer. Shares of the Fund will trade at market price rather than NAV.  As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
 
Tax Information
 
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains.
 
Financial Intermediary Compensation
 
If you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s Web site for more information.

 
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FOCUS MORNINGSTAR UTILITIES INDEX ETF
 
Investment Objective
 
The Focus Morningstar Utilities Index ETF (the “Fund”) seeks to provide investment results that correspond, before fees and expenses, generally to the price and yield performance of the Morningstar Utilities Index (the “Underlying Index”).  The Underlying Index is a subset of the Morningstar US Market Index and consists of electric, gas, and water utilities.
 
Fees and Expenses
 
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund (“Shares”).  Investors purchasing Shares through a broker-dealer on a national securities exchange or in the over-the-counter market (the “Secondary Market”) may be subject to customary brokerage commissions charged by their broker which are not reflected in the table set forth below.
 
Shareholder Fees (Fees Paid Directly from your Investment)
 
No shareholder fees are levied by the Fund for purchases and sales made on the Secondary Market.
 
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
 
Management Fees
   
[·]
%
Distribution and Service (12b-1) Fees
    0.00 %
Other Expenses(a)
   
[·]
%
Total Annual Fund Operating Expenses
   
[·]
%
 

 
 
(a)
The Fund is new and Other Expenses are based on estimated amounts for the current fiscal year.
 
Example
 
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. This example does not take into account brokerage commissions that you pay when purchasing or selling Shares of the Fund.
 
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses, which exclude brokerage commissions, remain the same.  Although your actual costs may be higher or lower, based on these assumptions your approximate costs would be:
     
YEAR
 
EXPENSES
1
 
$[·]
3
 
$[·]
 
Portfolio Turnover
 
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio).  A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.

Because the Fund has not yet commenced operations, no portfolio turnover information is presented.

 
43

 
 
Principal Investment Strategies
 
The Morningstar Utilities Index is determined on the basis of capital value of component securities that are publicly held, which typifies a “float adjusted” capitalization index and a subset of the Morningstar US Market Index (a diversified broad market index that represents approximately 97% of the market capitalization of publicly-traded companies that are domiciled or principally traded in the United States).  The Underlying Index consists of companies that are electric, gas, and water utilities that meet specific criteria developed by Morningstar, Inc. (“Morningstar”) based on the standard industrial classification (“SIC”) codes attributable to the industries covered by the Underlying Index. As of December 20, 2010, the Underlying Index was comprised of 75 component securities with market capitalizations greater than $629.13 million that have a daily average traded volume of at least 2.18 million over the past three months.  The total market capitalization of the Underlying Index as of December 20, 2010 was in excess of $456.88 billion.
 
Indexing Investment Approach. The Fund is not managed according to traditional methods of “active” investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment.  Instead, the Fund, utilizing a “passive” or indexing investment approach, attempts to approximate the investment performance of the Underlying Index by investing in a portfolio of securities that generally replicates the Underlying Index.  The Fund may or may not hold all of the securities in the Underlying Index and may, from time to time, engage in a representative sampling strategy.
 
The Fund generally will invest at least 90% of its assets in securities of the Underlying Index. The Fund may invest less than 90% of its assets in the securities of the Underlying Index only to the extent that the Fund’s investment advisor, FocusShares LLC (the “Advisor”), needs additional flexibility to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and other regulatory requirements.
 
Principal Risks of Investing in the Fund
 
As with any investment, you could lose all or part of your investment in the Fund, and the Fund’s performance could trail that of other investments. The Fund is subject to the principal risks noted below, any of which may adversely affect the Fund’s net asset value (“NAV”), trading price, yield, total return and ability to meet its investment objective.  A more complete description of principal risks is included in the Prospectus under the heading “Additional Description of the Principal Risk Factors of the Fund.”
 
The principal risks associated with the Fund are:

Index Risk.  The Underlying Index is new and has limited historical performance data that is not predictive of future results. The performance of the Underlying Index and the Fund may deviate from that of the sector the Underlying Index seeks to track due to changes that are reflected more quickly in the sector than in the Underlying Index, which will rebalance its component securities only on a quarterly basis.
 
Index Tracking Risk.  Although the Fund attempts to track the performance of its Underlying Index, the Fund may not be able to duplicate its exact composition or return for any number of reasons.  To the extent the Advisor uses a representative sampling indexing strategy to manage the Fund, index tracking risk will be higher than if a replication strategy were implemented.
 
Concentration Risk.  To the extent that the Underlying Index is concentrated in a particular industry, the Fund also will be concentrated in that industry.  Concentrated Fund investments will subject the Fund to a greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different industry sectors.
 
Non-Diversified Risk. The Fund is classified as a “non-diversified” investment company under the Investment Company Act of 1940 (the “1940 Act”) and is subject to the risk that it will be more volatile than a diversified fund because the Fund may invest its assets in a smaller number of issuers or may invest larger proportions of its assets in a single industry that comprises the Underlying Index.
 
Market Risk.  The prices of the securities in the Fund are subject to the risk associated with investing in the stock market, including sudden and unpredictable drops in value.  An investment in the Fund may lose money.
 
Equity Securities Risk. Equity securities are subject to changes in value and their values may be more volatile than other asset classes such as fixed-income securities.
 
Utilities Industry Risk.  The Fund is subject to regulatory, competition and general industry risks faced by companies in the utilities economic sector. Risks faced by companies in the utilities economic sector include adverse effects from regulatory, competition and general industry risks. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors and the overall stock market.

 
44

 

New Fund Risk.  The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, Inc. (“NYSE Arca”), there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.
 
Performance
 
As of the date of this prospectus, the Fund has not yet commenced operations and therefore does not report its performance information.  For current performance information, please visit www.focusshares.com.
 
Investment Advisor
 
FocusShares, LLC serves as the investment advisor to the Fund.
 
Portfolio Managers
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor.  Mr. Wallace has been with the Advisor since 2010.
 
Travis Trampe is a Portfolio Manager of the Advisor.  Mr. Trampe has been with the Advisor since 2010.
 
Purchase and Sale of Fund Shares
 
Unlike conventional mutual funds, the Fund issues and redeems Shares on a continuous basis, at net asset value (“NAV”), only in blocks of 50,000 Shares or whole multiples thereof (“Creation Units”). The Fund’s Creation Units are issued and redeemed principally in-kind for securities included in the Fund. Retail investors may acquire Shares only on NYSE Arca through a broker-dealer. Shares of the Fund will trade at market price rather than NAV.  As such, Shares may trade at a price greater than NAV (premium) or less than NAV (discount).
 
Tax Information
 
The Fund’s distributions are taxable and will generally be taxed as ordinary income or capital gains.
 
Financial Intermediary Compensation
 
If you purchase Shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Advisor or other related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment.  Ask your salesperson or visit your financial intermediary’s Web site for more information.

 
45

 

ADDITIONAL DESCRIPTION OF THE PRINCIPAL STRATEGIES OF THE FUNDS
 
Each Fund employs a “passive management” – or indexing – investment approach designed to track the performance of its Underlying Index. The Funds are not managed according to traditional methods of “active” investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment.  Unlike many investment companies, the Funds do not try to “beat” the indexes they tracks and do not seek temporary defensive positions when markets decline or appear overvalued.
 
Indexing may eliminate the chance that the Funds will substantially outperform their respective Underlying Indexes, but it also may reduce some of the risks of active management, such as poor security selection.  Indexing seeks to achieve lower costs and better after-tax performance by keeping portfolio turnover low in comparison to actively managed investment companies.
 
Each Fund will invest at least 90% of its total assets in component securities that comprise its respective Underlying Index.  The Advisor will manage the Funds by using either a “replication” or a “representative sampling” indexing strategy.  Replication indexing strategies involve the purchase of the component securities of the Underlying Index in substantially the same weighting as in the Underlying Index.  A representative sampling indexing strategy involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index.  The securities selected for representative sampling are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of the relevant Fund’s Underlying Index.  To the extent that the Advisor uses a representative sampling indexing strategy to manage a Fund, the Fund may or may not hold all of the securities in its Underlying Index.
 
Each Underlying Index of a Fund is a rules based, modified capitalization weighted, float adjusted index intended to give investors a means of tracking the overall performance of the sector of publicly traded companies designated for such Fund. The Advisor seeks a correlation over time of 0.95 or better between each Fund’s performance, before fees and expenses, and the performance of its Underlying Index.  A figure of 1.00 would represent perfect correlation.
 
Underlying Index constituents are drawn from the pool of stocks issued by either US-domiciled companies or companies whose primary stock market activities occur in the US. The Underlying Index constituents are also required to trade publicly on the New York Stock Exchange, the NYSE Amex Equities, or The NASDAQ Stock Market LLC. Stocks in an Underlying Index are weighted according to the total number of shares that are publicly owned and available for trading.
 
An Underlying Index may contain a smaller or greater number of component securities from time to time.  The Underlying Indexes are rebalanced by Morningstar on a quarterly basis, and a Fund will rebalance when its Underlying Index does.  Fund shareholders can find a list of companies comprising the Funds’ Underlying Indexes on the Trust’s website at http://www.focusshares.com or on the Morningstar website http://www.morningstar.com.
 
 Each Underlying Index is sponsored by an organization that is independent of the Fund and the Advisor.  Morningstar determines the composition and relative weightings of the securities in each Underlying Index and publishes information regarding the market value of the Underlying Index.  The criteria for inclusion in the Underlying Indexes are discussed in the Funds’ Statement of Additional Information (“SAI”).
 
ADDITIONAL DESCRIPTION OF THE PRINCIPAL RISKS OF THE FUNDS
 
Investors in the Funds should carefully consider the risks of investing in the Funds as set forth in each Fund’s Summary Information section under “Principal Risks.”  To the extent such risks apply, they are discussed hereunder in greater detail. Unless otherwise noted, the following risks apply to all of the Funds.
 
Index Risk
 
Except with regard to the Focus Morningstar US Market Index ETF, the Focus Morningstar Large Cap Index ETF, the Focus Morningstar Mid Cap Index ETF and the Focus Morningstar Small Cap Index ETF, each Fund’s Underlying Index is new and has limited historical performance data that is not predictive of future results.

 
46

 
 
Each Underlying Index and Fund rebalance only when Morningstar determines to rebalance the Underlying Index, which occurs on a quarterly basis, which may cause the performance of the Underlying Indexes and the Funds to deviate from that of the market or sector the Underlying Indexes seek to track due to changes that are reflected in the market or sector more quickly than the quarterly rebalancing process can track.
 
Index Tracking Risk
 
Imperfect correlation between the Fund's portfolio securities and those in the Underlying Index, rounding of prices, changes to the Underlying Index and regulatory requirements may cause tracking error, which is the divergence of the Fund's performance from that of the Underlying Index. This risk may be heightened during times of increased market volatility or other unusual market conditions. Tracking error also may result because the Fund incurs fees and expenses while the Underlying Index does not.
 
Concentration Risk
 
This risk applies to all Funds except the Focus Morningstar US Market Index ETF, Focus Morningstar Large Cap Index ETF, Focus Morningstar Mid Cap Index ETF and Focus Morningstar Small Cap Index ETF.
 
To the extent that the Underlying Index is concentrated in a particular industry or designated group of industries, the Fund also will be concentrated in that industry or industries.  Concentrated Fund investments will subject the Fund to a greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different industry sectors.
 
NON-DIVERSIFIED RISK
 
This risk applies to each Fund except the Focus Morningstar US Market Index ETF, Focus Morningstar Large Cap Index ETF, Focus Morningstar Mid Cap Index ETF and Focus Morningstar Small Cap Index ETF.
 
The Funds are separate investment portfolios of the Trust, which is an open-end investment company registered under the the 1940 Act. The Funds are classified as “non-diversified” investment companies under the 1940 Act. As a result, the Funds are subject to the risk that they will be more volatile than a diversified fund because each Fund may invest its assets in a smaller number of issuers or may invest larger proportions of its assets in a single industry within the industries that comprise its Underlying Index. As a result, the gains and losses on a single security may have a greater impact on a Fund’s NAV and may make the Fund more volatile than diversified funds.
 
Market Risk
 
The market price of investments owned by a Fund may go up or down, sometimes rapidly or unpredictably. Investments may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets.
 
Equity Securities Risk
 
The trading price of equity securities, including the prices of each Fund’s Shares, will fluctuate in response to a variety of factors.  These factors include events impacting a single issuer, as well as political, market and economic developments that affect specific market segments and the market as a whole.  Each Fund’s NAV and market price, like stock prices generally, will fluctuate within a wide range in response to these factors.  As a result, an investor could lose money over short or even long periods.
 
Basic Materials Industry Risk
 
The following risk applies to the Focus Morningstar Basic Materials Index ETF.
 
The Fund is subject to risks faced by companies in the basic materials economic sector to the same extent as the Underlying Index is so concentrated, including: adverse effects from commodity price volatility, exchange rates, import controls and increased competition; the possibility that production of industrial materials will exceed demand as a result of overbuilding or economic downturns, leading to poor investment returns; risk for environmental damage and product liability claims; and adverse effects from depletion of resources, technical progress, labor relations and government regulations. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors.
 
Communication Services Industry Risk
 
The following risk applies to the Focus Morningstar Communication Services Index ETF.

 
47

 

The Fund is subject to risks faced by companies in the telecommunications economic sector to the same extent as the Underlying Index is so concentrated, including: a telecommunications market characterized by increasing competition and regulation by the Federal Communications Commission and various state regulatory authorities; the need to commit substantial capital to meet increasing competition, particularly in formulating new products and services using new technology; and technological innovations that may make various products and services obsolete. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors.
 
Consumer Cyclical Industry Risk
 
The following risk applies to the Focus Morningstar Consumer Cyclical Index ETF.
 
The Fund is subject to risks faced by companies in the consumer cyclical industry to the same extent as the Underlying Index is so concentrated, including: the fact that security prices and profitability may be tied closely to the performance of the domestic and international economy, interest rates, competition and consumer confidence; heavy dependence on disposable household income and consumer spending; severe competition; and changes in demographics and consumer tastes, which can affect the success of consumer products. Further, stocks in the Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors.
 
Consumer Defensive Industry Risk
 
The following risk applies to the Focus Morningstar Consumer Defensive Index ETF.
 
The Fund is subject to risks faced by companies in the consumer cyclical industry to the same extent as the Underlying Index is so concentrated, including: governmental regulation affecting the permissibility of using various food additives and production methods could affect profitability; new laws or litigation that may adversely affect tobacco companies; fads, marketing campaigns and other factors affecting supply and demand that may strongly affect securities prices and profitability of food, soft drink and fashion related products; and international events that may affect food and beverage companies that derive a substantial portion of their net income from foreign countries. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors.
 
Energy Industry Risk
 
The following risk applies to the Focus Morningstar Energy Index ETF.
 
The Fund is subject to risks faced by companies in the energy sector to the same extent as the Underlying Index is so concentrated, including: effects on profitability from changes in worldwide energy prices and exploration, and production spending; adverse effects from changes in exchange rates, government regulation, world events and economic conditions; market, economic and political risks of the countries where energy companies are located or do business; and risk for environmental damage claims. Further, stocks in the Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors.
 
Financial Services Industry Risk
 
The following risk applies to the Focus Morningstar Financial Services Index ETF.
 
The Fund is subject to risks faced by companies in the financial services economic sector to the same extent as the Underlying Index is so concentrated, including: extensive governmental regulation that affects the scope of their activities, the prices they can charge and the amount of capital they must maintain; adverse effects from increases in interest rates; effects on profitability by loan losses, which usually increases in economic downturns; the severe competition to which banks and insurance companies may be subject; and increased inter- industry consolidation and competition in the financial sector. Further, stocks in the Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors.
 
Health Care Industry Risk
 
The following risk applies to the Focus Morningstar Health Care Index ETF.

 
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The Fund is subject to risks faced by companies in the health care economic sector to the same extent as the Underlying Index is so concentrated, including: heavy dependence on patent protection, with profitability affected by the expiration of patents; expenses and losses from extensive litigation based on product liability and similar claims; competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting; the long and costly process for obtaining new product approval by the Food and Drug Administration; the difficulty health care providers may have obtaining staff to deliver service; susceptibility to product obsolescence; and thin capitalization and limited product lines, markets, financial resources or personnel. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors.
 
The effect of the passage of the Patient Protection and Affordable Care Act and its potential implementation is uncertain.
 
Industrial Risk
 
The following risk applies to the Focus Morningstar Industrials Index ETF.
 
The Fund is subject to risks faced by companies in the industrial economic sector to the same extent as the Underlying Index is so concentrated, including: effects on stock prices by supply and demand both for their specific product or service and for industrial sector products in general; decline in demand for products due to rapid technological developments and frequent new product introduction; effects on securities prices and profitability from government regulation, world events and economic conditions; and risks for environmental damage and product liability claims. Further, stocks in the Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors.
 
Mid-Capitalization Companies Risk
 
The following risk applies to the Focus Morningstar US Market Index ETF and Focus Morningstar Mid Cap Index ETF.
 
The Fund invests in securities of mid-capitalization companies. Compared to large-capitalization companies, mid-capitalization companies may be less stable and their securities may be more volatile and less liquid.
 
Real Estate Industry Risk
 
The following risk applies to the Focus Morningstar Real Estate Index ETF.
 
The Fund is subject to risks faced by companies in the real estate industry to the same extent as the Underlying Index is so concentrated, including: adverse changes in national, state or local real estate conditions (such as oversupply of or reduced demand for space and changes in market rental rates); obsolescence of properties; changes in the availability, cost and terms of mortgage funds; the impact of environmental laws; failure to comply with the federal tax requirements affecting REITs which could subject a REIT to federal income taxation; and the risk that the federal tax requirement that a REIT distribute substantially all of its net income to its shareholders could result in a REIT having insufficient capital for future expenditures. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors.
 
Small-Capitalization Companies Risk
 
The following risk applies to the Focus Morningstar US Market Index ETF, Focus Morningstar Small Cap Index ETF, Focus Morningstar Consumer Defensive Index ETF and Focus Morningstar Energy Index ETF.
 
The Fund invests in securities of small-capitalization companies. Compared to mid- and large-capitalization companies, small-capitalization companies may be less stable and their securities may be more volatile and less liquid.
 
Technology Industry Risk
 
The following risk applies to the Focus Morningstar Technology Index ETF.

 
49

 

The Fund is subject to risks faced by companies in the technology industry to the same extent as the Underlying Index is so concentrated. Securities of technology companies may be subject to greater volatility than stocks of companies in other market sectors. Technology companies may be affected by intense competition, obsolescence of existing technology, general economic conditions and government regulation and may have limited product lines, markets, financial resources or personnel. Technology companies may experience dramatic and often unpredictable changes in growth rates and competition for qualified personnel. These companies also are heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely affect profitability. A small number of companies represent a large portion of the technology industries as a whole.
 
Utilities Industry Risk.
 
The following risk applies to the Focus Morningstar Utilities Index ETF.
 
The Fund is subject to regulatory, competition and general industry risks faced by companies in the utilities economic sector. Further, stocks in the Underlying Index may underperform fixed income investments and stock market indexes that track other markets, segments and sectors.
 
Interest Rate Risk
 
This risk applies to the Focus Morningstar Basic Materials Index ETF, Focus Morningstar Consumer Cyclical Index ETF, Focus Morningstar Consumer Defensive Index ETF, Focus Morningstar Energy Index ETF, Focus Morningstar Financial Services Index ETF and Focus Morningstar Real Estate Index ETF.
 
Each of the Underlying Indexes, and therefore the Funds, may be more heavily weighted than other types of investments in market sectors or certain industries that are sensitive to interest rate fluctuations (such as the financial sector and the building industry).  The Funds therefore may be more sensitive to fluctuations in interest rates than other types of investments.  In particular, increases in prevailing interest rates could have a negative impact on the performance of the Funds.
 
New Fund Risk
 
The Fund is a new fund. While the Fund intends that its Shares be listed on NYSE Arca, there can be no assurance that active trading markets for the Shares will develop or be maintained.  As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it may experience greater tracking error to its Underlying Index than it otherwise would at higher asset levels, or it could ultimately liquidate.  The Fund’s Distributor does not maintain a secondary market in the Shares.
 
ADDITIONAL INVESTMENT STRATEGIES
 
Each Fund will invest at least 90% of its net assets in component securities that comprise its Underlying Index.  As a non-principal investment strategy, each Fund may invest its remaining assets in money market instruments, including repurchase agreements or funds that invest exclusively in money market instruments (subject to applicable limitations under the 1940 Act, or exemptions therefrom), convertible securities, structured notes (notes on which the amount of principal repayment and interest payments are based on the movement of one or more specified factors, such as the movement of a particular stock or stock index) and in options, futures contracts and swaps.  Options, futures contracts, swaps, convertible securities and structured notes may be used by each Fund in seeking performance that corresponds to its respective Underlying Index, and in managing cash flows. The Funds will not invest in money market instruments as part of a temporary defensive strategy to protect against potential stock market declines.
 
As an additional non-principal strategy, the Funds may lend their portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the Funds receive liquid collateral equal to at least 102% of the value of the portfolio securities being loaned.  This collateral is marked-to-market on a daily basis.  Although a Fund will receive collateral in connection with all loans of its securities holdings, the Fund would be exposed to a risk of loss should a borrower default on its obligation to return the borrowed securities (e.g., the loaned securities may have appreciated beyond the value of the collateral held by the Fund). In addition, the Fund will bear the risk of loss of any cash collateral that it invests.

 
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Each of the policies and strategies described in this prospectus, including the investment objective of each Fund, constitutes a non-fundamental policy that may be changed by the Board of Trustees of the Trust without shareholder approval. Certain fundamental policies of the Funds are set forth in the Funds’ SAI under “Investment Restrictions.”
 
Securities Lending
 
The Funds may lend their portfolio securities. In connection with such loans, the Funds receive liquid collateral equal to at least 102% of the value of the portfolio securities being lent.  This collateral is marked to market on a daily basis.
 
ADDITIONAL RISKS
 
Indexing Risk
 
The Advisor uses a passive indexing strategy – either replication or representative sampling – to manage the Fund.  Each Fund invests in the securities included in, or representative of, its Underlying Index regardless of their investment merit.  The Funds do not attempt to outperform their Underlying Indexes or take defensive positions in declining markets.  As a result, each Fund’s performance may be adversely affected by a general decline in the US market segments relating to its Underlying Index.
 
Asset Class Risk
 
The returns from the types of securities in which a Fund invests may under-perform returns from the various general securities markets or different asset classes.  This may cause a Fund to under-perform other investment vehicles that invest in different asset classes.  Different types of securities (for example, large-, mid- and small-capitalization stocks) tend to go through cycles of doing better - or worse - than the general securities markets. In the past, these periods have lasted for as long as several years.
 
Issuer-Specific Risk
 
Changes in the financial condition of an issuer of the stock or counterparty to a financial instrument, changes in specific economic or political conditions that affect a particular type of security or issuer, and changes in general economic or political conditions can affect a security’s or instrument’s value.  The value of securities of smaller, less well-known issuers can be more volatile than that of larger issuers.  Issuer-specific events can have a negative impact on the value of a Fund.
 
Trading Price Risk
 
It is expected that the Shares of a Fund will be listed for trading on NYSE Arca and will be bought and sold in the secondary market at market prices.  Although it is expected that generally the market price of the Shares of each Fund will approximate the respective Fund’s NAV, there may be times when the market price and the NAV vary significantly.  Thus, you may pay more than NAV when you buy Shares of a Fund in the secondary market, and you may receive less than NAV when you sell those Shares in the secondary market.  However, given that the Shares can be purchased and redeemed in Creation Units (unlike shares of closed-end funds, which frequently trade at appreciable discounts from, and sometimes at premiums to, their NAV), the Advisor believes that large discounts or premiums to the NAV of the Shares should not be sustained.
 
The market price of Fund Shares during the trading day, like the price of any exchange-traded security, includes a “bid/ask” spread charged by the exchange specialist, market makers or other participants that trade the Fund Shares.  In times of severe market disruption, the bid/ask spread can increase significantly.  At those times, Fund Shares are most likely to be traded at a discount to NAV, and the discount is likely to be greatest when the price of Shares is falling fastest, which may be the time that you most want to sell your Shares.  The Advisor believes that, under normal market conditions, large market price discounts or premiums to NAV will not be sustained because of arbitrage opportunities.

 
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Securities Lending
 
Although each Fund will receive collateral in connection with all loans of its securities holdings, a Fund would be exposed to a risk of loss should a borrower default on its obligation to return the borrowed securities (e.g., the loaned securities may have appreciated beyond the value of the collateral held by the Fund). In addition, a Fund will bear the risk of loss of any cash collateral that it invests.
 
Derivatives Risk
 
A derivative is a financial contract, the value of which depends on, or is derived from, the value of an underlying asset such as a security or an index. As a non-principal investment strategy, a Fund may utilize futures, options and swaps to track its Underlying Index or individual components of an Underlying Index. The Fund will have exposure to derivative risks, which include a number of risks based on the structure of the underlying instrument and the counterparty to the derivatives transaction. These risks include leveraging risk where losses may be magnified if the derivative contains an element of leverage, liquidity risk if the Fund is unable to sell a derivative or is otherwise required to reserve its assets against its exposure under the derivative, interest rate risk if the derivative is interest-rate sensitive, market risk, credit risk of the counterparty to the derivative contract that may impair the value of a Fund's derivative and management risk. To the extent a Fund utilizes derivatives that are entered into over-the-counter (i. e., futures, options or swaps that are not traded on an exchange), the Fund may also have exposure to the risk of a counterparty's default, and the risk that the Fund may improperly value a derivative for which market quotations are unavailable.
 
Shares are not Individually Redeemable
 
Shares may be redeemed by the Funds only in large blocks known as “Creation Units” which are expected to be worth in excess of one million dollars each. The Funds may not redeem Shares in fractional Creation Units. Only certain large institutions that enter into agreements with the Distributor are authorized to transact in Creation Units with the Funds. These entities are referred to as “Authorized Participants.” All other persons or entities transacting in Shares must do so in the Secondary Market.
 
Please refer to the SAI for a more complete discussion of the risks of investing in Shares.
 
CONTINUOUS OFFERING
 
The method by which Creation Units are purchased and traded may raise certain issues under applicable securities laws. Because new Creation Units are issued and sold by the Funds on an ongoing basis, at any point a “distribution,” as such term is used in the Securities Act, may occur. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject them to the prospectus delivery and liability provisions of the Securities Act. For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into individual Shares, and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling effort involving solicitation of Secondary Market demand for Shares. A determination of whether one is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities that could lead to categorization as an underwriter.
 
Broker-dealer firms should also note that dealers who are not “underwriters” but are effecting transactions in Shares, whether or not participating in the distribution of Shares, are generally required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the Securities Act is not available with respect to such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker dealer-firms should note that dealers who are not underwriters but are participating in a distribution (as contrasted with ordinary Secondary Market transactions) and thus dealing with Shares that are part of an over-allotment within the meaning of Section 4(3)(a) of the Securities Act would be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities Act. Firms that incur a prospectus delivery obligation with respect to Shares of a Fund are reminded that under Rule 153 of the Securities Act, a prospectus delivery obligation under Section 5(b)(2) of the Securities Act owed to an exchange member in connection with a sale on the NYSE Arca is satisfied by the fact that such Fund’s prospectus is available at the NYSE Arca upon request. The prospectus delivery mechanism provided in Rule 153 is only available with respect to transactions on an exchange.

 
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CREATION AND REDEMPTION OF CREATION UNITS
 
The Funds issue and redeem Shares only in bundles of a specified number of Shares. These bundles are known as “Creation Units.” For each Fund, a Creation Unit is comprised of 50,000 Shares. The number of Shares in a Creation Unit will not change, except in the event of a share split, reverse split or similar revaluation. The Funds may not issue fractional Creation Units. To purchase or redeem a Creation Unit, you must be an Authorized Participant or you must do so through a broker, dealer, bank or other entity that is an Authorized Participant. An Authorized Participant is either (1) a “Participating Party,” (i.e., a broker-dealer or other participant in the clearing process of the Continuous Net Settlement System of the NSCC (the “Clearing Process”)), or (2) a participant of DTC (a “DTC Participant”), and, in each case, must have executed an agreement with the Distributor with respect to creations and redemptions of Creation Units (a “Participation Agreement”). Because Creation Units cost over one million dollars each, it is expected that only large institutional investors will purchase and redeem Shares directly from the Funds in the form of Creation Units. In turn, it is expected that institutional investors who purchase Creation Units will break up their Creation Units and offer and sell individual Shares in the Secondary Market.
 
Retail investors may acquire Shares in the Secondary Market (not from the Funds) through a broker or dealer. Shares are listed on the NYSE Arca and are publicly traded. For information about acquiring Shares in the Secondary Market, please contact your broker or dealer. If you want to sell Shares in the Secondary Market, you must do so through your broker or dealer.
 
When you buy or sell Shares in the Secondary Market, your broker or dealer may charge you a commission, market premium or discount or other transaction charge, and you may pay some or all of the spread between the bid and the offered price for each purchase or sale transaction. Unless imposed by your broker or dealer, there is no minimum dollar amount you must invest and no minimum number of Shares you must buy in the Secondary Market. In addition, because transactions in the Secondary Market occur at market prices, you may pay more than NAV when you buy Shares and receive less than NAV when you sell those Shares.
 
The creation and redemption processes set forth above are summaries, and the summaries only apply to shareholders who purchase or redeem Creation Units (they do not relate to shareholders who purchase or sell Shares in the Secondary Market). Authorized Participants should refer to their Participant Agreements for the precise instructions that must be followed in order to create or redeem Creation Units.
 
BUYING AND SELLING SHARES IN THE SECONDARY MARKET
 
Most investors will buy and sell Shares of each Fund in Secondary Market transactions through brokers. Shares of each Fund will be listed for trading on the Secondary Market on the NYSE Arca.  Shares can be bought and sold throughout the trading day like other publicly-traded shares.  There is no minimum investment. Although Shares are generally purchased and sold in “round lots” of 100 Shares, brokerage firms typically permit investors to purchase or sell Shares in smaller “odd lots” at no per-Share price differential.  When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges, and you may pay some or all of the spread between the bid and the offered price in the Secondary Market on each leg of a round trip (purchase and sale) transaction.
 
Share prices are reported in dollars and cents per Share. For information about buying and selling Shares in the Secondary Market, please contact your broker or dealer. Book Entry Shares of each Fund are held in book-entry form and no stock certificates are issued. DTC, through its nominee Cede & Co., is the record owner of all outstanding Shares. Investors owning Shares are beneficial owners as shown on the records of DTC or its participants. DTC serves as the securities depository for all Shares. Participants in DTC include securities brokers and dealers, banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with DTC. As a beneficial owner of Shares, you are not entitled to receive physical delivery of stock certificates or to have Shares registered in your name, and you are not considered a registered owner of Shares. Therefore, to exercise any right as an owner of Shares, you must rely upon the procedures of DTC and its participants.
 
These procedures are the same as those that apply to any securities that you hold in book entry or “street name” form for any publicly-traded company. Specifically, in the case of a shareholder meeting of a Fund, DTC assigns applicable Cede & Co. voting rights to its participants that have Shares credited to their accounts on the record date, issues an omnibus proxy and forwards the omnibus proxy to the Fund. The omnibus proxy transfers the voting authority from Cede & Co. to the DTC participant. This gives the DTC participant through whom you own Shares (namely, your broker, dealer, bank, trust company or other nominee) authority to vote the shares, and, in turn, the DTC participant is obligated to follow the voting instructions you provide.

 
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MANAGEMENT
 
Board of Trustees
 
The Board has responsibility for the general oversight of the management of the Funds, including general supervision of the Advisor and other service providers, but is not involved in the day-to-day management of the Trust.  A list of the Trustees and the Trust officers, and their present positions and principal occupations is provided in the Funds’ SAI.
 
Investment Adviser
 
Under the terms of an Investment Advisory Agreement between the Trust and FocusShares, LLC with respect to each of the Funds (the “Investment Advisory Agreement”), FocusShares, LLC serves as the Advisor to the Funds and, subject to the supervision of the Board of Trustees, will be responsible for the day-to-day investment management of the Funds. The Advisor’s principal business address is 210 Summit Avenue, Suite C-11, Montvale, NJ 07645.
 
Scottrade Financial Services, Inc. is the privately-held holding company for FocusShares LLC, Scottrade, Inc., a leading online investing firm, and Scottrade Bank. Scottrade was founded in 1980 to provide investors with discount brokerage services. Today, it has the largest branch network among online investing firms and provides education to help millions of investors invest for themselves. Scottrade Bank was formed in 2008 to provide bank sweep accounts to Scottrade customers. In 2010, Scottrade Financial Services, Inc., acquired FocusShares. Scottrade Financial Services, Inc. is based in St. Louis, Mo.
 
The Advisor registered with the SEC as a registered investment adviser effective October 29, 2007.  The Advisor does not manage any other investment companies and has limited experience as an investment adviser. In addition to its services rendered to the Trust, the Adviser advises a managed account with assets under management of approximately $25 million as of December 31, 2010.  The Advisor arranged for the provision of distribution, transfer agency, custody, fund administration and all other services necessary for the Funds to operate.
 
The Advisory Agreement was approved by the Independent Trustees of the Trust at its annual meeting.  The basis for the Board’s approval of the Investment Advisory Agreement will be available in the Trust’s Annual Report to Shareholders for the fiscal year ended October 31, 2011.
 
Advisory Fees.  The Advisor expects to receive fees from each Fund, based on a percentage of the Fund’s average daily net assets, as shown in the following table:
 
Fund Name
 
Management Fee
 
Focus Morningstar US Market Index ETF
    [• ]%
Focus Morningstar Large Cap Index ETF
    [• ]%
Focus Morningstar Mid Cap Index ETF
    [• ]%
Focus Morningstar Small Cap Index ETF
    [• ]%
Focus Morningstar Basic Materials Index ETF
    [• ]%
Focus Morningstar Communication Services Index ETF
    [• ]%
Focus Morningstar Consumer Cyclical Index ETF
    [• ]%
Focus Morningstar Consumer Defensive Index ETF
    [• ]%
Focus Morningstar Energy Index ETF
    [• ]%
Focus Morningstar Financial Services Index ETF
    [• ]%
Focus Morningstar Health Care Index ETF
    [• ]%
Focus Morningstar Industrials Index ETF
    [• ]%
Focus Morningstar Real Estate Index ETF
    [• ]%
Focus Morningstar Technology Index ETF
    [• ]%
Focus Morningstar Utilities Index ETF
    [• ]%

The Advisor may voluntarily waive any portion of its advisory fee from time to time, and may discontinue or modify any such voluntary limitations in the future at its discretion.
 
The Advisor and its affiliates deal, trade and invest for their own accounts in the types of securities in which the Funds also may invest. The Advisor does not use inside information in making investment decisions on behalf of the Funds.

 
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Other Expenses.  Under the Investment Advisory Agreement, the Advisor has agreed to pay all expenses of the Trust, except for: (i) brokerage expenses and other expenses (such as stamp taxes) connected with the execution of portfolio transactions or in connection with creation and redemption transactions; (ii) interest and tax expenses; (iii) dividend or distribution expenses; (iv) legal fees or expenses in connection with any arbitration, litigation or pending or threatened arbitration or litigation, including any settlements in connection therewith; (v) compensation and expenses of each Independent Trustee; (vi) compensation and expenses of counsel to the Independent Trustees; (vii) distribution fees and expenses, if any, paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act; (viii) extraordinary expenses, as determined under generally accepted accounting principles; and (ix) the advisory fee payable to the Advisor.
 
Portfolio Management
 
The portfolios are managed by the Advisor’s portfolio management team.  The individual members of the team responsible for the day-to-day management of the portfolios of the Funds are:
 
Kristopher A. Wallace is the Head of Portfolio Management of the Advisor and has day-to-day responsibility for management of the Fund. Mr. Wallace has managed each Fund since inception. Mr. Wallace led Scottrade’s Capital Markets division from 1996 to 2007 and has twenty years experience in the financial industry. Mr. Wallace graduated and was awarded the Bachelor of Science degree in Finance with a minor in Economics from the University of Missouri – Columbia.
 
Travis Trampe is the Senior Portfolio Manager of the Advisor and has day-to-day responsibility for management of the Funds. Mr. Trampe has managed each Fund since inception. Mr. Trampe previously worked for Invesco PowerShares with four years of experience as a Vice President and Portfolio Manager of their international-listed ETFs. Mr. Trampe has ten years of investment management experience and sixteen years of experience in the financial industry. Mr. Trampe graduated and was awarded the Bachelor of Science degree in Finance with a minor in Mathematics from Nebraska Wesleyan University.
 
For more information about the Portfolio Managers’ compensation, other accounts managed by the Portfolio Managers and the Portfolio Managers’ ownership of securities in the Funds, see the SAI.
 
The Administrator, Custodian, and Transfer, Index Receipt and Dividend Disbursing Agent
 
J.P. Morgan Investor Services Co. (“JPMISCo”) serves as administrator of the Trust and each of the Funds.  JPMISCo is located at 70 Fargo Street, Boston, MA 02210.  Pursuant to the Mutual Fund Services Agreement with the Trust, JPMISCo provides administrative, regulatory, tax, financial reporting and fund accounting services for the maintenance and operation of the Trust and each Fund.  In addition, JPMISCo makes office space, equipment, personnel and facilities available to provide such services.
 
JPMorgan Chase Bank, N.A. (“JPMCB”) serves as custodian, transfer agent, index receipt agent and dividend disbursing agent of the Trust and each of the Funds.  JPMCB’s address is One Chase Manhattan Plaza, New York, NY 10005.  Under the Custody Agreement with the Trust, JPMCB maintains cash, securities and other assets of the Trust and each Fund in separate accounts, keeps all required books and records and provides other necessary services.  JPMCB is required, upon the order of the Trust, to deliver securities held by JPMCB and to make payments for securities purchased by each Fund.  Pursuant to the Agency Services Agreement with the Trust, JPMCB acts as transfer agent and index receipt agent for each Fund’s authorized and issued shares of beneficial interest and as dividend disbursing agent of the Trust.
 
Distributor
 
Foreside Fund Services, LLC (the “Distributor”) is the principal underwriter and distributor of each Fund’s Shares. The Distributor’s address is Three Canal Plaza, Suite 100, Portland, ME 04101.  The Distributor will not distribute Shares in less than whole Creation Units, and it does not maintain a secondary market in the Shares.  As noted in the section entitled “Creation and Redemption of Creation Units,” individual Shares are traded only in the secondary market and are not redeemable. The Distributor is a broker-dealer registered under the 1934 Act and a member of the Financial Industry Regulatory Authority (“FINRA”) (the successor organization to the National Association of Securities Dealers, Inc.).

 
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Securities Lending Agent
 
Each Fund may lend Portfolio Securities to certain creditworthy borrowers under certain conditions described in the SAI, and will receive collateral for each loaned security which is marked to market each trading day.  Engaging in loans of its Portfolio Securities enables a Fund to receive a portion of the income generated by the lending of such securities and then investing in the collateral until the loan is terminated. Such loans may be terminated at any time by the Funds. Securities lending involves the risk of loss of rights in the collateral or delay in recovery of the collateral should the borrower fail to return the securities loaned or become insolvent.   JPMCB, an affiliate of the Administrator, acts as Securities Lending Agent for each Fund subject to the supervision of the Advisor.  For this service, JPMCB receives a fee to cover the custodial, administrative and related costs of securities lending.
 
Independent Registered Public Accounting Firm
 
[•], [•] serves as the independent registered public accounting firm for the Trust and the Funds.
 
Legal Counsel
 
Katten Muchin Rosenman LLP, 575 Madison Avenue, New York, New York 10022, serves as counsel to the Trust and the Funds.
 
Other Service Providers
 
Foreside Compliance Services, LLC (“FCS”), an affiliate of the Distributor, provides an Anti-Money Laundering Officer and Chief Compliance Officer to the Funds.  Foreside Management Services, LLC (“FMS”), an affiliate of the Distributor, provides a Principal Financial Officer to the Funds. The Distributor, FCS and FMS are not affiliated with the Advisor or JP Morgan Chase & Co. or their affiliates.
 
 
Share Trading Prices
 
As with other types of securities, the trading prices of Shares of any Fund in the secondary market can be affected by market forces such as supply and demand, economic conditions and other factors. The price you pay or receive when you buy or sell your Shares in the secondary market may be more or less than the NAV of such Shares.
 
The approximate value of each Fund’s investments on a per-Share basis, the Indicative Intra-Day Value, or IIV, is disseminated by the NYSE Arca every 15 seconds during hours of trading on the NYSE Arca.  The IIV should not be viewed as a “real-time” update of NAV because the IIV may not be calculated in the same manner as NAV, which is computed once per day.
 
An independent third party calculator calculates the IIV for each Fund during hours of trading on the NYSE Arca by dividing the “Estimated Fund Value” as of the time of the calculation by the total number of outstanding Shares of that Fund. “Estimated Fund Value” is the sum of the estimated amount of cash held in a Fund’s portfolio, the estimated amount of accrued interest owed to the Fund and the estimated value of the securities held in the Fund’s portfolio, minus the estimated amount of the Fund’s liabilities.  The IIV will be calculated based on the same portfolio holdings disclosed on the Trust’s website.
 
The Funds provide the independent third party calculator with information to calculate the IIV, but the Funds are not involved in the actual calculation of the IIV and are not responsible for the calculation or dissemination of the IIV. The Funds make no warranty as to the accuracy of the IIV.

 
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Determination of Net Asset Value
 
The NAV of the Shares for a Fund is equal to the Fund’s total assets minus the Fund’s total liabilities divided by the total number of shares outstanding. Interest and investment income on the Trust’s assets accrue daily and are included in the Fund’s total assets. Expenses and fees (including investment advisory, management, administration and distribution fees, if any) accrue daily and are included in the Fund’s total liabilities. The NAV that is published is rounded to the nearest cent; however, for purposes of determining the price of Creation Units, the NAV is calculated to five decimal places.
 
In calculating NAV, each Fund’s investments are valued using market quotations when available. When market quotations are not readily available, are deemed unreliable or do not reflect material events occurring between the close of local markets and the time of valuation, investments are valued using “fair value pricing” as determined in good faith under Pricing and Valuation Guidelines established by and under the general supervision and responsibility of the Trust’s Board of Trustees. Investments that may be valued using fair value pricing include, but are not limited to: (1) securities that are not actively traded, including “restricted” securities and securities received in private placements for which there is no public market; (2) securities of an issuer that becomes bankrupt or enters into a restructuring; (3) securities whose trading has been halted or suspended; and (4) foreign securities traded on exchanges that close before a Fund’s NAV is calculated.
 
The frequency with which each Fund’s investments are valued using fair value pricing is primarily a function of the types of securities and other assets in which the respective Fund invests pursuant to its investment objective, strategies and limitations. If the Funds invest in other open-end management investment companies registered under the 1940 Act, they may rely on the net asset values of those companies to value the shares they hold of them. Those companies may also use fair value pricing under some circumstances.
 
Valuing the Funds’ investments using fair value pricing results in using prices for those investments that may differ from current market valuations. Accordingly, fair value pricing could result in a difference between the prices used to calculate NAV and the prices used to determine a Fund’s Indicative Intra-Day Value (“IIV”), which could result in the market prices for Shares deviating from NAV.
 
The NAV is calculated by the Administrator and determined each Business Day as of the close of regular trading on the NYSE Arca (ordinarily 4:00 p.m. New York time).
 
Service and Distribution Plan
 
The Board of Trustees of the Trust has adopted a Service and Distribution Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1 plan, each Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year for certain distribution-related activities. The Trust’s Board of Trustees has resolved not to authorize the payment of Rule 12b-1 fees prior to March 31, 2012. However, in the event Rule 12b-1 fees are charged in the future, they will be paid out of the respective Fund’s assets, and over time they will increase the cost of your investment and they may cost you more than certain other types of sales charges.
 
The Advisor and its affiliates may, out of their own resources, pay amounts to third parties for distribution or marketing services on behalf of the Funds. The making of these payments could create a conflict of interest for a financial intermediary receiving such payments.
 
FREQUENT TRADING
 
The Trust’s Board of Trustees has not adopted policies and procedures with respect to frequent purchases and redemptions of Fund Shares by Fund shareholders (“market timing”). In determining not to approve a written, established policy limiting purchases and redemptions, the Board evaluated the nature of each of the Funds (i.e., a fund whose shares are expected to trade intra-day on the secondary market). In particular, the Board  considered that, unlike traditional mutual funds, the Funds directly issue and redeem their Shares in Creation Units at the NAV per Share generally in exchange for a basket of securities intended to replicate each Fund’s Underlying Index, plus a small amount of cash, and individual Shares may be purchased and sold in the secondary market at prevailing market prices.
 
Given this structure, the Board determined that it is unlikely that (a) market timing would be attempted by a Fund’s shareholders or (b) any attempts to market time the Funds by shareholders would result in negative impact to the Funds or their shareholders. However, creations and redemptions of Creation Units consisting of a significant amount of cash, although expected to be rare, could create the potential for market timing with its negative impact to the Funds and their shareholders. For instance, where the cash component represents a significant amount in relation to the basket of securities to be deposited upon a creation order or delivered upon a redemption order, a Fund may incur brokerage and other transactional costs, and frequent creation and redemption activity may significantly reverse such costs thereby increasing the Fund's tracking error and reducing the value of shares held by other shareholders.

 
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The Board of Trustees has instructed the officers of the Trust to review reports of purchases and redemptions of Creation Units on a regular basis to determine if there is any unusual trading in the Funds.  The officers of the Trust will report to the Board any such unusual trading in Creation Units that is disruptive to the Funds. In such event, the Board may reconsider its decision not to adopt market timing policies and procedures.
 
 
Net Investment Income and Capital Gains.
 
As a Fund shareholder, you are entitled to your share of the Fund’s distributions of net investment income and net realized capital gains on its investments. The Funds pay out substantially all of their net earnings to their shareholders as “distributions.”
 
The Funds typically earn income dividends from stocks and interest from debt securities. These amounts, net of expenses, are typically passed along to Fund shareholders as dividends from net investment income. The Funds realize capital gains or losses whenever they sell securities. Net capital gains are distributed to shareholders as “capital gain distributions.”
 
Net investment income and net capital gains are typically distributed to shareholders at least annually.  Dividends may be declared and paid more frequently to improve index tracking or to comply with the distribution requirements of the Code. In addition, the Funds may determine to distribute at least annually amounts representing the full dividend yield net of expenses on the underlying investment securities, as if the Funds owned the underlying investment securities for the entire dividend period in which case some portion of each distribution may result in a return of capital. You will be notified regarding the portion of the distribution which represents a return of capital.
 
Distributions in cash may be reinvested automatically in additional Shares of your Fund only if the broker through which you purchased Shares makes such option available.
 
Federal Income Taxes
 
The following is a summary of the material US federal income tax considerations applicable to an investment in Shares of a Fund. The summary is based on the laws in effect on the date of this Prospectus and existing judicial and administrative interpretations thereof, all of which are subject to change, possibly with retroactive effect. In addition, this summary assumes that a Fund shareholder holds Shares as capital assets within the meaning of the Code and does not hold Shares in connection with a trade or business. This summary does not address all potential US federal income tax considerations possibly applicable to an investment in Shares of a Fund, to Fund shareholders that are, or that are holding Shares through, a partnership (or other pass-through entity) or to Fund shareholders subject to special tax rules. Prospective Fund shareholders are urged to consult their own tax advisors with respect to the specific federal, state, local and foreign tax consequences of investing in Fund shares.
 
The Funds have not requested and will not request an advance ruling from the Internal Revenue Service (the “IRS”) as to the federal income tax matters described below. The IRS could adopt positions contrary to those discussed below and such positions could be sustained. Prospective investors should consult their own tax advisors with regard to the federal tax consequences of the purchase, ownership or disposition of Shares, as well as the tax consequences arising under the laws of any state, foreign country or other taxing jurisdiction.
 
Tax Treatment of a Fund
 
Each Fund intends to qualify and elect to be treated as a separate “regulated investment company” under the Code. To qualify and maintain its tax status as a regulated investment company, each Fund must meet annually certain income and asset diversification requirements and must distribute annually at least 90% of its “investment company taxable income” (which includes dividends, interest and net short-term capital gains).
 
As a regulated investment company, a Fund generally will not have to pay corporate-level federal income taxes on any ordinary income or capital gains that it distributes to its shareholders. If a Fund fails to qualify as a regulated investment company for any year (subject to certain corrective measures that may apply), the Fund will be subject to regular corporate level income tax in that year on all of its taxable income, regardless of whether the Fund makes any distributions to its shareholders. In addition, distributions will be taxable to a Fund’s shareholders generally as ordinary dividends to the extent of the Fund’s current and accumulated earnings and profits.

 
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A Fund may be required to recognize taxable income in advance of receiving the related cash payment.  For example, if a Fund invests in original issue discount obligations (such as zero coupon debt instruments or debt instruments with payment-in-kind interest), the Fund will be required to include in income each year a portion of the original issue discount that accrues over the term of the obligation, even if the related cash payment is not received by the Fund until a later year. Under certain provisions in the Code, including the “wash sale” rules, the Fund may not be able to deduct a loss on a disposition of a portfolio security. As a result, the Fund may be required to make an annual income distribution greater than the total cash actually received during the year. Such distribution may be made from the cash assets of the Fund or by selling portfolio securities. The Fund may realize gains or losses from such sales, in which event its shareholders may receive a larger capital gain distribution than they would in the absence of such transactions.
 
A Fund will be subject to a 4% excise tax on certain undistributed income if the Fund does not distribute to its shareholders in each calendar year at least 98% of its ordinary income for the calendar year plus 98.2% of its capital gain net income for the twelve months ended October 31 of such year. Each Fund intends to make distributions necessary to avoid the 4% excise tax.
 
Tax Treatment of Fund Shareholders
 
 
Distributions of a Fund’s net investment income (except, as discussed below, qualifying dividend income) and net short-term capital gains are taxable as ordinary income to the extent of the Fund’s current or accumulated earnings and profits. Distributions of a Fund’s net long-term capital gains in excess of net short-term capital losses are taxable as long-term capital gain to the extent of the Fund’s current or accumulated earnings and profits, regardless of a Fund shareholder’s holding period in the Fund’s Shares. As discussed below, distributions of qualifying dividend income are taxable as long-term capital gain to the extent of the Fund’s current or accumulated earnings and profits, provided that the Fund shareholder meets certain holding period and other requirements with respect to the distributing Fund’s Shares and the distributing Fund meets certain holding period and other requirements with respect to its dividend-paying stocks.
 
Each Fund intends to distribute its long-term capital gains at least annually. However, by providing written notice to its shareholders no later than 60 days after its year-end, a Fund may elect to retain some or all of its long-term capital gains and designate the retained amount as a “deemed distribution.” In that event, the Fund pays income tax on the retained long-term capital gain, and each Fund shareholder recognizes a proportionate share of the Fund’s undistributed long-term capital gain. In addition, each Fund shareholder can claim a refundable tax credit for the shareholder’s proportionate share of the Fund’s income taxes paid on the undistributed long-term capital gain and increase the tax basis of the Shares by an amount equal to the shareholder’s proportionate share of the Fund’s undistributed long-term capital gains, reduced by the amount of the shareholder’s tax credit.
 
Long-term capital gains of non-corporate Fund shareholders (i.e., individuals, trusts and estates) are taxed at a maximum rate of 15% for taxable years that began on or before December 31, 2012. In addition, for those taxable years, Fund distributions of qualifying dividend income to non-corporate Fund shareholders qualify for taxation at long-term capital gain rates. Under current law, the taxation of qualifying dividend income at long-term capital gain rates will no longer apply for taxable years beginning after December 31, 2012.
 
Investors considering buying Shares just prior to a distribution should be aware that, although the price of the Shares purchased at such time may reflect the forthcoming distribution, such distribution nevertheless may be taxable (as opposed to a non-taxable return of capital).
 
Sales of Shares. Any capital gain or loss realized upon a sale of Shares is treated generally as a long-term gain or loss if the 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 the Shares.

 
59

 

Creation Unit Issues and Redemptions. On an issue of Shares of a Fund as part of a Creation Unit, an Authorized Participant recognizes capital gain or loss equal to the difference between (1) the fair market value (at issue) of the issued Shares (plus any cash received by the Authorized Participant as part of the issue) and (2) the Authorized Participant’s aggregate basis in the exchanged securities (plus any cash paid by the Authorized Participant as part of the issue). On a redemption of Shares as part of a Creation Unit, an Authorized Participant recognizes capital gain or loss equal to the difference between (1) the fair market value (at redemption) of the securities received (plus any cash received by the authorized participant as part of the redemption) and (2) the authorized participant’s basis in the redeemed Shares (plus any cash paid by the authorized participant as part of the redemption). However, the Internal Revenue Service (the “IRS”) may assert, under the “wash sale” rules or on the basis that there has been no significant change in the authorized participant’s economic position, that any loss on creation or redemption of Creation Units cannot be deducted currently.
 
In general, any capital gain or loss recognized upon the issue or redemption of Shares (as components of a Creation Unit) is treated either as long-term capital gain or loss, if the deposited securities (in the case of an issue) or the Shares (in the case of a redemption) have been held for more than one year, or otherwise as short-term capital gain or loss. However, any capital loss on a redemption of 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.
 
Back-Up Withholding. A Fund may be required to report certain information on a Fund shareholder to the IRS and withhold federal income tax (“backup withholding”) at a 28% rate from all taxable distributions and redemption proceeds payable to the Fund shareholder if the Fund shareholder fails to provide the Fund with a correct taxpayer identification number (or, in the case of a US individual, a social security number) or a completed exemption certificate (e.g., an IRS Form W-8BEN in the case of a foreign Fund shareholder) or if the IRS notifies the Fund that the Fund shareholder is otherwise subject to backup withholding. Backup withholding is not an additional tax and any amount withheld may be credited against a Fund shareholder’s federal income tax liability.
 
Special Issues for Foreign Shareholders. If a Fund shareholder is not a US citizen or resident or if a Fund shareholder is a foreign entity, the Fund’s ordinary income dividends (including distributions of net short-term capital gains and other amounts that would not be subject to US withholding tax if paid directly to foreign Fund shareholders) will be subject, in general, to withholding tax at a rate of 30% (or at a lower rate established under an applicable tax treaty). A special rule for regulated investment companies (such as the Fund) provided that, for tax years that began on or before December 31, 2011, interest-related dividends and short-term capital gain dividends generally will not be subject to withholding tax; provided that the foreign Fund shareholder furnishes the Fund with a completed IRS Form W-8BEN (or acceptable substitute documentation) establishing the Fund shareholder’s status as foreign and that the Fund does not have actual knowledge or reason to know that the foreign Fund shareholder would be subject to withholding tax if the foreign Fund shareholder were to receive the related amounts directly rather than as dividends from the Fund.
 
To claim a credit or refund for any Fund-level taxes on any undistributed long-term capital gains (as discussed above) or any taxes collected through back-up withholding, a foreign Fund shareholder must obtain a US taxpayer identification number and file a federal income tax return even if the foreign Fund shareholder would not otherwise be required to obtain a US taxpayer identification number or file a US income tax return.
 
For a more detailed tax discussion regarding an investment in the Funds, and for special tax treatment on the sale and distribution by certain funds, please see the section of the SAI entitled “Federal Income Taxes.”
 
LICENSE AGREEMENT
 
The Advisor has entered into a licensing agreement with Morningstar to use each of the Indexes described above.  Each Fund is entitled to use its respective Underlying Index, without charge, pursuant to a sub-licensing arrangement with the Advisor.
 
The information contained herein regarding Morningstar US Market Index, Morningstar Large Cap Index, Morningstar Mid Cap Index, Morningstar Small Cap Index, Morningstar Basic Materials Index, Morningstar Communications Services Index, Morningstar Consumer Cyclical Index, Morningstar Consumer Defensive Index, Morningstar Energy Index, Morningstar Financial Services Index, Morningstar Health Care Index, Morningstar Industrials Index, Morningstar Real Estate Index, Morningstar Technology Index and Morningstar Utilities Index (each, an “Underlying Index”) and Morningstar, Inc. (“Morningstar” or the “Index Provider”) was provided by the Index Provider, while the information contained herein regarding the securities markets and The Depository Trust Company (“DTC”) was obtained from publicly available sources.

 
60

 

Shares of the Trust are not sponsored, endorsed, sold or promoted by Morningstar. Morningstar makes no representation or warranty, express or implied, to the owners of the shares of the Trust or any member of the public regarding the advisability of trading in the product(s). Morningstar has no obligation to take the needs of FocusShares, LLC (in its capacity as licensee of the underlying indexes, the “licensee”) or the owners of the shares of the Trust into consideration in determining, composing or calculating the underlying indexes. Morningstar is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the shares of the trust to be listed or in the determination or calculation of the equation by which the shares of the trust are to be converted into cash. Morningstar has no obligation or liability in connection with the administration, marketing or trading of the shares of the trust.

Morningstar does not guarantee the accuracy and/or the completeness of the underlying indexes or any data included therein and Morningstar shall have no liability for any errors, omissions, or interruptions therein. Morningstar makes no warranty, express or implied, as to results to be obtained by licensee, owners of the shares of the trust, or any other person or entity from the use of the underlying indexes or any data included therein. Morningstar makes no express or implied warranties, and expressly disclaims all warranties, of merchantability or fitness for a particular purpose or use with respect to the underlying indexes or any data included therein, without limiting any of the foregoing, in no event shall Morningstar have any liability for any lost profits or indirect, punitive, special or consequential damages (including lost profits), even if notified of the possibility of such damages. There are no third party beneficiaries of any agreements or arrangements between Morningstar and Licensee.

Morningstar® is a registered trademark of Morningstar, Inc.  Morningstar Basic MaterialsSM, Morningstar Communication ServicesSM, Morningstar Consumer CyclicalSM, Morningstar Consumer DefensiveSM, Morningstar EnergySM, Morningstar Financial ServicesSM, Morningstar Health CareSM, Morningstar IndustrialsSM, Morningstar Large CapSM, Morningstar Mid CapSM, Morningstar Real EstateSM, Morningstar Small CapSM, Morningstar TechnologySM, Morningstar US MarketSM, Morningstar UtilitiesSM are service marks of Morningstar, Inc.

CODE OF ETHICS
 
The Trust and the Advisor each have adopted a code of ethics under Rule 17j-1 of the 1940 Act which is designed to prevent affiliated persons of the Trust and the Advisor from engaging in deceptive, manipulative or fraudulent activities in connection with securities held or to be acquired by the Funds (which may also be held by persons subject to a code). There can be no assurance that the codes will be effective in preventing such activities. The codes permit personnel subject to them to invest in securities, including securities that may be held or purchased by the Funds. The codes are on file with the SEC and are available to the public.
 
FUND WEBSITE AND DISCLOSURE OF PORTFOLIO HOLDINGS
 
The Advisor maintains a website for the Funds at www.focusshares.com. The website for the Funds contains the following information, on a per-Share basis, for each Fund: (1) the prior Business Day’s NAV; (2) the reported mid point of the bid-ask spread at the time of NAV calculation (the “Bid-Ask Price”); (3) a calculation of the premium or discount of the Bid-Ask Price against such NAV; and (4) Fund share daily trading volume. In addition, on each Business Day, before the commencement of trading in Shares on the NYSE Arca, each Fund will disclose on its website (www.focusshares.com) the identities and quantities of the portfolio securities and other assets held by each Fund that will form the basis for the calculation of NAV at the end of the Business Day.
 
A description of each Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the SAI.
 
 
The Trust was organized as a Delaware statutory trust on July 10, 2007. Its Declaration of Trust currently permits the Trust to issue an unlimited number of Shares of beneficial interest. If shareholders are required to vote on any matters, each Share outstanding would be entitled to one vote.  Annual meetings of shareholders will not be held except as required by the 1940 Act and other applicable law. See the Funds’ SAI for more information concerning the Trust’s form of organization. Section 12(d)(1) of the 1940 Act restricts investments by investment companies in the securities of other investment companies, including Shares of the Funds.

 
61

 

The Funds are not sponsored, endorsed, sold or promoted by the NYSE Arca.  The NYSE Arca makes no representation or warranty, express or implied, to the owners of Shares or any member of the public regarding the advisability of investing in securities generally or in the Funds particularly or the ability of the Funds to achieve their objectives. The NYSE Arca has no obligation or liability in connection with the administration, marketing or trading of the Funds.
 
For purposes of the 1940 Act, the Funds are registered investment companies, and the acquisition of Shares by other registered investment companies and companies relying on exemption from registration as investment companies under Section 3(c)(1) or 3(c)(7) of the 1940 Act is subject to the restrictions of Section 12(d)(1) of the 1940 Act, except as permitted by an exemptive order that permits registered investment companies to invest in the Funds beyond those limitations.
 
 
The Funds have not yet commenced operations as of the date of this Prospectus and therefore do not have a financial  history.

 
62

 

FOCUSSHARES TRUST PRIVACY POLICY
 
The following notice does not constitute part of the prospectus, nor is it incorporated into the prospectus.
 
FocusShares Trust is committed to respecting the privacy of personal information you entrust to us in the course of doing business with us.
 
The Trust may collect nonpublic personal information from various sources.  The Trust uses such information provided by you or your representative to process transactions, to respond to inquiries from you, to deliver reports, products, and services, and to fulfill legal and regulatory requirements.
 
We do not disclose any nonpublic personal information about our customers to anyone unless permitted by law or approved by the customer.  We may share this information within the Trust’s family of companies in the course of providing services and products to best meet your investing needs.  We may share information with certain third parties who are not affiliated with the Trust to perform marketing services, to process or service a transaction at your request or as permitted by law.  For example, sharing information with companies that maintain or service customer accounts for the Trust is essential.  We may also share information with companies that perform administrative or marketing services for the Trust, including research firms.  When we enter into such a relationship, we restrict the companies’ use of our customers’ information and prohibit them from sharing it or using it for any purposes other than those for which they were hired.
 
We maintain physical, electronic, and procedural safeguards to protect your personal information.  Within the Trust, we restrict access to personal information to those employees who require access to that information in order to provide products or services to our customers such as handling inquiries.  Our employment policies restrict the use of customer information and require that it be held in strict confidence.
 
We will adhere to the policies and practices described in this notice for both current and former customers of the Trust.

 
63

 
 
For More Information
 
If you would like more information about the Trust, the Funds and the Shares, the following documents are available free upon request:
 
Annual/Semi-annual Report
 
Additional information about the Funds’ investments is available in the Funds annual and semi-annual reports to shareholders. In the Funds’ annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds’ performance during the last fiscal year.
 
Statement of Additional Information
 
Additional information about the Funds and their policies is also available in the Funds’ SAI. The SAI is incorporated by reference into this prospectus (and is legally considered part of this prospectus).
 
The Funds’ annual and semi-annual reports and the SAI are available free upon request by calling Foreside Fund Services, LLC (the “Distributor”) toll-free at (866) 453-5199.  You can also access and download the annual and semi-annual reports and the SAI at the Funds’ website: http://www.focusshares.com.
 
To obtain other information and for shareholder inquiries:
 
By telephone:
(866) 453-5199
   
By mail:
Foreside Fund Services, LLC
 
Three Canal Plaza
 
Portland, ME 04101
 
Attn: ETF Services
   
On the Internet:
SEC Edgar database: www.sec.gov;
 
Distributor website www.foreside.com or
 
Trust website www.focusshares.com
 
You may review and obtain copies of Fund documents (including the SAI) by visiting the SEC’s public reference room in Washington, D.C. You may also obtain copies of Fund documents, after paying a duplicating fee, by writing to the SEC’s Public Reference Section, Washington, D.C. 20549-1520 or by electronic request to: publicinfo@sec.gov. Information on the operation of the public reference room may be obtained by calling the SEC at (202) 551-8090.
 
No person is authorized to give any information or to make any representations about the Funds and their Shares not contained in this prospectus and you should not rely on any other information.  Read and keep the prospectus for future reference.
 
Dealers effecting transactions in the Funds’ Shares, whether or not participating in this distribution, may be generally required to deliver a prospectus. This is in addition to any obligation dealers have to deliver a prospectus when acting as underwriters.
 
The Funds’ investment company registration number is 811-22128.

 
 

 
 
FOCUSSHARES TRUST
STATEMENT OF ADDITIONAL INFORMATION
 
The information in this Statement of Additional Information is not complete and may be changed. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. The securities described herein may not be sold until the registration statement becomes effective. This Statement of Additional Information is not an offer to sell or the solicitation of an offer to buy securities and is not soliciting an offer to buy these securities in any state in which the offer, solicitation or sale would be unlawful.
 
Preliminary, Subject to Completion, dated [ • ] [ • ], 2011
 
This Statement of Additional Information (this “SAI”) is not a prospectus. It should be read in conjunction with and is incorporated by reference into the prospectus dated [ • ], 2011, as it may be revised from time to time (the “Prospectus”), for the FocusShares Trust (the “Trust”), relating to the following funds of the Trust (collectively, the “Funds” and, each, a “Fund”):
 
Fund
 
CUSIP
 
Ticker
   
 
   
Focus Morningstar US Market Index ETF
 
34416W502
 
FMU
Focus Morningstar Large Cap Index ETF
 
34416W601
 
FLG
Focus Morningstar Mid Cap Index ETF
 
34416W700
 
FMM
Focus Morningstar Small Cap Index ETF
 
34416W809
 
FOS
Focus Morningstar Basic Materials Index ETF
 
34416W882
 
FBM
Focus Morningstar Communication Services Index ETF
 
34416W874
 
FCQ
Focus Morningstar Consumer Cyclical Index ETF
 
34416W866
 
FCL
Focus Morningstar Consumer Defensive Index ETF
 
34416W858
 
FCD
Focus Morningstar Energy Index ETF
 
34416W841
 
FEG
Focus Morningstar Financial Services Index ETF
 
34416W833
 
FFL
Focus Morningstar Health Care Index ETF
 
34416W825
 
FHC
Focus Morningstar Industrials Index ETF
 
34416W817
 
FIL
Focus Morningstar Real Estate Index ETF
 
34416W791
 
FRL
Focus Morningstar Technology Index ETF
 
34416W783
 
FTQ
Focus Morningstar Utilities Index ETF
 
34416W775
 
FUI
 
A copy of each Prospectus and, when available, the Annual Report and Semi-Annual Report may be obtained without charge by writing to the Trust’s distributor, Foreside Fund Services, LLC (the “Distributor”) at Three Canal Plaza, Portland, Maine 04101-4088, calling the Distributor toll-free at (866) 453-5199.
 
Capitalized terms used but not defined herein have the same meaning as in the Prospectus, unless otherwise noted.
 
An investment in Shares of the Fund is not a deposit or other obligation of, or issued, endorsed or guaranteed by, Scottrade Bank or any of its affiliates and is not insured, guaranteed, or endorsed by the U.S. Government, the Federal Deposit Insurance Corporation, or any other government agency. An investment in Shares of the Fund involves investment risks, including possible loss of principal.
 
Dated [ • ], 2011
 
 
 

 
 
TABLE OF CONTENTS
 
GENERAL DESCRIPTION OF THE TRUST
1
EXCHANGE LISING AND TRADING
1
INVESTMENT OBJECTIVE AND POLICIES
2
INVESTMENT STRATEGIES AND RISKS
4
GENERAL CONSIDERATIONS AND RISKS
9
PORTFOLIO HOLDINGS DISCLOSURE
10
CONSTRUCTION AND MAINTENANCE OF THE UNDERLYING INDEXES
11
MANAGEMENT
13
CODE OF ETHICS
17
PROXY VOTING POLICIES AND PROCEDURES
17
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
17
INVESTMENT ADVISORY, ADMINISTRATIVE AND DISTRIBUTION SERVICES
18
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
20
COUNSEL
20
PORTFOLIO TRANSACTIONS AND BROKERAGE
22
ADDITIONAL INFORMATION CONCERNING THE TRUST
22
BOOK ENTRY ONLY SYSTEM
23
CREATION AND REDEMPTION OF CREATION UNITS
24
DETERMINATION OF NET ASSET VALUE
29
INDICATIVE INTRA-DAY VALUE
29
DIVIDENDS AND DISTRIBUTIONS
30
FEDERAL INCOME TAXES
30
OTHER INFORMATION
35
FINANCIAL STATEMENTS
35
 
 
 

 
 
The information contained herein regarding Morningstar US Market Index, Morningstar Large Cap Index, Morningstar Mid Cap Index, Morningstar Small Cap Index, Morningstar Basic Materials Index, Morningstar Communications Services Index, Morningstar Consumer Cyclical Index, Morningstar Consumer Defensive Index, Morningstar Energy Index, Morningstar Financial Services Index, Morningstar Health Care Index, Morningstar Industrials Index, Morningstar Real Estate Index, Morningstar Technology Index and Morningstar Utilities Index (each, an “Underlying Index”) and Morningstar, Inc. (“Morningstar” or the “Index Provider”) was provided by the Index Provider, while the information contained herein regarding the securities markets and The Depository Trust Company (“DTC”) was obtained from publicly available sources.
 
SHARES OF THE TRUST ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY MORNINGSTAR. MORNINGSTAR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE SHARES OF THE TRUST OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF TRADING IN THE PRODUCT(S). MORNINGSTAR HAS NO OBLIGATION TO TAKE THE NEEDS OF FOCUSSHARES, LLC (IN ITS CAPACITY AS LICENSEE OF THE UNDERLYING INDEXES, THE “LICENSEE”) OR THE OWNERS OF THE SHARES OF THE TRUST INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE UNDERLYING INDEXES. MORNINGSTAR IS NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES OF THE SHARES OF THE TRUST TO BE LISTED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE SHARES OF THE TRUST ARE TO BE CONVERTED INTO CASH. MORNINGSTAR HAS NO OBLIGATION OR LIABILITY IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR TRADING OF THE SHARES OF THE TRUST.
 
MORNINGSTAR DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE UNDERLYING INDEXES OR ANY DATA INCLUDED THEREIN AND MORNINGSTAR SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. MORNINGSTAR MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE SHARES OF THE TRUST, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE UNDERLYING INDEXES OR ANY DATA INCLUDED THEREIN. MORNINGSTAR MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE UNDERLYING INDEXES OR ANY DATA INCLUDED THEREIN, WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MORNINGSTAR HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN MORNINGSTAR AND LICENSEE.
 
Morningstar® and Morningstar Style Box® are registered trademarks of Morningstar, Inc.  Morningstar Basic MaterialsSM, Morningstar Communication ServicesSM, Morningstar Consumer CyclicalSM, Morningstar Consumer DefensiveSM, Morningstar EnergySM, Morningstar Financial ServicesSM, Morningstar Health CareSM, Morningstar IndustrialsSM, Morningstar Large CapSM, Morningstar Mid CapSM, Morningstar Real EstateSM, Morningstar Small CapSM, Morningstar TechnologySM, Morningstar US MarketSM, Morningstar UtilitiesSM are service marks of Morningstar, Inc.

 
(ii)

 
 
GENERAL DESCRIPTION OF THE TRUST
 
FocusShares Trust (“Trust”) is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”), currently consisting of fifteen (15) investment portfolios (each, a “Fund”). FocusShares, LLC (“Advisor”) is the investment adviser to each Fund. Each of the Focus Morningstar US Market Index ETF, Focus Morningstar Large Cap Index ETF, Focus Morningstar Mid Cap Index ETF and Focus Morningstar Small Cap Index ETF is a diversified investment company.  Each other Fund is a non-diversified investment company.  Each Fund invests  in common stocks consisting of some or all of the component securities of each Fund’s respective benchmark index. The Trust was organized as a Delaware statutory trust on July 10, 2007. From November 28, 2007 until October 30, 2008, the Trust operated four exchange-traded funds that have been closed and liquidated.  From October 30, 2008 until the inception of the Funds covered by this SAI, the Trust had no operations.
 
The shares of each Fund are referred to herein as “Shares.”  This SAI relates to the following Funds:
 
Diversified Funds  
Focus Morningstar US Market Index ETF  (FMU)
Focus Morningstar Large Cap Index ETF  (FLG)
Focus Morningstar Mid Cap Index ETF  (FMM)
Focus Morningstar Small Cap Index ETF  (FOS)
 
Non-Diversified Funds  
Focus Morningstar Basic Materials Index ETF  (FBM)
Focus Morningstar Communication Services Index ETF  (FCQ)
Focus Morningstar Consumer Cyclical Index ETF  (FCL)
Focus Morningstar Consumer Defensive Index ETF  (FCD)
Focus Morningstar Energy Index ETF  (FEG)
Focus Morningstar Financial Services Index ETF  (FFL)
Focus Morningstar Health Care Index ETF  (FHC)
Focus Morningstar Industrials Index ETF  (FIL)
Focus Morningstar Real Estate Index ETF  (FRL)
Focus Morningstar Technology Index ETF  (FTQ)
Focus Morningstar Utilities Index ETF  (FUI)
 
The investment objective of each Fund is to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of a specified benchmark index (each, an “Underlying Index”) representing publicly-traded equity securities of issuers in a particular broad market, market segment, market sector or group of industries.

Each Fund offers and issues shares at their net asset value per share (“NAV”) only in aggregations of a specified number of shares (“Creation Unit”), generally in exchange for a basket of equity securities included in its Underlying Index (the “Deposit Securities”), together with the deposit of a specified cash payment (the “Cash Component”). Each Fund anticipates that its Shares will trade on the NYSE Arca, Inc. (the “Exchange”).  Shares trade in the secondary market and elsewhere at market prices that may be at, above or below NAV. Shares are redeemable only in Creation Units, and, generally, in exchange for portfolio securities and a Cash Component. Creation Units typically are a specified number of shares, generally ranging from 50,000 to 100,000 or multiples thereof.

The Trust reserves the right to offer a “cash” option for creations and redemptions of shares. Shares may be issued in advance of receipt of Deposit Securities subject to various conditions, including a requirement to maintain with the Trust a cash deposit equal to at least 110% for domestic funds or 115% for foreign funds, which the Advisor may change from time to time, of the market value of the omitted Deposit Securities. See the “Creation and Redemption of Creation Units” section of this SAI. Transaction fees for cash creations or redemptions may be higher than the transaction fees associated with in-kind creations or redemptions. In all cases, conditions and fees will be limited in accordance with the requirements of SEC rules and regulations applicable to management investment companies offering redeemable securities.
 
EXCHANGE LISTING AND TRADING
 
There can be no assurance that the requirements of the Exchange necessary for each Fund to maintain the listing of its Shares will continue to be met. The Exchange will consider the suspension of trading and delisting of the Shares of a Fund from listing if (i) following the initial 12-month period beginning at the commencement of trading of a Fund, there are fewer than 50 beneficial owners of the Shares of the Fund for 30 or more consecutive trading days; (ii) the value of the Underlying Index is no longer calculated or available; or (iii) such other event shall occur or condition exist that, in the opinion of the Exchange, makes further trading on the Exchange inadvisable. The Exchange will remove the Shares of a Fund from listing and trading upon termination of such Fund.

 
 

 

As in the case of other stocks traded on the Exchange, brokers’ commissions on transactions will be based on negotiated commission rates at customary levels.

The Trust reserves the right to adjust the price levels of the Shares in the future to maintain convenient trading ranges for investors. Any adjustments would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of each Fund.
 
INVESTMENT OBJECTIVE AND POLICIES
 
Investment Objectives
 
Each Fund has a distinct investment objective and policies. There can be no assurance that a Fund’s objective will be achieved. The investment objective of each Fund is to provide investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of its Underlying Index.
 
All investment objectives and investment policies not specifically designated as fundamental may be changed without shareholder approval. Additional information about the Funds, their policies, and the investment instruments they may hold, is provided below.
 
The Funds’ share prices will fluctuate with market and economic. The Funds should not be relied upon as a complete investment program.
 
Morningstar serves as the index provider to the Trust for the Funds and uses a proprietary rules-based methodology (the “Index Methodology”) to construct and maintain the Underlying Index of each Fund.
 
Investment Restrictions
 
The investment restrictions set forth below have been adopted by the Board of Trustees of the Trust (the “Board” or the “Trustees”) as fundamental policies that cannot be changed with respect to a Fund without the affirmative vote of the holders of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund. The investment objective of each Fund and all other investment policies or practices of the Fund are considered by the Trust not to be fundamental and accordingly may be changed without shareholder approval. For purposes of the 1940 Act, a “majority of the outstanding voting securities” means the lesser of the vote of (i) 67% or more of the Shares of the Fund present at a meeting, if the holders of more than 50% of the outstanding Shares of the Fund are present or represented by proxy, or (ii) more than 50% of the Shares of the Fund.
 
For purposes of the following limitations, if a percentage limitation is adhered to at the time of investment or contract, a later increase or decrease in percentage resulting from any change in value or total or net assets will not result in a violation of such restriction, except that the percentage limitations with respect to the borrowing of money and illiquid securities will be continuously complied with.
 
As a matter of fundamental policy, a Fund (except as to any specific Fund otherwise noted below) may not:
 
A.           Make loans, except that the Fund may (i) lend portfolio securities, (ii) enter into repurchase agreements and (iii) purchase all or a portion of an issue of debt securities, bank loan or participation interests, bank certificates of deposit, bankers’ acceptances, debentures or other securities, whether or not the purchase is made upon the original issuance of the securities;
 
B.           Borrow money, except as permitted under the 1940 Act, and as interpreted or modified by regulation from time to time;
 
C.           Issue senior securities, except as permitted under the 1940 Act, and as interpreted or modified by regulation from time to time;
 
D.           Purchase a security (other than obligations of the US Government, its agencies or instrumentalities) if, as a result, 25% or more of its total assets would be invested in a single issuer;
 
 
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E.           Purchase, hold or deal in real estate, except that the Fund may (i) invest in securities of issuers that invest in real estate or interests therein; (ii) invest in mortgage-related securities and other securities that are secured by real estate or interests therein; and (iii) hold and sell real estate acquired by the Fund as a result of the ownership of securities;
 
F.           Engage in the business of underwriting securities issued by others, except to the extent that the Fund may be considered an underwriter within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), in the disposition of restricted securities or in connection with its investments in other investment companies;
 
G.           Purchase or sell commodities, unless acquired as a result of owning securities or other instruments, but it may purchase, sell or enter into financial options and futures, forward and spot contracts, and other financial contracts or derivative instruments and may invest in securities or other instruments backed by commodities; or
 
H.           Purchase any security if, as a result of that purchase, 25% or more of its total assets would be invested in securities of issuers having their principal business activities in the same industry, except that each Fund may invest 25% or more of the value of its total assets in securities of issuers in any one industry or group of industries if the Fund’s Underlying Index concentrates in an industry or group of industries. This limit does not apply to securities issued or guaranteed by the US government, its agencies or instrumentalities.
 
In addition to the investment restrictions adopted as fundamental policies as set forth above, each Fund observes the following restrictions, which may be changed by the Board without a shareholder vote. Each Fund will not:
 
A.           Invest in securities which are “illiquid” securities, including repurchase agreements maturing in more than seven days and options traded over-the-counter, if the result is that more than 15% of a Fund’s net assets would be invested in such securities;
 
B.           Mortgage, pledge or otherwise encumber its assets, except to secure borrowing effected in accordance with the fundamental restriction on borrowing set forth above;
 
C.           Make short sales of securities;
 
D.           Purchase any security on margin, except for such short-term loans as are necessary for clearance of securities transactions. The deposit or payment by a Fund or initial or variation margin in connection with futures contracts or related options thereon is not considered the purchase of a security on margin;
 
E.           Participate in a joint or joint-and-several basis in any trading account in securities, although transactions for the Funds and any other account under common or affiliated management may be combined or allocated between the Fund and such account; or
 
F.           Purchase securities of open-end or closed-end investment companies except in compliance with the 1940 Act.
 
As long as the aforementioned investment restrictions are complied with, each Fund may invest its remaining assets in money market instruments or funds which reinvest exclusively in money market instruments, in stocks that are in the relevant market but not its Underlying Index, and/or in combinations of certain stock index futures contracts, options on such futures contracts, stock options, stock index options and options on the Shares, each with a view towards providing each Fund with exposure to the stocks in its respective Underlying Index. These investments may be made to invest uncommitted cash balances or, in limited circumstances, to assist in meeting shareholder redemptions of Creation Units. Each Fund also will not invest in money market instruments as part of a temporary defensive strategy to protect against potential stock market declines.

 
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INVESTMENT STRATEGIES AND RISKS
 
A discussion of the risks associated with an investment in each Fund is contained in the Funds’ Prospectus under the headings “Principal Investment Strategies” and “Principal Risks of Investing in the Fund” in each Fund’s summary section and under the headings “Additional Description of the Principal Strategies of the Funds” and “Additional Description of the Principal Risks of the Funds” in the statutory prospectus. The discussion below supplements, and should be read in conjunction with, such sections of the Funds’ Prospectus.
 
General
 
Each Fund seeks to achieve its objective by investing primarily in securities issued by issuers that comprise its relevant Underlying Index and through transactions that provide substantially similar exposure to securities in the Underlying Index. Each Fund operates as an index fund and will not be actively managed. Adverse performance of a security in each Fund’s portfolio will ordinarily not result in the elimination of the security from a Fund’s portfolio.

The Funds will utilize either a replication indexing strategy or a representative sampling indexing strategy.  Each Fund engaging in a replication will attempt to track the Underlying Index by purchasing the securities that are components of its Underlying Index in a substantially similar weighting as such securities appear in the Underlying Index.  Each Fund engaging in representative sampling will attempt to track the Underlying Index by investing in a sample of securities selected by the Advisor to have a collective investment profile similar to that of the Fund’s Underlying Index. Securities selected for representative sampling purposes have aggregate investment characteristics (based on market capitalization and industry weightings), fundamental characteristics (such as return variability, earnings valuation and yield) and liquidity measures similar to those of the Underlying Index. Funds that use representative sampling generally do not hold all of the securities that are in their relevant Underlying Indexes.

With respect to 75% of a Fund’s total assets, a “diversified” fund is limited by the 1940 Act such that it does not invest more than 5% of its total assets in securities of any one issuer and does not acquire more than 10% of the outstanding voting securities of any one issuer (excluding cash and cash items, government securities, and securities of other investment companies). The remaining 25% of the fund’s total assets may be invested in any manner.

A “non-diversified” fund is a fund that is not limited by the 1940 Act with regard to the percentage of its assets that may be invested in the securities of a single issuer. The securities of a particular issuer (or securities of issuers in particular industries) may dominate the underlying index of such a fund and, consequently, the fund’s investment portfolio. This may adversely affect the fund’s performance or subject the fund’s shares to greater price volatility than that experienced by more diversified investment companies.

Each Fund (whether diversified or non-diversified) intends to maintain the required level of diversification and otherwise conduct its operations so as to qualify as a Regulated Investment Company (“RIC”) for purposes of the US Internal Revenue Code of 1986, as amended, (the “Code”) and to relieve the Fund of any liability for US federal income tax to the extent that its earnings are distributed to shareholders, provided that the Fund satisfies a minimum distribution requirement. Compliance with the diversification requirements of the Internal Revenue Code may limit the investment flexibility of certain Funds and may make it less likely that such Funds will meet their investment objective.

Lending Portfolio Securities

Each Fund may lend portfolio securities to certain creditworthy borrowers. The borrowers provide collateral that is maintained in an amount at least equal to the current market value of the securities loaned. No securities loan shall be made on behalf of a Fund if, as a result, the aggregate value of all securities loans of the particular Fund exceeds one-third of the value of such Fund’s total assets (including the value of the collateral received). A Fund may terminate a loan at any time and obtain the return of the securities loaned. Each Fund receives the value of any interest or cash or non-cash distributions paid on the loaned securities.

With respect to loans that are collateralized by cash, the borrower will be entitled to receive a fee based on the amount of cash collateral. The Funds are compensated by the difference between the amount earned on the reinvestment of cash collateral and the fee paid to the borrower. In the case of collateral other than cash, a Fund is compensated by a fee paid by the borrower equal to a percentage of the market value of the loaned securities. Any cash collateral may be reinvested in certain short-term instruments either directly on behalf of each lending Fund or through one or more joint accounts or money market funds; such reinvestments are subject to investment risk.

 
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Securities lending involves exposure to certain risks, including operational risk (i.e., the risk of losses resulting from problems in the settlement and accounting process), “gap” risk (i.e., the risk of a mismatch between the return on cash collateral reinvestments and the fees each Fund has agreed to pay a borrower), and credit, legal, counterparty and market risk. In the event a borrower does not return a Fund’s securities as agreed, the Fund may experience losses if the proceeds received from liquidating the collateral does not at least equal the value of the loaned security at the time the collateral is liquidated plus the transaction costs incurred in purchasing replacement securities. This event could trigger adverse tax consequences for the Funds.

Each Fund pays a portion of the interest or fees earned from securities lending to a borrower as described above and to a securities lending agent who administers the lending program in accordance with guidelines approved by the Board. To the extent that the Funds engage in securities lending, JPMorgan Chase Bank, N.A. (“JPMorgan”) acts as securities lending agent for the Funds subject to the overall supervision of JPMorgan. JPMorgan receives a portion of the revenues generated by securities lending activities as compensation for its services.

Repurchase Agreements

The Funds may enter into repurchase agreements. A repurchase agreement is an instrument under which the purchaser (i.e., a Fund) acquires the security and the seller agrees, at the time of the sale, to repurchase the security at a mutually agreed upon time and price, thereby determining the yield during the purchaser’s holding period. Repurchase agreements may be construed to be collateralized loans by the purchaser to the seller secured by the securities transferred to the purchaser. If a repurchase agreement is construed to be a collateralized loan, the underlying securities will not be considered to be owned by each Fund but only to constitute collateral for the seller’s obligation to pay the repurchase price, and, in the event of a default by the seller, each Fund may suffer time delays and incur costs or losses in connection with the disposition of the collateral.

In any repurchase transaction, the collateral for a repurchase agreement may include: (i) cash items; (ii) obligations issued by the US government or its agencies or instrumentalities; or (iii) obligations that, at the time the repurchase agreement is entered into, are rated in the highest rating category generally by at least two nationally recognized statistical rating organizations (“NRSRO”), or, if unrated, determined to be of comparable quality by JPMorgan. Collateral, however, is not limited to the foregoing and may include for example obligations rated below the highest category by NRSROs. Collateral for a repurchase agreement may also include securities that a Fund could not hold directly without the repurchase obligation. Irrespective of the type of collateral underlying the repurchase agreement, in the case of a repurchase agreement entered into by a non-money market fund, the repurchase obligation of a seller must be of comparable credit quality to securities which are rated in one of the two highest rating categories by any NRSRO.

Repurchase agreements pose certain risks for a Fund that utilizes them. Such risks are not unique to the Funds, but are inherent in repurchase agreements. The Funds seek to minimize such risks, but because of the inherent legal uncertainties involved in repurchase agreements, such risks cannot be eliminated. Lower quality collateral and collateral with longer maturities may be subject to greater price fluctuations than higher quality collateral and collateral with shorter maturities. If the repurchase agreement counterparty were to default, lower quality collateral may be more difficult to liquidate than higher quality collateral. Should the counterparty default and the amount of collateral not be sufficient to cover the counterparty’s repurchase obligation, the Fund would retain the status of an unsecured creditor of the counterparty (i.e., the position the Fund would normally be in if it were to hold, pursuant to its investment policies, other unsecured debt securities of the defaulting counterparty) with respect to the amount of the shortfall. As an unsecured creditor, a Fund would be at risk of losing some or all of the principal and income involved in the transaction.

Reverse Repurchase Agreements

Each Fund may enter into reverse repurchase agreements, which involve the sale of securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of borrowing. Generally the effect of such transactions is that the Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while in many cases the Fund is able to keep some of the interest income associated with those securities. Such transactions are advantageous only if the Fund has an opportunity to earn a rate of interest on the cash derived from these transactions that is greater than the interest cost of obtaining the same amount of cash. Opportunities to realize earnings from the use of the proceeds equal to or greater than the interest required to be paid may not always be available and each Fund intends to use the reverse repurchase technique only when the Advisor believes it will be advantageous to the Fund. The use of reverse repurchase agreements may exaggerate any interim increase or decrease in the value of each Fund’s assets. A Fund’s exposure to reverse repurchase agreements will be covered by liquid assets having a value equal to or greater than such commitments. Under the 1940 Act, reverse repurchase agreements are considered borrowings.

 
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Futures Contracts and Options
 
The Funds may utilize futures contracts and options.  Futures contracts generally provide for the future sale by one party and purchase by another party of a specified instrument, index or commodity at a specified future time and at a specified price. Stock index futures contracts are settled daily with a payment by one party to the other of a cash amount based on the difference between the level of the stock index specified in the contract from one day to the next. Futures contracts are standardized as to maturity date and underlying instrument and are traded on futures exchanges. The Funds may use futures contracts, and options on futures contracts based on other indexes or combinations of indexes that the Advisor believes to be representative of each Fund’s respective Underlying Index.
 
Although futures contracts (other than cash settled futures contracts including most stock index futures contracts) by their terms call for actual delivery or acceptance of the underlying instrument or commodity, in most cases the contracts are closed out before the maturity date without the making or taking of delivery. Closing out an open futures position is done by taking an opposite position (“buying” a contract which has previously been “sold” or “selling” a contract previously “purchased”) in an identical contract to terminate the position. Brokerage commissions are incurred when a futures contract position is opened or closed.
 
Futures traders are required to make a good faith margin deposit in cash or government securities with a broker or custodian to initiate and maintain open positions in futures contracts. A margin deposit is intended to assure completion of the contract (delivery or acceptance of the underlying instrument or commodity or payment of the cash settlement amount) if it is not terminated prior to the specified delivery date. Brokers may establish deposit requirements which are higher than the exchange minimums. Futures contracts are customarily purchased and sold on margin deposits which may range upward from less than 5% of the value of the contract being traded.
 
After a futures contract position is opened, the value of the contract is marked to market daily. If the futures contract price changes to the extent that the margin on deposit does not satisfy margin requirements, payment of additional “variation” margin will be required.
 
Conversely, a change in the contract value may reduce the required margin, resulting in a repayment of excess margin to the contract holder. Variation margin payments are made to and from the futures broker for as long as the contract remains open. The Funds expect to earn interest income on their margin deposits.
 
The Funds may use futures contracts and options thereon, together with positions in cash and money market instruments, to simulate full investment in each Fund’s respective Underlying Index. Although options on each Underlying Index recently have become available, liquid futures contracts are not currently available for the Underlying Index of each Fund. Under such circumstances, the Advisor may seek to utilize other instruments that it believes to be correlated to each Fund’s respective Underlying Index components or a subset of the components.
 
Restrictions on the Use of Futures and Options
 
Except as otherwise specified in the Funds’ Prospectus or this SAI, there are no limitations on the extent to which the Funds may engage in transactions involving futures and options thereon. The Funds will take steps to prevent their futures positions from “leveraging” its securities holdings. When it has a long futures position, it will maintain with its custodian bank, cash or liquid securities having a value equal to the notional value of the contract (less any margin deposited in connection with the position). When it has a short futures position, as part of a complex stock replication strategy the Funds will maintain with their custodian bank assets substantially identical to those underlying the contract or cash and liquid securities (or a combination of the foregoing) having a value equal to the net obligation of each Fund under the contract (less the value of any margin deposits in connection with the position).

 
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Futures and Options Transactions
 
Positions in futures contracts and options may be closed out only on an exchange which provides a secondary market therefor. However, there can be no assurance that a liquid secondary market will exist for any particular futures contract or option at any specific time. Thus, it may not be possible to close a futures or options position. In the event of adverse price movements, the Funds would continue to be required to make daily cash payments to maintain its required margin. In such situations, if a Fund has insufficient cash, it may have to sell its Portfolio Securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, the Funds may be required to make delivery of the instruments underlying futures contracts they have sold.
 
The Funds will seek to minimize the risk that it will be unable to close out a futures or options contract by only entering into futures and options for which there appears to be a liquid secondary market.
 
The risk of loss in trading futures contracts or uncovered call options in some strategies (e.g., selling uncovered stock index futures contracts) is potentially unlimited. The Funds do not plan to use futures and options contracts in this way. The risk of a futures position may still be large as traditionally measured due to the low margin deposits required. In many cases, a relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the investor relative to the size of a required margin deposit. The Funds, however, intend to utilize futures and options contracts in a manner designed to limit its risk exposure to that which is comparable to what it would have incurred through direct investment in stocks.
 
Utilization of futures transactions by the Funds involves the risk of imperfect or even negative correlation to each Fund’s respective Underlying Index if the index underlying the futures contracts differs from the Fund’s Underlying Index. There is also the risk of loss by the Funds of margin deposits in the event of bankruptcy of a broker with whom a Fund has an open position in the futures contract or option.
 
Certain financial futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount 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.
 
Swaps
 
Total return swaps give each Fund the right to receive the appreciation in the value of a specified security, index or other instrument in return for a fee paid to the counterparty, which will typically be an agreed upon interest rate.  Total return swaps can also be used to replicate an exposure to a short position in an asset class where the Fund has the right to receive the depreciation in value of a specified security, index or other instrument (“inverse swaps”). If the underlying asset in a total return swap declines in value (or increases in value, if an inverse swap) over the term of the swap, a Fund may also be required to pay the dollar value of that decline (or increase, if an inverse swap) to the counterparty.
 
The Funds may use total return swaps to replicate the performance of one or more components of an Underlying Index. These total return swaps would reference the relevant component or components of the Underlying Index.
 
Total return swaps are considered illiquid by the Funds. Consequently, each Fund will segregate liquid assets, which may include securities, cash or cash equivalents, to cover the Fund’s daily marked-to-market net obligations under outstanding swap agreements. This segregation of assets may limit a Fund’s investment flexibility, as well as its ability to meet redemption requests or other current obligations.
 
All counterparties are subject to pre-approval by the Board.  The Board’s pre-approval is based on the creditworthiness of each potential swap counterparty.  In addition, the Advisor will monitor and manage the counterparty risk posed by the counterparties and take actions as necessary to decrease counterparty risk to a Fund by, among other things, reducing swap exposures to certain counterparties and/or seeking alternate or additional counterparties.

 
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The number of counterparties may vary over time. To the extent a Fund utilizes total return swaps, a Fund will be exposed to counterparty risk.  Counterparty risk may be limited by limiting the use of swaps or by entering into swaps with multiple counterparties.
 
Securities of Investment Companies
 
Each Fund may invest in the securities of other investment companies (including money market funds) and real estate investment trusts (“REITs”) to the extent allowed by law. Pursuant to the 1940 Act, a Fund’s investment in investment companies is limited to, subject to certain exceptions: (i) 3% of the total outstanding voting stock of any one investment company; (ii) 5% of the Fund’s total assets with respect to any one investment company and (iii) 10% of the Fund’s total assets with respect to investment companies in the aggregate. To the extent allowed by law or regulation, each Fund may invest its assets in the securities of investment companies that are money market funds, including those advised by or otherwise affiliated with the Advisor, in excess of the limits discussed above. Other investment companies in which a Fund invests can be expected to incur fees and expenses for operations, such as investment advisory and administration fees that would be in addition to those incurred by the Fund.

Illiquid Securities

Each Fund may invest up to an aggregate amount of 15% of its net assets in illiquid securities. Illiquid securities include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets.

Short-Term Instruments and Temporary Investments

Each Fund may invest in short-term instruments, including money market instruments, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally short-term investments that may include but are not limited to: (i) shares of money market funds; (ii) obligations issued or guaranteed by the US government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates of deposit (“CDs”), bankers’ acceptances, fixed-time deposits and other obligations of US and non-US banks (including non-US branches) and similar institutions; (iv) commercial paper rated, at the date of purchase, “Prime-1” by Moody’s® Investors Service, Inc., “F-1” by Fitch Inc., or “A-1” by Standard & Poor’s® (a division of The McGraw-Hill Companies, Inc.), or if unrated, of comparable quality as determined by the Advisor (v) non-convertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days and that satisfy the rating requirements set forth in Rule 2a-7 under the 1940 Act; (vi) repurchase agreements; and (vii) short-term US dollar-denominated obligations of non-US banks (including US branches) that, in the opinion of the Advisor, are of comparable quality to obligations of US banks which may be purchased by a Fund. Any of these instruments may be purchased on a current or forward-settled basis. Time deposits are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates. Bankers’ acceptances are time drafts drawn on commercial banks by borrowers, usually in connection with international transactions.
 
Borrowing Money
 
Each fund may, as a non-principal investment strategy, borrow money from a bank up to a limit of one-third of the market value of its assets, but only for temporary or emergency purposes. To the extent that a Fund borrows money, it may be leveraged, and, at such times, the Fund may appreciate or depreciate in value more rapidly than its Underlying Index.
 
Continuous Offering
 
The method by which Creation Units are created and traded may raise certain issues under applicable securities laws. Because new Creation Units are issued and sold by the Trust on an ongoing basis, at any point a “distribution,” as such term is used in the Securities Act, may occur. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject them to the prospectus delivery and liability provisions of the Securities Act.

 
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For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with Foreside Fund Services, LLC (the “Distributor”), breaks them down into constituent Shares, and sells such Shares directly to customers, or if it chooses to couple the creation of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities that could lead to a categorization as an underwriter.
 
Broker-dealers who are not “underwriters” but are participating in a distribution (as contrasted to ordinary secondary trading transactions), and thus dealing with Shares that are part of an “unsold allotment” within the meaning of Section 4(3)(C) of the Securities Act, would be unable to take advantage of the prospectus-delivery exemption provided by Section 4(3) of the Securities Act. This is because the prospectus delivery exemption in Section 4(3) of the Securities Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not underwriters but are participating in a distribution (as contrasted with ordinary secondary market transactions) and thus dealing with the Shares that are part of an over-allotment within the meaning of Section 4(3)(A) of the Securities Act would be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities Act. Firms that incur a prospectus delivery obligation with respect to Shares are reminded that, under Rule 153 of the Securities Act, a prospectus delivery obligation under Section 5(b)(2) of the Securities Act owed to an exchange member in connection with a sale on NYSE Arca is satisfied by the fact that the prospectus is available at NYSE Arca upon request. The prospectus delivery mechanism provided in Rule 153 is only available with respect to transactions on an exchange.
 
Future Developments

The Board may, in the future, authorize each Fund to invest in securities contracts and investments other than those listed in this SAI and in the applicable Prospectus, provided they are consistent with each Fund’s investment objective and do not violate any investment restrictions or policies.
 
Portfolio Turnover
 
A Fund’s portfolio turnover may vary from year to year, as well as within a year. The overall reasonableness of brokerage commissions is evaluated by the Advisor based upon its knowledge of available information as to the general level of commissions paid by other institutional investors for comparable services. In addition, a Fund’s portfolio turnover level may adversely affect the ability of the Fund to achieve its investment objective. “Portfolio Turnover Rate” is defined under the rules of the SEC as the lesser of the value of the securities purchased or securities sold, excluding all securities whose maturities at time of acquisition were one year or less, divided by the average monthly value of such securities owned during the year. Based on this definition, instruments with remaining maturities of less than one year are excluded from the calculation of the Portfolio Turnover Rate. Instruments excluded from the calculation of portfolio turnover generally would include future contracts, swap agreements and option contracts in which the Funds invest since such contracts generally have a remaining maturity of less than one year. ETFs, such as the Funds, may incur very low levels of portfolio turnover (or none at all in accordance with the SEC methodology described above) because of the way in which they operate and the way shares are created in creation units. However, a low or zero Portfolio Turnover Rate should not be assumed to be indicative of the amount of gains that a Fund may or may not distribute to shareholders, as the instruments excluded from the calculation described above may have generated taxable gains upon their sale or maturity.

GENERAL CONSIDERATIONS AND RISKS

A discussion of some of the risks associated with an investment in a Fund is contained in the applicable Prospectus.

An investment in a Fund should be made with an understanding that the value of a Fund’s portfolio securities may fluctuate in accordance with changes in the financial condition of the issuers of the portfolio securities, the value of stocks in general, and other factors that affect the market.

None of the Funds is actively managed by traditional methods and therefore the adverse financial condition of any one issuer will not result in the elimination of its securities from the portfolio securities held by the Fund unless the securities of such issuer are removed from its respective Underlying Index.

 
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An investment in each Fund should also be made with an understanding that a Fund will not be able to replicate exactly the performance of its Underlying Index because the total return generated by its portfolio securities will be reduced by transaction costs incurred in adjusting the actual balance of such securities and other Fund expenses, whereas such transaction costs and expenses are not included in the calculation of its Underlying Index. It is also possible that for short periods of time, a Fund may not fully replicate the performance of its Underlying Index due to the temporary unavailability of certain Underlying Index securities in the Secondary Market or due to other extraordinary circumstances. Such events are unlikely to continue for an extended period of time because a Fund is required to correct such imbalances by means of adjusting the composition of its portfolio securities. It is also possible that the composition of the Fund may not exactly replicate the composition of its Underlying Index if the Fund has to adjust its portfolio securities in order to continue to qualify as a “regulated investment company” under the Internal Revenue Code of 1986 (the “Code”).

Risks of Equity Securities

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