The U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense. Shares in the Fund are not guaranteed or insured by the Federal Deposit Insurance Corporation or any other agency of the U.S. Government, nor are Shares deposits or obligations of any bank. It is possible to lose money by investing in the Fund.
The Syntax Stratified LargeCap ETF (the “Fund”) seeks to provide investment results that, before expenses, correspond generally to the total return performance of publicly traded equity securities of companies in the Syntax Stratified LargeCap Index (the “Index”).
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund (“Fund Shares”). This table and the Example below reflect the expenses of the Fund and do not reflect brokerage commissions you may pay on purchases and sales of Fund Shares.
Annual Fund Operating Expenses (Expenses that you pay each year as a percentage of the value of your investment):
Management fees
0.45%
Distribution and service (12b-1) fees
None
Other expenses(1)
0.00%
Total annual Fund operating expenses
0.45%
Fee Waiver/Expense Reimbursement(2)
0.15%
Total annual Fund operating expenses after Fee Waiver/Expense Reimbursement(2)
0.30%
(1)
Other expenses have been estimated for the current fiscal year. Actual expenses may be different.
(2)
Syntax Advisors, LLC (the “Adviser”) has agreed to waive its fees and/or absorb expenses of the Fund to ensure that Total Annual Operating Expenses (except any (i) interest expense, (ii) taxes, (iii) acquired fund fees and expenses, (iv) brokerage expenses and other expenses (such as stamp taxes) connected with the execution of portfolio transactions or in connection with creation and redemption transactions, (v) expenses associated with shareholder meetings, (vi) compensation and expenses of the Independent Trustees, (vii) compensation and expenses of the Trust’s chief compliance officer and his or her staff, (viii) distribution fees and expenses paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act, (ix) legal fees or expenses in connection with any arbitration, litigation or pending or threatened arbitration or litigation, including any settlements in connection therewith, and (x) extraordinary expenses of the Fund) do not exceed 0.30%. Subject to approval by the Fund’s Board of Trustees, any waiver under the Expense Limitation Agreement is subject to repayment by the Fund within 36 months following the month in which fees are waived or reimbursed, if such repayment does not cause the Fund’s expense ratio (after the repayment is taken into account) to exceed both: (i) the expense cap in place at the time such amounts were waived; and (ii) the Fund’s current expense cap. These arrangements cannot be terminated prior to one year from the effective date of this prospectus without the approval of the Board of Trustees.
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated, and then sell all of your Fund Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Investors may pay brokerage commissions on their purchases and sales of Fund shares, which are not reflected in the example. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
Year 1
Year 3
Year 5
Year 10
$31
$129
$237
$552
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 rate may generate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in Total Annual Fund Operating Expenses or in the Example, affect the Fund’s performance. Because the Fund is newly organized, portfolio turnover information is not yet available.
PRINCIPAL STRATEGY
In seeking to track the performance of the Index, the Fund employs a replication strategy, which means that the Fund typically invests in substantially all of the securities represented in the Index in approximately the same proportions as the Index. Under normal market conditions, the Fund generally invests substantially all, and at least 95% of its total assets in the securities comprising the Index. The Fund will provide shareholders with at least 60 days’ notice prior to any material change in this 95% investment policy. In addition, the Fund may invest in cash and cash equivalents or money market instruments, such as repurchase agreements and money market funds.
The Index, which was created by Syntax, LLC, an affiliate of the Fund’s investment adviser, is the stratified-weight version of the widely used S&P 500® Index and holds the same constituents as the S&P 500. “Stratified-weight” refers to the weighting methodology of the Index and is the method by which Syntax diversifies its indices by hierarchically grouping and distributing the weight of constituent companies that share “Related Business Risks”. Related Business Risk occurs when two or more companies’ earnings are affected by the same fundamental drivers. The process of identifying, grouping, and diversifying across related business risk is called stratification. The Index rebalances quarterly on the third Friday of each quarter-ending month, and will typically include 500 components equally allocated across eight industry sectors: consumer, energy, financials, food, healthcare, industrials, information, and information tools. The market capitalization of companies in the S&P 500® Index as of March 31, 2019 was between $904.86 billion and $4.23 billion.
Please see the Additional Strategies Information section of the Fund’s prospectus for more information on the methodology of the Syntax Indices.
PRINCIPAL RISKS OF INVESTING IN THE FUND
As with all investments, there are certain risks of investing in the Fund. Fund Shares will change in value, and you could lose money by investing in the Fund.
EQUITY SECURITIES RISK: The value of equity securities may increase or decrease as a result of market fluctuations, changes in interest rates and perceived trends in stock prices.
LARGE-CAPITALIZATION SECURITIES RISK: Returns on investments in securities of large companies could trail the returns on investments in securities of smaller and mid-sized companies. Larger companies may be unable to respond as quickly as smaller and mid-sized companies to competitive challenges or to changes in business, product, financial, or market conditions. Larger companies may not be
able to maintain growth at the high rates that may be achieved by well-managed smaller and mid-sized companies. Under certain market conditions the capitalization of a large-size company could decline to the extent that it exhibits the characteristics of a mid-capitalization company.
SMALL- AND MID-CAPITALIZATION SECURITIES RISK: Investing in securities of small and mid-sized companies may involve greater volatility than investing in larger and more established companies because small and mid-sized companies can be subject to more abrupt or erratic share price changes than larger, more established companies, are more vulnerable to adverse business and economic developments, and are more thinly traded relative to those of larger companies.
INDEX TRACKING RISK: While the Adviser seeks to track the performance of the Index as closely as possible (i.e., achieve a high degree of correlation with the Index), the Fund’s return may not match or achieve a high degree of correlation with the return of the Index due to operating expenses, transaction costs, cash flows, regulatory requirements and operational inefficiencies. For example, the Adviser may anticipate that it may take several business days for additions and deletions to an Index to be reflected in the portfolio composition of the Fund.
PASSIVE STRATEGY/INDEX RISK: The Fund is managed with a passive investment strategy, attempting to track the performance of an unmanaged index of securities. This differs from an actively-managed fund, which typically seeks to outperform a benchmark index. As a result, the Fund may hold constituent securities of the Index regardless of the current or projected performance of a specific security or a particular industry or market sector. Maintaining investments in securities regardless of market conditions or the performance of individual securities could cause the Fund’s return to be lower than if the Fund employed an active strategy.
MARKET TRADING RISK: The Fund is a new Fund and faces numerous market trading risks, including the potential lack of an active market for Fund Shares, losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Fund. Any of these factors, among others, may lead to the Fund’s Shares trading at a premium or discount to NAV.
The following bar chart and table provide an indication of the risks of investing in the Fund by showing changes in the performance of the Fund from year to year and by showing how its average annual returns for certain time periods compare with the average annual returns of a broad measure of market performance. The Fund’s performance information, from January 1, 2015 to the Fund’s commencement of operations, is that of the 500 Series of the Syntax Index Series LP, a privately offered account, which was the predecessor of the Fund.
The returns were calculated using the methodology the SEC requires of registered funds. However, since the 500 Series did not calculate its returns on a per share basis, its returns have been calculated on its total net asset value. Neither the 500 Series’ nor the Fund’s past performance (before and after taxes) is necessarily an indication of how the Fund will perform in the future. Updated performance information is available by calling (866) 972-4492 or visiting our website at www.SyntaxAdvisors.com.
The 500 Series had investment objectives, policies and strategies that were, in all material respects, the same as those of the Fund, and was managed in a manner that, in all material respects, complied with the investment guidelines and restrictions of the Fund, which means that it also complied with the investment guidelines and restrictions of the Index. The investment adviser for the Fund was the investment adviser for the 500 Series for the entire period from January 1, 2015 until the Fund’s commencement of operations for which performance information is shown below. The 500 Series was reorganized into the Fund as of the date of the Fund’s commencement of operations as a tax-free conversion.
As a registered investment company, the Fund is subject to certain restrictions under the Investment Company Act of 1940 (the “1940 Act”) and the Internal Revenue Code of 1986 (the “Internal Revenue Code”) which did not apply to the 500 Series. If the 500 Series had been subject to the provisions of the 1940 Act and the Internal Revenue Code, its performance could have been adversely affected. However, these restrictions are not expected to have a material effect on the Fund’s investment performance.
The performance information of the 500 Series is net of all fees and expenses. The Fund may be subject to higher fees and expenses, which would negatively impact performance.
Consistent with the rules of the Index, the 500 Series held, and the Fund holds, underlying securities that coincide with the securities chosen by the Index in appropriate pre-set weights. Trading in securities undertaken for the 500 Series by the Fund’s portfolio manager during the prior privately offered investment period, was the addition or deletion of portfolio securities made in order to track the constituents under the same criteria as those of the Index during the quarterly constituent selection process. Rebalancing and tracking, quarterly, of the underlying securities into the pre-set weights during the privately offered period were also executed as determined by the Fund’s Index as contemplated by both the Fund’s investment strategies and the Index that the Fund is designed to track.
Performance from January 1, 2015 to the Fund’s commencement of operations is that of the 500 Series of Syntax Index Series LP.
Highest Quarterly Return
Fourth Quarter 2017
6.25%
Lowest Quarterly Return
Fourth Quarter 2018
-13.19%
Average Annual Total Returns (for periods ending 12/31/18)*
One Year
Since Inception (1/1/15)
Return Before Taxes
-6.57%
5.90%
Return After Taxes on Distributions**
n/a%
n/a%
Return After Taxes on Distributions and Sale of Fund Shares**
n/a%
n/a%
S&P 500® Index
-4.38%
7.23%
(Index returns reflect no deduction for fees, expenses or taxes)
*
Performance from January 1, 2015 to the Fund’s commencement of operations is that of the 500 Series of Syntax Index Series LP.
**
The 500 Series was an unregistered limited partnership that did not qualify as a registered investment company for federal income tax purposes and did not pay dividends or distributions. Due to this different tax treatment, after tax returns of the 500 Series are not available.
The after-tax returns presented in the table above are calculated using highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your specific tax situation and may differ from those shown above. After-tax returns are not relevant to investors who hold Fund Shares through tax-advantaged arrangements, such as 401(k) plans or individual retirement accounts. The returns after taxes can exceed the returns before taxes due to an assumed tax benefit for a shareholder from realizing a capital loss on a sale of Fund Shares.
Syntax Advisors, LLC serves as the investment adviser to the Fund.
Sub-Adviser
Vantage Consulting Group serves as the investment sub-adviser to the Fund.
Portfolio Manager
The professional primarily responsible for the day-to-day management of the Fund is:
Name
Start Date
James Thomas Wolfe
Since the Fund’s inception.
PURCHASE AND SALE OF FUND SHARES
Individual Fund Shares may only be purchased and sold on a national securities exchange through a broker-dealer. The price of Fund Shares is based on market price, and because ETF shares trade at market prices rather than at NAV, Shares may trade at a price greater than NAV (a premium) or less than NAV (a discount). The Fund will only issue or redeem Shares that have been aggregated into blocks of 25,000 Shares or multiples thereof (“Creation Units”) to authorized participants who have entered into agreements with the Fund’s distributor. The Fund generally will issue or redeem Creation Units in return for a designated portfolio of securities (and an amount of cash) that the Fund specifies each day.
TAX INFORMATION
The Fund’s distributions are expected to be taxed as ordinary income, qualified dividend income and/or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or individual retirement account. However, subsequent withdrawals from such a tax-advantaged account may be subject to U.S. federal income tax. You should consult your tax advisor about your specific situation.
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase Fund Shares through a broker-dealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of Fund Shares and related services. These payments may create conflicts 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 website for more information.
Please see “Principal Strategy” section under “Fund Summary” above for a complete discussion of the Fund’s principal investment strategies.
The Index was developed and is maintained in accordance with the following criteria: (1) each of the component securities in the Index is a constituent company of the S&P 500® Index; and (2) the Index is calculated by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC) based on methodology proprietary to Syntax, LLC an affiliate of the investment adviser (the “Index Provider”), using a stratification methodology. The Index Provider publishes information regarding the market value of the Index. For more information, please visit the Fund’s website at www.SyntaxAdvisors.com.
Syntax Indices utilize a proprietary functional information system (“FIS”) developed by Syntax, LLC, an affiliate of Syntax Advisors, LLC, the Fund’s investment adviser, to categorize, group, and stratify constituent securities to create stratified-weighted indices. FIS is a patented technology for mapping economic relationships between the constituent securities of the Index and for managing concentrations of related business risks. Related business risks are not based on companies’ capitalization or past performance, but rather, are based on each company’s current business functions and the functional economic relationships between them. By identifying these underlying business relationships — common suppliers, customers, competitors, products, etc. — FIS identifies shared business risks in a securities portfolio. When financial indices lack tools for identifying these risks, they can become highly exposed to groups of companies that share related business risks.
FIS makes it possible to control for risks shared by groups of related companies by: 1) organizing companies that share related business risks into well-defined functional groups; and 2) weighting these groups to spread exposure across these underlying risks. Other commonly used industry and sector classifications like Global Industry Classification Standard (“GICS”) and Standard Industrial Classification (“SIC”) lack codified definitions and instead simply group together companies that “seem similar”. Syntax’s FIS-based industries are engineered to minimize performance distortions caused by the uncontrolled risk exposures that are present in cap-weighted financial indices. FIS-based sectors effectively group and limit weighting in companies that have shared business functions that can make them perform similarly when events happen to change expectations in a given part of the economy.
The investment objective of every Syntax Index is to deliver returns consistent with the performance objectives of the underlying companies that make up the index. By using FIS and stratification to control for related business risks, Syntax Indices are designed to improve the tracking of the actual medium-to long-term performance of groups of companies and provide results that are the product of effective diversification, rather than the overweighting of one or more outperforming group. Because FIS defines the functional parts of the economy, Syntax Indices are built as a more stable composite of those functional parts. While the major cap-weighted indices are designed to be a proxy for the total market, Syntax, LLC believes that the Syntax Indices serve as a better basis for medium-to-long-term investments in index-tracking funds.
The Adviser seeks to track the performance of the Index as closely as possible (i.e., obtain a high degree of correlation with the Index). A number of factors may affect the Fund’s ability to achieve a high degree of correlation with its Index, and there can be no guarantee that the Fund will achieve a high degree of correlation.
These situations should be rare in U.S. large and mid-cap companies, but in the event that a bankruptcy or other event occurs making a security illiquid, the Adviser intends to allocate to other similar holdings in the portfolio.
The Board of Trustees (the “Board”) of Syntax ETF Trust may change the Fund’s investment strategy and other policies without shareholder approval, except as otherwise indicated in this Prospectus or in the SAI. The Board may not change the Fund’s investment objective without shareholder approval.
The following section provides additional information regarding certain of the principal risks identified under “Principal Risks of Investing in the Fund” in the Fund Summary along with additional risk information.
Equity Securities Risk: The Fund invests in equity securities, which are subject to changes in value that may be attributable to market perception of a particular issuer or to general stock market fluctuations that affect all issuers. Investments in equity securities may be more volatile than investments in other asset classes.
Large-Capitalization Securities Risk: Returns on investments in securities of large companies could trail the returns on investments in securities of smaller and mid-sized companies. Larger companies may be unable to respond as quickly as smaller and mid-sized companies to competitive challenges or to changes in business, product, financial, or market conditions. Larger companies may not be able to maintain growth at the high rates that may be achieved by well-managed smaller and mid-sized companies. Under certain market conditions the capitalization of a large-size company could decline to the extent that it exhibits the characteristics of a mid-capitalization company.
Small- And Mid-Capitalization Securities Risk: Investing in securities of small and mid-sized companies may involve greater volatility than investing in larger and more established companies because small and mid-sized companies can be subject to more abrupt or erratic share price changes than larger, more established companies, are more vulnerable to adverse business and economic developments, and are more thinly traded relative to those of larger companies.
Index Tracking Risk: There is a risk that the performance of the Fund may diverge from performance of its underlying Index as a result of tracking error. Tracking error may occur because of the differences between the securities held in the Fund’s portfolio and those included in the Index. Tracking error may also occur because of pricing differences, transaction costs, the Fund holding uninvested cash, differences in the timing of the accrual of dividends, changes to the Index or the costs of complying with various new or existing regulatory requirements. Additionally, tracking error may result because the Fund incurs fees and expenses, while the Index does not.
Passive Strategy/Index Risk: The Fund is managed with a passive investment strategy, attempting to track the performance of an unmanaged index of securities. This differs from an actively-managed fund, which typically seeks to outperform a benchmark index. As a result, the Fund may hold constituent securities of its underlying Index regardless of the current or projected performance of a specific security or a particular industry or market sector. Maintaining investments in securities regardless of market conditions or the performance of individual securities could cause the Fund’s return to be lower than if the Fund employed an active strategy.
Market Trading Risk:
Absence of Active Market. Although Shares of the Fund are listed for trading on one or more stock exchanges, the Fund is a new fund and there can be no assurance that an active trading market for such Shares will develop or be maintained by market makers or Authorized Participants.
Risk of Secondary Listings. The Fund’s Shares may be listed or traded on U.S. and non-U.S. stock exchanges other than the U.S. stock exchange where the Fund’s primary listing is maintained. There can be no assurance that the Fund’s Shares will continue to trade on any such stock exchange or in any market or that the Fund’s Shares will continue to meet the requirements for listing or trading on any exchange or in any market. The Fund’s Shares may be less actively traded in certain markets than in others, and investors are subject to the execution and settlement risks and market standards of the market where they or their broker direct their trades for execution. Certain information available to investors who trade Fund Shares on a U.S. stock exchange during regular U.S. market hours may not be available to investors who trade in other markets, which may result in secondary market prices in such markets being less efficient.
Shares are not Individually Redeemable
Shares may be redeemed at NAV by the Fund only in large lot sizes known as “Creation Units”, which are expected to be worth in excess of one million dollars each. The Trust 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 Fund. These entities are referred to as “Authorized Participants.” All other persons or entities transacting in Fund Shares must do so in the secondary market.
Additional Non-Principal Risks
Secondary Market Trading Risk. Shares of the Fund may trade in the secondary market at times when the Fund does not accept orders to purchase or redeem Shares. At such times, Fund Shares may trade in the secondary market with more significant premiums or discounts than might be experienced at times when the Fund accepts purchase and redemption orders.
Secondary market trading in Fund Shares may be halted by a stock exchange because of market conditions or for other reasons. In addition, trading in Fund Shares on a stock exchange or in any market may be subject to trading halts caused by extraordinary market volatility pursuant to “circuit breaker” rules on the stock exchange or market. There can be no assurance that the requirements necessary to maintain the listing or trading of Fund Shares will continue to be met or will remain unchanged.
Shares of the Fund, similar to shares of other issuers listed on a stock exchange, may be sold short and are therefore subject to the risk of increased volatility associated with short selling.
Shares of the Fund may trade at prices other than NAV. Shares of the Fund trade on stock exchanges at prices at, above or below the Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each business day and fluctuates with changes in the market value of the Fund’s holdings. The trading price of the Fund’s Shares fluctuates continuously throughout trading hours based on both market supply of and demand for Fund Shares and the underlying value of the Fund’s portfolio holdings or NAV. Also, in times of market stress, market makers or Authorized Participants may step away from their respective roles in making a market for Shares of the Fund and in executing purchase or redemption orders. As a result, the trading prices of the Fund’s Shares may deviate significantly from NAV during periods of market volatility. ANY OF THESE FACTORS, AMONG OTHERS, MAY LEAD TO THE FUND’S SHARES TRADING AT A PREMIUM OR DISCOUNT TO NAV. However, because Shares can be created and redeemed in Creation Units at NAV (unlike shares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes at premiums to, their NAVs), Syntax believes that large discounts or premiums to the NAV of the Fund are not likely to be sustained over the long term. While the creation/redemption feature is designed to make it more likely that the Fund’s Shares normally will trade on stock exchanges at prices close to the Fund’s next calculated NAV, exchange prices are not expected to correlate exactly with the Fund’s NAV due to timing reasons, supply and demand imbalances and other factors. In addition, disruptions to creations and redemptions, including disruptions at market makers or Authorized Participants, or to market participants or during periods of significant market volatility, may result in trading prices for Shares of the Fund that differ significantly from its NAV.
Costs of Buying or Selling Fund Shares. Buying or selling Fund Shares on an exchange involves two types of costs that apply to all securities transactions. When buying or selling Shares of the Fund through a broker, you will likely incur a brokerage commission or other charges imposed by brokers as determined by that broker. In addition, you may incur the cost of the “spread,” that is, the difference between what investors are willing to pay for Fund Shares (the “bid” price) and the price at which they are willing to sell Fund Shares (the “ask” price). Because of the costs inherent in buying or selling Fund Shares, frequent trading may detract significantly from investment results and an investment in Fund Shares may not be advisable for investors who anticipate regularly making small investments.
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 Fund 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 Transfer Agent, 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.
U.S. Tax Risks: To qualify for the favorable U.S. federal income tax treatment accorded to regulated investment companies, the Fund must satisfy certain income, asset diversification and distribution requirements. If, for any taxable year, the Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) for that year would be subject to tax at regular corporate rates without any deduction for distributions to its shareholders, and such distributions would be taxable to its shareholders as dividend income to the extent of the Fund’s current and accumulated earnings and profits. The tax treatment of certain derivatives is unclear for purpose of determining the Fund’s tax status.
BOARD OF TRUSTEES. The Board of Trustees is responsible for overseeing the management and business affairs of the Fund. The Board oversees the operations of the Fund by its officers. The Board also reviews management of the Fund’s assets by the investment adviser and sub-adviser. Information about the Board of Trustees and executive officers of the Fund is contained in the SAI.
ADVISER. Syntax Advisors, LLC (“Syntax” or the “Adviser”) serves as the investment adviser to the Fund and, subject to the supervision of the Board, is responsible for the investment management of the Fund, executed through the selection of the Sub-Adviser for portfolio management and other agreed upon activities. Syntax has been a registered investment adviser since April 21, 2017. Syntax is owned by Syntax, LLC and is controlled by Rory Riggs. As the Fund’s investment adviser, Syntax provides an investment management program for the Fund and manages the investment of the Fund’s assets through sub-advisory relationships. The Adviser’s principal business address is 110 East 59th Street, 31st Floor, New York, NY 10022.
For the services provided to the Fund under the Investment Advisory Agreement, the Fund expects to pay the Adviser the annual fee set forth below, which is based on a percentage of the Fund’s average daily net assets.
Fund
Advisory Fee
Syntax Stratified LargeCap ETF
0.45%
Under the Investment Advisory Agreement, the Adviser agrees to pay all expenses of the Fund, except (i) interest expense, (ii) taxes, (iii) acquired fund fees and expenses, (iv) brokerage expenses and other expenses (such as stamp taxes) connected with the execution of portfolio transactions or in connection with creation and redemption transactions, (v) expenses associated with shareholder meetings, (vi) compensation and expenses of the Independent Trustees, (vii) compensation and expenses of the Trust’s chief compliance officer and his or her staff, (viii) distribution fees and expenses paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act, (ix) legal fees or expenses in connection with any arbitration, litigation or pending or threatened arbitration or litigation, including any settlements in connection therewith, (x) extraordinary expenses of the Fund and (xi) fees payable to the Adviser. The payment or assumption by the Adviser of any expense of the Fund that the Adviser is not required by the Investment Advisory Agreement to pay or assume shall not obligate the Adviser to pay or assume the same or any similar expense of the Fund on any subsequent occasion.
Contractual arrangements have been made with Syntax, through one year from the effective date of this prospectus, to waive fees and/or reimburse fund expenses to the extent that the Fund’s total operating expenses exceed the rates below, excluding, as applicable, (i) interest expense, (ii) taxes, (iii) acquired fund fees and expenses, (iv) brokerage expenses and other expenses (such as stamp taxes) connected with the execution of portfolio transactions or in connection with creation and redemption transactions, (v) expenses associated with shareholder meetings, (vi) compensation and expenses of the Independent Trustees, (vii) compensation and expenses of the Trust’s chief compliance officer and his or her staff, (viii) distribution fees and expenses paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act, (ix) legal fees or expenses in connection with any arbitration, litigation or pending or threatened arbitration or litigation, including any settlements in connection therewith, and (x) extraordinary expenses of the Fund. These arrangements cannot be terminated prior to one year from the effective date of this prospectus, without the approval of the Fund’s Board of Trustees. Syntax is entitled to reimbursement by the Fund of fees waived or expenses reduced during any of the previous 36 months if on any day or month the estimated annualized fund operating expenses are less than the cap. The Fund may only make repayments to the Syntax if such repayment does not cause the Fund’s expense ratio (after the repayment is taken into account) to exceed both: (1) the Fund’s net expense ratio in place at the time such amounts were waived; and (2) the Fund’s current net expense ratio (before recoupment).
Fund
Total Operating Expenses after Waiver/Reimbursement
SUB-ADVISER. Pursuant to an investment sub-advisory agreement with Syntax, Vantage Consulting Group (“Vantage” or the “Sub-Adviser”) serves as the sub-adviser to the Fund and performs the day to day management of the Fund and places orders for the purchase and sale of securities for the Fund. For its services to the Fund, the Sub-Adviser is compensated by Syntax. The Sub-Adviser has been a registered investment adviser since June 2, 1986 and is owned by Mark T. Finn. As of December 31, 2018, the Sub-Adviser managed approximately $2.3 billion in assets. The Sub-Adviser’s principal business address is 3500 Pacific Ave. Virginia Beach, VA 23451.
A discussion regarding the Board’s consideration of the investment advisory and sub-advisory agreements will be found in the Trust’s next Annual or Semi-Annual Report to Shareholders, as applicable.
PORTFOLIO MANAGER. The Fund is managed by the portfolio manager listed below.
Portfolio Manager
Business Experience over Past 5 Years
James Thomas Wolfe
Mr. Wolfe currently serves as portfolio manager. He has held a variety of positions since joining Vantage in 1988 including trader, operations manager, and systems developer specializing in quantitative modeling, and he is currently head trader. Mr. Wolfe is an investment professional with over 25 years of experience. Mr. Wolfe received his BA from Virginia Wesleyan College in 1983 and an MBA from the College of William and Mary in 1989.
Additional information about the portfolio manager’s compensation, other accounts managed by the portfolio manager, and the portfolio manager’s ownership of securities in the Fund is available in the SAI.
Administrator, Custodian and Transfer Agent
State Street Bank and Trust Company is the Administrator for the Fund, the Transfer Agent to the Fund and the Custodian for the Fund’s assets.
Distributor
Foreside Fund Services, LLC (the “Distributor”) is the distributor of the Fund Shares. The Distributor will not distribute Fund Shares in less than Creation Units, and it does not maintain a secondary market in the Fund Shares. The Distributor may enter into selected dealer agreements with other broker-dealers or other qualified financial institutions for the sale of Creation Units of Fund Shares.
Independent Registered Public Accounting Firm
Ernst & Young LLP serves as the independent registered public accounting firm for the Trust.
Independent auditors
Ernst & Young, Dublin, Ireland, serves as the independent auditors for the Syntax 500 Series of Syntax Index Series, LP.
Legal Counsel
Chapman and Cutler LLP serves as legal counsel to the Trust and the Fund.
Syntax, LLC, the Index Provider, is affiliated with the Trust and the Adviser. The Adviser (“Licensee”) has entered into license agreements with the Index Provider pursuant to which the Adviser pays a fee to use the Index. The Adviser is sub-licensing rights to the Index to the Fund at no charge.
The Syntax Stratified LargeCap Index (the “Index”) is the property of Syntax, LLC, which has contracted with S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC) to calculate and maintain the Index. The Index is not sponsored by S&P Dow Jones Indices LLC or its affiliates or its third-party licensors, including Standard & Poor’s Financial Services LLC and Dow Jones Trademark Holdings LLC (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices will not be liable for any errors or omissions in calculating the Index. “Calculated by S&P Dow Jones Indices” and the related stylized mark(s) are service marks of S&P Dow Jones Indices and have been licensed for use by Syntax, LLC. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC.
The Fund is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices. S&P Dow Jones Indices does not make any representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly or the ability of the Index to track general market performance. S&P Dow Jones Indices’ only relationship to Syntax, LLC with respect to the Index is the licensing of the S&P 500® Index and its constituents, certain trademarks, service marks and trade names of S&P Dow Jones Indices, and the provision of the calculation services related to the Index. S&P Dow Jones Indices is not responsible for and has not participated in the determination of the prices and amount of the Fund or the timing of the issuance or sale of the Fund or in the determination or calculation of the equation by which the Fund may be converted into cash or other redemption mechanics. S&P Dow Jones Indices has no obligation or liability in connection with the administration, marketing or trading of the Fund. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within the Index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it investment advice.
S&P DOW JONES INDICES DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION WITH RESPECT THERETO, INCLUDING, ORAL, WRITTEN, OR ELECTRONIC COMMUNICATIONS. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN EXCEPT THOSE ARISING FROM FRAUD OR GROSS NEGLIGENCE ON THE PART OF S&P. S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY SYNTAX, LLC, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME, OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE.
The Shares are listed for secondary trading on NYSE Arca, Inc. (the “Exchange”) and individual Fund Shares may only be purchased and sold in the secondary market through a broker-dealer. The secondary markets are closed on weekends and also are generally closed on the following holidays: New Year’s Day, Dr. Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The Exchange may close early on the business day before certain holidays and on the day after Thanksgiving Day. Exchange holiday schedules are subject to change without notice. If you buy or sell Shares in the secondary market, you will pay the secondary market price for Shares. In addition, you may incur customary brokerage commissions and charges and may pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase and sale) transaction.
The trading prices of the Fund’s Shares will fluctuate continuously throughout trading hours based on market supply and demand rather than the Fund’s net asset value, which is calculated at the end of each business day. The Shares will trade on the Exchange at prices that may be above (i.e., at a premium) or below (i.e., at a discount), to varying degrees, the daily net asset value of the Shares. The trading prices of the Fund’s Shares may deviate significantly from its net asset value during periods of market volatility. Given, however, that Shares can be issued and redeemed daily in Creation Units, the Adviser believes that large discounts and premiums to net asset value should not be sustained over long periods. Information showing the number of days the market price of the Fund’s Shares was greater than the Fund’s net asset value and the number of days it was less than the Fund’s net asset value (i.e., premium or discount) for various time periods is available by visiting the Fund’s website at www.SyntaxAdvisors.com.
The Exchange will disseminate, every fifteen seconds during the regular trading day, an indicative optimized portfolio value (“IOPV”) relating to the Fund. The IOPV calculations are estimates of the value of the Fund’s net asset value per Share using market data converted into U.S. dollars at the current currency rates. The IOPV price is based on quotes and closing prices from the securities’ local market and may not reflect events that occur subsequent to the local market’s close. Premiums and discounts between the IOPV and the market price may occur. This should not be viewed as a “real-time” update of the net asset value per Share of the Fund, which is calculated only once a day. Neither the Fund, nor the Adviser or any of their affiliates are involved in, or responsible for, the calculation or dissemination of such IOPVs and make no warranty as to their accuracy.
The Fund does not impose any restrictions on the frequency of purchases and redemptions; however, the Fund reserves the right to reject or limit purchases at any time as described in the SAI. When considering that no restriction or policy was necessary, the Board evaluated the risks posed by market timing activities, such as whether frequent purchases and redemptions would occur, for example from an investor’s efforts to take advantage of a potential arbitrage opportunity, and would interfere with the efficient implementation of the Fund’s investment strategy, or whether they would cause the Fund to experience increased transaction costs. The Board considered that, unlike traditional mutual funds, Fund Shares are issued and redeemed only in the large quantities of Creation Units available only from the Fund directly, and that most trading in the Fund occurs on the Exchange at prevailing market prices and does not involve the Fund directly. Given this structure, the Board determined that it is unlikely that (a) market timing would be attempted by the Fund’s shareholders or (b) any attempts to market time the Fund by shareholders would result in negative impact to the Fund or its shareholders.
BOOK ENTRY. Shares of the Fund are held in book-entry form and no stock certificates are issued. The Depository Trust Company (“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 the 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.
DISTRIBUTIONS
DIVIDENDS AND CAPITAL GAINS. As a shareholder, you are entitled to your share of the Fund’s income and net realized gains on its investments. The Fund pays out substantially all of its net earnings to its shareholders as “distributions.”
The Fund typically earns income dividends from stocks. These amounts, net of expenses and taxes (if applicable), are passed along to Fund shareholders as “income dividend distributions.” The Fund realizes capital gains or losses whenever it sells securities. Net long-term capital gains are distributed to shareholders as “capital gain distributions.”
Income dividend distributions, if any, for the Fund are generally distributed to shareholders annually, but may vary significantly from period to period. Net capital gains for the Fund are distributed at least annually. Dividends may be declared and paid more frequently or at any other times to improve Index tracking or to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).
Distributions in cash may be reinvested automatically in additional whole Fund Shares only if the broker through whom you purchased Shares makes such option available. Distributions which are reinvested will nevertheless be taxable to the same extent as if such distributions had not been reinvested.
PORTFOLIO HOLDINGS DISCLOSURE
A description of the Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the Fund’s Statement of Additional Information.
U.S. FEDERAL INCOME TAXATION
The following is a summary of certain U.S. federal income tax considerations applicable to an investment in Shares of the Fund. The summary is based on the U.S. Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), U.S. Treasury Department regulations promulgated thereunder, and judicial and administrative interpretations thereof, all as in effect on the date of this Prospectus and all of which are subject to change, possibly with retroactive effect. In addition, this summary assumes that a shareholder holds Shares as capital assets within the meaning of the Internal Revenue Code and does not hold Shares in connection with a trade or business. This summary does not address all potential U.S. federal income tax considerations possibly applicable to an investment in Shares of the Fund, and does not address the consequences to Fund shareholders subject to special tax rules, including, but not limited to, partnerships and the partners therein, tax-exempt shareholders, those who hold Fund Shares through an IRA, 401(k) plan or other tax-advantaged account, and, except to the extent discussed below, “non-U.S. shareholders” (as defined below). This discussion does not discuss any aspect of U.S. state, local, estate, and gift, or non-U.S., tax law. Furthermore, this discussion is not intended or written to be legal or tax advice to any shareholder in the Fund or other person and is not intended or written to be used or relied on, and cannot be used or relied on, by any such person for the purpose of avoiding any U.S. federal tax penalties that may be imposed on such person. Prospective Fund shareholders are urged to consult their own tax advisors with respect to the specific U.S. federal, state and local, and non-U.S., tax consequences of investing in Shares, based on their particular circumstances.
The Fund has not requested and will not request an advance ruling from the U.S. Internal Revenue Service (the “IRS”) as to the U.S. 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 U.S. federal tax consequences of the purchase, ownership or disposition of Shares, as well as the tax consequences arising under the laws of any state, locality, non-U.S. country or other taxing jurisdiction. The following information supplements, and should be read in conjunction with, the section in the SAI entitled “U.S. Federal Income Taxation.”
Tax Treatment of the Fund
The Fund intends to qualify and elect to be treated as a separate “regulated investment company” (a “RIC”) under the Internal Revenue Code. To qualify and remain eligible for the special tax treatment accorded to RICs, the Fund must meet certain annual income and quarterly asset diversification requirements and must distribute annually at least 90% of the sum of (i) its “investment company taxable income” (which includes dividends, interest and net short-term capital gains) and (ii) certain net tax-exempt income, if any.
As a RIC, the Fund generally will not be required to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes to its shareholders. If the Fund fails to qualify as a RIC for any year (subject to certain curative measures allowed by the Internal Revenue Code), the Fund will be subject to regular corporate-level U.S. federal income tax in that year on all of its taxable income, regardless of whether the Fund makes any distributions to its shareholders. In addition, in such case, distributions will be taxable to the Fund’s shareholders generally as ordinary dividends to the extent of the Fund’s current and accumulated earnings and profits. The remainder of this discussion assumes that the Fund will qualify for the special tax treatment accorded to RICs.
The 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, 98.2% of its capital gain net income for the twelve months ended October 31 of such year, plus 100% of any undistributed amounts from prior years. For these purposes, the Fund will be treated as having distributed any amount on which it has been subject to U.S. corporate income tax for the taxable year ending within the calendar year. The Fund intends to make distributions necessary to avoid this 4% excise tax, although there can be no assurance that it will be able to do so.
The Fund may be required to recognize taxable income in advance of receiving the related cash payment. For example, if the Fund invests in original issue discount obligations (such as zero coupon debt instruments or debt instruments with payment-in-kind interest), the Fund will be required to include 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 the “wash sale” rules, the Fund may not be able to deduct currently 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 existing cash assets of the Fund or cash generated from 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.
Tax Treatment of Fund Shareholders
Taxation of U.S. Shareholders
The following is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Fund Shares applicable to “U.S. shareholders.” For purposes of this discussion, a “U.S. shareholder” is a beneficial owner of Fund Shares who, for U.S. federal income tax purposes, is (i) an individual who is a citizen or resident of the United States; (ii) a corporation (or an entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, or of any state thereof, or the District of Columbia; (iii) an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or (iv) a trust, if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) the trust has a valid election in place to be treated as a U.S. person.
Fund Distributions. In general, Fund distributions are subject to U.S. federal income tax when paid, regardless of whether they consist of cash or property, and regardless of whether they are re-invested in Shares. However, any Fund distribution declared in October, November or December of any calendar year and payable to shareholders of record on a specified date during such month will be deemed to have been received by the Fund shareholder on December 31 of such calendar year, provided such dividend is actually paid during January of the following calendar year.
Distributions of the Fund’s net investment income (except, as discussed below, qualified dividend income) and net short-term capital gains are taxable as ordinary income to the extent of the Fund’s current and accumulated earnings and profits. To the extent designated as capital gain dividends by the Fund, distributions of the Fund’s net long-term capital gains in excess of net short-term capital losses (“net capital gain”) are taxable at long-term capital gain tax rates to the extent of the Fund’s current and accumulated earnings and profits, regardless of the Fund shareholder’s holding period in the Fund’s Shares. Distributions of qualified dividend income are, to the extent of the Fund’s current and accumulated earnings and profits, taxed to certain non-corporate Fund shareholders at the rates generally applicable to long-term capital gain, 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. Substitute payments received on Fund Shares that are lent out will be ineligible for being reported as qualified dividend income.
The Fund intends to distribute its net capital gain at least annually. However, by providing written notice to its shareholders no later than 60 days after its year-end, the Fund may elect to retain some or all of its net capital gain and designate the retained amount as a “deemed distribution.” In that event, the Fund pays U.S. federal income tax on the retained net capital gain, and the Fund shareholder recognizes a proportionate share of the Fund’s undistributed net capital gain. In addition, the Fund shareholder can claim a tax credit or refund for the shareholder’s proportionate share of the Fund’s U.S. federal income taxes paid on the undistributed net capital gain and increase the shareholder’s tax basis in the Shares by an amount equal to the shareholder’s proportionate share of the Fund’s undistributed net capital gain, reduced by the amount of the shareholder’s tax credit or refund.
Distributions in excess of the Fund’s current and accumulated earnings and profits will, as to each shareholder, be treated as a tax-free return of capital to the extent of the shareholder’s tax basis in its Shares of the Fund, and generally as capital gain thereafter.
In addition, high-income individuals (and certain trusts and estates) generally will be subject to a 3.8% Medicare tax on “net investment income” in addition to otherwise applicable U.S. federal income tax. “Net investment income” generally will include dividends (including capital gain dividends) received from the Fund and net gains from the redemption or other disposition of Shares. Please consult your tax advisor regarding this tax.
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 or exchange of Shares generally is treated 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 or exchange of Shares held for one year or less generally is treated as a short-term gain or loss, except that any capital loss on the sale or exchange of Shares held for six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid (or deemed to be paid) with respect to the Shares.
Creation Unit Issues and Redemptions. On an issue of Shares of the Fund as part of a Creation Unit where the creation is conducted in-kind, an Authorized Participant recognizes capital gain or loss equal to the difference between (i) the fair market value (at issue) of the issued Shares (plus any cash received by the Authorized Participant as part of the issue) and (ii) the Authorized Participant’s aggregate basis in the exchanged securities (plus any cash paid by the Authorized Participant as part of the issue). On a redemption of Shares as part of a Creation Unit where the redemption is conducted in-kind, an Authorized Participant recognizes capital gain or loss equal to the difference between (i) the fair market value (at
redemption) of the securities received (plus any cash received by the Authorized Participant as part of the redemption) and (ii) the Authorized Participant’s basis in the redeemed Shares (plus any cash paid by the Authorized Participant as part of the redemption). However, the IRS may assert, under the “wash sale” rules or on the basis that there has been no significant change in the Authorized Participant’s economic position, that any loss on 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 (or deemed to be paid) with respect to such Shares.
Taxation of Non-U.S. Shareholders
The following is a summary of certain U.S. federal income tax consequences of the purchase, ownership and disposition of Fund Shares applicable to “non-U.S. shareholders.” For purposes of this discussion, a “non-U.S. shareholder” is a beneficial owner of Fund Shares that is not a U.S. shareholder (as defined above) and is not an entity or arrangement treated as a partnership for U.S. federal income tax purposes. The following discussion is based on current law and is for general information only. It addresses only selected, and not all, aspects of U.S. federal income taxation.
With respect to non-U.S. shareholders of the Fund, the Fund’s ordinary income dividends generally will be subject to U.S. federal withholding tax at a rate of 30% (or at a lower rate established under an applicable tax treaty), subject to certain exceptions for “interest-related dividends” and “short-term capital gain dividends” discussed below. U.S. federal withholding tax generally will not apply to any gain realized by a non-U.S. shareholder in respect of the Fund’s net capital gain. Special rules apply with respect to dividends of the Fund that are attributable to gain from the sale or exchange of “U.S. real property interests.”
In general, all “interest-related dividends” and “short-term capital gain dividends” (each defined below) will not be subject to U.S. federal withholding tax, provided that the non-U.S. shareholder furnished the Fund with a completed IRS Form W-8BEN or W-8BEN-E, as applicable, (or acceptable substitute documentation) establishing the non-U.S. shareholder’s non-U.S. status and the Fund does not have actual knowledge or reason to know that the non-U.S. shareholder would be subject to such withholding tax if the non-U.S. shareholder were to receive the related amounts directly rather than as dividends from the Fund. “Interest-related dividends” generally means dividends designated by the Fund as attributable to such Fund’s U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which such Fund is at least a 10% shareholder, reduced by expenses that are allocable to such income. “Short-term capital gain dividends” generally means dividends designated by the Fund as attributable to the excess of such Fund’s net short-term capital gain over its net long-term capital loss. Depending on its circumstances, the Fund may treat such dividends, in whole or in part, as ineligible for these exemptions from withholding.
In general, subject to certain exceptions, non-U.S. shareholders will not be subject to U.S. federal income or withholding tax in respect of a sale or other disposition of Shares of the Fund.
To claim a credit or refund for any Fund-level taxes on any undistributed net capital gain (as discussed above) or any taxes collected through back-up withholding (discussed below), a non-U.S. shareholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return even if the non-U.S. shareholder would not otherwise be required to do so.
Back-Up Withholding.
The Fund (or a financial intermediary such as a broker through which a shareholder holds Shares in the Fund) may be required to report certain information on the Fund shareholder to the IRS and withhold U.S. federal income tax (“backup withholding”) at a current rate of 28% from taxable distributions and redemption or sale proceeds payable to the Fund shareholder if (i) the Fund shareholder fails to provide the Fund with a correct taxpayer identification number or make required certifications, or if the IRS notifies
the Fund that the Fund shareholder is otherwise subject to backup withholding, and (ii) the Fund shareholder is not otherwise exempt from backup withholding. Non-U.S. shareholders can qualify for exemption from backup withholding by submitting a properly completed IRS Form W-8BEN or W-8BEN-E. Backup withholding is not an additional tax and any amount withheld may be credited against the Fund shareholder’s U.S. federal income tax liability.
Foreign Account Tax Compliance Act
The U.S. Foreign Account Tax Compliance Act (“FATCA”) generally imposes a 30% withholding tax on “withholdable payments” (defined below) made to (i) a “foreign financial institution” (“FFI”), unless the FFI enters into an agreement with the IRS to provide information regarding certain of its direct and indirect U.S. account holders and satisfy certain due diligence and other specified requirements, and (ii) a “non-financial foreign entity” (“NFFE”) unless such NFFE provides certain information about its direct and indirect “substantial U.S. owners” to the withholding agent or certifies that it has no such U.S. owners. The beneficial owner of a withholdable payment may be eligible for a refund or credit of the withheld tax. The U.S. government also has entered into several intergovernmental agreements with other jurisdictions to provide an alternative, and generally easier, approach for FFIs to comply with FATCA.
Withholdable payments generally include, among other items, (i) U.S.-source interest and dividends, and (ii) gross proceeds from the sale or disposition, occurring on or after January 1, 2019, of property of a type that can produce U.S.-source interest or dividends.
The Fund may be required to impose a 30% withholding tax on withholdable payments to a shareholder if the shareholder fails to provide the Fund with the information, certifications or documentation required under FATCA, including information, certification or documentation necessary for the Fund to determine if the shareholder is a non-U.S. shareholder or a U.S. shareholder and, if it is a non-U.S. shareholder, if the non-U.S. shareholder has “substantial U.S. owners” and/or is in compliance with (or meets an exception from) FATCA requirements. The Fund will not pay any additional amounts to shareholders in respect of any amounts withheld. The Fund may disclose any shareholder information, certifications or documentation to the IRS or other parties as necessary to comply with FATCA.
The requirements of, and exceptions from, FATCA are complex. All prospective shareholders are urged to consult their own tax advisors regarding the potential application of FATCA with respect to their own situation.
For a more detailed tax discussion regarding an investment in the Fund, please see the section of the SAI entitled “U.S. Federal Income Taxation.”
Syntax ETF Trust was organized as a Delaware statutory trust on June 27, 2013. If shareholders of the Fund are required to vote on any matters, shareholders are entitled to one vote for each Share they own. Annual meetings of shareholders will not be held except as required by the 1940 Act and other applicable law. See the SAI for more information concerning the Trust’s form of organization.
For purposes of the 1940 Act, Shares of the Trust are issued by the respective series of the Trust and the acquisition of Shares by investment companies is subject to the restrictions of section 12(d)(1) of the 1940 Act. The Trust has received exemptive relief from Section 12(d)(1) to allow registered investment companies to invest in the Fund beyond the limits set forth in Section 12(d)(1), subject to certain terms and conditions as set forth in an SEC exemptive order issued to the Trust, including that such investment companies enter into an agreement with the Trust.
From time to time, the Fund may advertise yield and total return figures. Yield is a historical measure of dividend income, and total return is a measure of past dividend income (assuming that it has been reinvested) plus capital appreciation. Neither yield nor total return should be used to predict the future performance of the Fund.
PREMIUM/DISCOUNT INFORMATION
Information showing the number of days the market price of the Fund’s Shares was greater than the Fund’s NAV per Share (i.e. at a premium) and the number of days it was less than the Fund’s NAV per Share (i.e. at a discount) for various time periods is available by visiting the Fund’s website at www.SyntaxAdvisors.com.
CODE OF ETHICS
The Trust, the Adviser, the Sub-Adviser and Foreside Financial Group, LLC (on behalf of Foreside Fund Officer Services, LLC) have each adopted a code of ethics under Rule 17j-1 of the 1940 Act. These codes of ethics permit, subject to certain conditions, personnel of each of those entities to invest in securities that may be purchased or held by the Fund. The Distributor relies on the principal underwriters exception under Rule 17j-1(c)(3), specifically where the Distributor is not affiliated with the Trust or the Adviser, and no officer, director or general partner of the Distributor serves as an officer, director or general partner of the Trust or the Adviser. Each code of ethics is on public file with, and is available from, the SEC.
DISTRIBUTION PLAN
The Fund has adopted a Rule 12b-1 Distribution and Service Plan in accordance with Rule 12b-1 under the 1940 Act pursuant to which payments of up to 0.25% of the Fund’s average daily net assets may be made for the sale and distribution of its Shares. However, the Board of Trustees has determined not to authorize payment of a 12b-1 Plan fee at this time. The 12b-1 Plan fee may only be imposed or increased when the Board of Trustees determines that it is in the best interests of shareholders to do so. Because Rule 12b-1 fees are paid out of the Fund’s assets, and over time, these fees increase the cost of your investment and they may cost you more than certain other types of sales charges.
OTHER INFORMATION
The Fund is not sponsored, endorsed, sold or promoted by NYSE Arca, Inc. 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 Fund particularly or the ability of the Fund to achieve its objectives. NYSE Arca has no obligation or liability in connection with the administration, marketing or trading of the Fund.
For purposes of the 1940 Act, the Fund is a registered investment company, and the acquisition of Shares by other registered investment companies and companies relying on 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 Fund beyond those limitations.
This Prospectus does not contain all the information included in the Registration Statement filed with the SEC with respect to the Fund’s Shares. The Fund’s SAI and, when available, the annual and semi-annual reports to shareholders, each of which will be filed with the SEC, provide more information about the Fund. The SAI contains the financial statements of the 500 Series for the year ended December 31, 2018, which should be read in conjunction with this Prospectus. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during the Fund’s last fiscal year, as applicable. The SAI and the financial statements included in the Trust’s annual report to shareholders are incorporated herein by reference (i.e., they are legally part of this Prospectus). These materials may be obtained without charge, upon request, by writing to the Distributor, Three Canal Plaza, Suite 100, Portland, Maine, 04101, by visiting the Fund’s website at www.SyntaxAdvisors.com or by calling the following number: (866) 972-4492.
Investor Information:
Reports and other information about the Fund are available on the EDGAR Database on the SEC’s Internet site at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: [email protected].
Shareholder inquiries may be directed to the Fund in writing to Syntax Advisors, LLC at 110 East 59th Street, 31st Floor, New York, NY 10022 or by calling the Investor Information number listed above.
No person has been authorized to give any information or to make any representations other than those contained in this Prospectus in connection with the offer of the Fund’s Shares, and, if given or made, the information or representations must not be relied upon as having been authorized by the Trust or the Fund. Neither the delivery of this Prospectus nor any sale of Shares shall under any circumstance imply that the information contained herein is correct as of any date after the date of this Prospectus.
Dealers effecting transactions in the Fund’s Shares, whether or not participating in this distribution, are generally required to deliver a Prospectus. This is in addition to any obligation of dealers to deliver a Prospectus when acting as underwriters.
Investment Company Act File No.: 811-23227
22
SYNTAX ETF TRUST (THE “TRUST”)
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2019
This Statement of Additional Information
(“SAI”) is not a prospectus. It should be read in conjunction with the prospectus for the Trust dated May 1, 2019,
as it may be revised from time to time (the “Prospectus”).
Fund
Ticker
SYNTAX STRATIFIED LARGECAP ETF
SSPY
Principal U.S. Listing Exchange: NYSE
Arca, Inc.
Capitalized terms used herein that are
not defined have the same meaning as in the Prospectus, unless otherwise noted. A copy of the Prospectus may be obtained without
charge by writing to the Trust’s Distributor, Foreside Fund Services, LLC, at Three Canal Plaza, Suite 100, Portland, Maine,
04101, by visiting the Fund’s website at www.SyntaxAdvisors.com or calling (866) 972-4492.
The Trust is an open-end management investment
company, registered under the Investment Company Act of 1940, as amended (the “1940 Act”), currently consisting of
one investment series (the “Fund”). The Trust was organized as a Delaware statutory trust on June 27, 2013. The
offering of the Fund’s shares (“Shares”) is registered under the Securities Act of 1933, as amended (“Securities
Act”). The investment objective of the Fund is to provide investment results that, before fees and expenses, correspond to
the total return, of a specified market index (the “Index”). Syntax Advisors, LLC (“Syntax” or the “Adviser”)
serves as the investment adviser for the Fund. Vantage Consulting Group (“Vantage” or the “Sub-Adviser,”
and together with the Adviser, “Advisers”) serves as the investment sub-adviser for the Fund.
The Fund offers and issues Shares at their
net asset value (sometimes referred to herein as “NAV”) only in aggregations of a specified number of Shares (each,
a “Creation Unit”). The Fund generally offers and issues Shares in exchange for a basket of securities included in
its Index (“Deposit Securities”) together with the deposit of a specified cash payment (“Cash Component”).
The Trust reserves the right to permit or require the substitution of a “cash in lieu” amount (“Deposit Cash”)
to be added to the Cash Component to replace any Deposit Security. The Shares have been approved for listing and secondary trading
on a national securities exchange (“Exchange”). The Shares will trade on the Exchange at market prices. These prices
may differ from the Shares’ net asset values. The Shares are also redeemable only in Creation Unit aggregations, and generally
in exchange for portfolio securities and a specified cash payment. A Creation Unit of the Fund consists of 25,000 Shares, as set
forth in the Prospectus.
Shares may be issued in advance of receipt
of all Deposit Securities subject to various conditions including a requirement to maintain on deposit with the Trust cash at least
equal to a specified percentage of the market value of the missing Deposit Securities as set forth in the Participant Agreement
(as defined below). See “Purchase and Redemption of Creation Units.” The Trust may impose a transaction fee for each
creation or redemption. In all cases, such fees will be limited in accordance with the requirements of the U.S. Securities and
Exchange Commission (“SEC”) applicable to management investment companies offering redeemable securities. In addition
to the fixed creation or redemption transaction fee, an additional transaction fee of up to three times the fixed creation or redemption
transaction fee and/or an additional variable charge may apply.
ADDITIONAL INDEX INFORMATION
The Syntax Stratified LargeCap Index (the
“Index”) is the stratified-weight version of the widely used S&P 500® Index. The Index holds the same constituents
as the S&P 500, but the weight of each company in the Index is based on Syntax’s patented methodology to control exposure
to related business risks (RBRs).
The Index was developed and is maintained
in accordance with the following criteria: (1) each of the component securities in the Index is a constituent company of the S&P
500® Index; and (2) the Index is calculated by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC) based on methodology
proprietary to Syntax, LLC an affiliate of the investment adviser (the “Index Provider”), using a stratification methodology.
The Index Provider publishes information regarding the market value of the Index. For more information, please visit the Fund’s
website at www.SyntaxAdvisors.com.
3
Syntax Stratified-Weight Indices represent
a major breakthrough in passive index weighting methodology in that they are designed to control for the negative impacts of related
business risks. When two or more companies’ earnings are affected by the same fundamental drivers, we say that they share
a related business risk. Syntax Indices utilize a proprietary functional information system (“FIS”) developed by Syntax,
LLC, to identify related business risks and implement a patented stratified weighting methodology that controls for the inadvertent
overweighting of related business risk that regularly occurs in capitalization-weighted and equal-weighted indices. To learn more
about FIS, please visit www.SyntaxAdvisors.com.
Stratified-Weight Indices are a new class
of passive indexing that mitigates the negative impacts of overweighting related business risks without sacrificing upside performance
in normal markets. Stratified-weight indices, together with capitalization-weight and equal-weight indices, form a complementary
suite of index weighting methods that each provide a different measure of market performance. Capitalization-weight indices measure
aggregate market performance, equal-weight indices measure average company performance, and stratified-weight indices measure diversified
business performance. Each are important market benchmarks that offer different perspectives.
The investment objective of every Syntax
Index is to deliver returns consistent with the performance objectives of the underlying companies that make up the index. By using
FIS and stratification to control for exposure to related business risks, Syntax Indices are designed to improve the tracking of
the actual medium-to long-term performance of groups of companies and provide results that are the product of effective diversification,
rather than the overweighting of one or more outperforming group. Because FIS defines the related business risks, Syntax Indices
are built as a more stable composite of those functional parts. While the major cap-weighted indices are designed to be a proxy
for the total market, Syntax, LLC believes that the Syntax Indices serve as a better basis for medium-to-long-term investments
in index-tracking funds.
Disclaimer
Syntax, LLC, the Index Provider, is affiliated
with the Trust and the Adviser. The Adviser (“Licensee”) has entered into license agreements with the Index Provider
pursuant to which the Adviser pays a fee to use the Index. The Adviser is sub-licensing rights to the Index to the Fund at no charge.
The Index is the property of Syntax,
LLC, which has contracted with S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC) to calculate and maintain the
Index. The Index is not sponsored by S&P Dow Jones Indices LLC or its affiliates or its third-party licensors, including Standard
& Poor’s Financial Services LLC and Dow Jones Trademark Holdings LLC (collectively, “S&P Dow Jones Indices”).
S&P Dow Jones Indices will not be liable for any errors or omissions in calculating the Index. “Calculated by S&P
Dow Jones Indices” and the related stylized mark(s) are service marks of S&P Dow Jones Indices and have been licensed
for use by Syntax, LLC. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC, and Dow
Jones® is a registered trademark of Dow Jones Trademark Holdings LLC.
4
The Fund is not sponsored, endorsed, sold
or promoted by S&P Dow Jones Indices. S&P Dow Jones Indices does not make any representation or warranty, express or implied,
to the owners of the Fund or any member of the public regarding the advisability of investing in securities generally or in the
Fund particularly or the ability of the Index to track general market performance. S&P Dow Jones Indices’ only relationship
to Syntax, LLC with respect to the Index is the licensing of the S&P 500® Index and its constituents, certain trademarks,
service marks and trade names of S&P Dow Jones Indices, and the provision of the calculation services related to the Index.
S&P Dow Jones Indices is not responsible for and has not participated in the determination of the prices and amount of the
Fund or the timing of the issuance or sale of the Fund or in the determination or calculation of the equation by which the Fund
may be converted into cash or other redemption mechanics. S&P Dow Jones Indices has no obligation or liability in connection
with the administration, marketing or trading of the Fund. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion
of a security within the Index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is
it investment advice.
S&P DOW JONES INDICES DOES NOT GUARANTEE
THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION WITH RESPECT
THERETO, INCLUDING, ORAL, WRITTEN, OR ELECTRONIC COMMUNICATIONS. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES
OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN EXCEPT THOSE ARISING FROM FRAUD OR GROSS NEGLIGENCE ON THE PART OF S&P.
S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY SYNTAX, LLC, OWNERS OF THE FUND, OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES,
INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME, OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE.
5
INVESTMENT POLICIES
INVESTMENT STRATEGIES
DIVERSIFICATION STATUS
The Fund is classified as a “diversified”
investment company under the 1940 Act.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase
agreements with commercial banks, brokers or dealers to generate income from its excess cash balances and to invest securities
lending cash collateral. A repurchase agreement is an agreement under which the Fund acquires a financial instrument (e.g., a security
issued by the U.S. government or an agency thereof, a banker’s acceptance or a certificate of deposit) from a seller, subject
to resale to the seller at an agreed upon price and date (normally, the next Business Day – as defined below). A repurchase
agreement may be considered a loan collateralized by securities. The resale price reflects an agreed upon interest rate effective
for the period the instrument is held by the Fund and is unrelated to the interest rate on the underlying instrument.
In these repurchase agreement
transactions, the securities acquired by the Fund (including accrued interest earned thereon) must have a total value in excess
of the value of the repurchase agreement and be held by the Custodian until repurchased. No more than an aggregate of 15 percent
of the Fund’s net assets will be invested in illiquid securities, including repurchase agreements having maturities longer
than seven days and securities subject to legal or contractual restrictions on resale, or for which there are no readily available
market quotations.
The use of repurchase agreements
involves certain risks. For example, if the other party to the agreement defaults on its obligation to repurchase the underlying
security at a time when the value of the security has declined, the Fund may incur a loss upon disposition of the security. If
the other party to the agreement becomes insolvent and subject to liquidation or reorganization under the U.S. Bankruptcy Code
or other laws, a court may determine that the underlying security is collateral for a loan by the Fund not within the control of
the Fund and, therefore, the Fund may not be able to substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement.
OTHER SHORT-TERM INSTRUMENTS
In addition to repurchase agreements,
the Fund may invest in short-term instruments, including money market instruments, cash and cash equivalents, 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 U.S. government, its agencies or
instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates of deposit (“CDs”), bankers’
acceptances, fixed time deposits and other obligations of U.S. and foreign banks (including foreign branches) and similar institutions;
(iv) commercial paper rated at the date of purchase “Prime-1” by Moody’s Investors Service (“Moody’s”)
or “A-1” by Standard & Poor’s (“S&P”), or if unrated, of comparable quality as determined
by the Adviser; (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; and (vi)
short-term U.S. dollar-denominated obligations of foreign banks (including U.S. branches) that, in the opinion of the Adviser,
are of comparable quality to obligations of U.S. banks which may be purchased by the Fund. Any of these instruments may be purchased
on a current or a forward-settled basis. Money market instruments also include shares of money market funds. 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.
6
SPECIAL CONSIDERATIONS AND RISKS
A discussion of the risks associated with
an investment in the Fund is contained in the Prospectus. The discussion below supplements, and should be read in conjunction with,
the Prospectus.
GENERAL
Investment in the Fund should
be made with an understanding that the value of the Fund’s portfolio securities may fluctuate in accordance with changes
in the financial condition of the issuers of the portfolio securities, the value of securities generally and other factors.
An investment in the Fund should
also be made with an understanding of the risks inherent in an investment in securities, including the risk that the financial
condition of issuers may become impaired or that the general condition of the securities markets may deteriorate (either of which
may cause a decrease in the value of the portfolio securities and thus in the value of Shares). Securities are susceptible to general
market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change.
These investor perceptions are based on various and unpredictable factors including expectations regarding government, economic,
monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political,
economic and banking crises.
Holders of common stocks incur
more risk than holders of preferred stocks and debt obligations because common stockholders, as owners of the issuer, have generally
inferior rights to receive payments from the issuer in comparison with the rights of creditors of, or holders of debt obligations
or preferred stocks issued by, the issuer. Further, unlike debt securities which typically have a stated principal amount payable
at maturity (whose value, however, will be subject to market fluctuations prior thereto), or preferred stocks which typically have
a liquidation preference and which may have stated optional or mandatory redemption provisions, common stocks have neither a fixed
principal amount nor a maturity. Common stock values are subject to market fluctuations as long as the common stock remains outstanding.
7
The principal trading market
for some of the securities in the Index may be in the over-the-counter market. The existence of a liquid trading market for certain
securities may depend on whether dealers will make a market in such securities. There can be no assurance that a market will be
made or maintained or that any such market will be or remain liquid. The price at which securities may be sold and the value of
the Fund’s Shares will be adversely affected if trading markets for the Fund’s portfolio securities are limited or
absent or if bid/ask spreads are wide.
TAX RISKS
As with any investment, you should
consider how your investment in Shares of the Fund will be taxed. The tax information in the Prospectus and this SAI is provided
as general information. You should consult your own tax professional about the tax consequences of an investment in Shares of the
Fund.
CONTINUOUS OFFERING
The method by which Creation
Units of Shares are created and traded may raise certain issues under applicable securities laws. Because new Creation Units of
Shares are issued and sold by the Trust on an ongoing basis, at any point a “distribution,” as such term is used in
the Securities Act, may occur. Broker-dealers and other persons are cautioned that some activities on their part may, depending
on the circumstances, result in their being deemed participants in a distribution in a manner which could render them statutory
underwriters and subject them to the prospectus delivery and liability provisions of the Securities Act.
For example, a broker-dealer
firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Transfer Agent,
breaks them down into constituent Shares, and sells such Shares directly to customers, or if it chooses to couple the creation
of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for Shares. A determination
of whether one is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining
to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered
a complete description of all the activities that could lead to a categorization as an underwriter.
Broker-dealer firms should also
note that dealers who are 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 in respect of such transactions as a result of Section 24(d) of the 1940
Act. Firms that incur a prospectus-delivery obligation with respect to Shares of the Fund are reminded that under Securities Act
Rule 153, 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 Exchange is satisfied by the fact that the Fund’s Prospectus is available at the Exchange upon request.
The prospectus delivery mechanism provided in Rule 153 is only available with respect to transactions on an exchange.
8
INVESTMENT RESTRICTIONS
The Trust has adopted the following investment
restrictions as fundamental policies with respect to the Fund. These restrictions cannot be changed without the approval of the
holders of a majority of the Fund’s outstanding voting securities. For purposes of the 1940 Act, a majority of the outstanding
voting securities of the Fund means the vote, at an annual or a special meeting of the security holders of the Trust, of the lesser
of (1) 67 percent or more of the voting securities of the Fund present at such meeting, if the holders of more than 50 percent
of the outstanding voting securities of the Fund are present or represented by proxy, or (2) more than 50 percent of the outstanding
voting securities of the Fund. Except with the approval of a majority of the outstanding voting securities, the Fund may not:
1.
Change its investment objective;
2.
Lend any funds or other assets except through the purchase of all or a portion of an issue of securities
or obligations of the type in which it is permitted to invest (including participation interests in such securities or obligations)
and except that the Fund may lend its portfolio securities in an amount not to exceed 33 1/3% of the value of its total assets;
3.
Issue senior securities or borrow money, except borrowings from banks for temporary or emergency
purposes in an amount up to 10% of the value of the Fund’s total assets (including the amount borrowed), valued at market,
less liabilities (not including the amount borrowed) valued at the time the borrowing is made, and the Fund will not purchase securities
while borrowings in excess of 5% of the Fund’s total assets are outstanding, provided, that for purposes of this restriction,
short-term credits necessary for the clearance of transactions are not considered borrowings (this limitation on purchases does
not apply to acceptance by the Fund of a deposit principally of securities included in the relevant Index for creation of Creation
Units);
4.
Pledge, hypothecate, mortgage or otherwise encumber its assets, except to secure permitted borrowings.
(The deposit of underlying securities and other assets in escrow and collateral arrangements with respect to initial or variation
margin for futures contracts or options contracts will not be deemed to be pledges of the Fund’s assets);
5.
Purchase, hold or deal in real estate, or oil, gas or mineral interests or leases, but the Fund
may purchase and sell securities that are issued by companies that invest or deal in such assets;
6.
Act as an underwriter of securities of other issuers, except to the extent the Fund may be deemed
an underwriter in connection with the sale of securities in its portfolio;
9
7.
Purchase securities on margin, except for such short-term credits as are necessary for the clearance
of transactions, except that the Fund may make margin deposits in connection with transactions in options, futures and options
on futures;
8.
Sell securities short;
9.
Invest in commodities or commodity contracts, except that the Fund may transact in exchange traded
futures contracts on securities, stock indices and options on such futures contracts and make margin deposits in connection with
such contracts; or
10.
Concentrate its investments in securities of issuers in the same industry, except the Fund will
concentrate, as necessary to approximate the composition of the Fund’s underlying Index (the SEC Staff considers concentration
to involve more than 25 percent of the Fund’s assets to be invested in an industry or group of industries).
In addition to the investment restrictions
adopted as fundamental policies as set forth above, the Fund observes the following restrictions, which may be changed by the Board
without a shareholder vote. The Fund:
1.
Will not invest in the securities of a company for the purpose of exercising management or control,
provided that the Trust may vote the investment securities owned by the Fund in accordance with its views.
2.
Will not hold illiquid assets in excess of 15% of its net assets. An illiquid asset is any asset
which may not be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the
Fund has valued the investment.
3.
Will, under normal circumstances, invest at least 95% of its total assets in common stocks that
compose its relevant Index. Prior to any change in the Fund’s 95% investment policy, the Fund will provide shareholders with
60 days written notice.
4.
Will not invest in securities issued by other investment companies so that, as determined immediately
after a purchase of such securities is made: (i) not more than 5% of the value of the Fund’s total assets will be invested
in the securities of any one investment company; (ii) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group; and (iii) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund.
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 observed continuously. With respect to the limitation on illiquid securities,
in the event that a subsequent change in net assets or other circumstances cause the Fund to exceed its limitation, the Fund will
take steps to bring the aggregate amount of illiquid instruments back within the limitations as soon as reasonably practicable.
10
EXCHANGE LISTING AND TRADING
A discussion of exchange listing and trading
matters associated with an investment in the Fund is contained in the Prospectus under “ADDITIONAL PURCHASE AND SALE INFORMATION.”
The discussion below supplements, and should be read in conjunction with, such sections of the Prospectus.
The Shares of the Fund are approved for
listing and trading on the Exchange, subject to notice of issuance. The Shares trade on the Exchange at prices that may differ
to some degree from their net asset value. There can be no assurance that the requirements of the Exchange necessary to maintain
the listing of Shares of the Fund will continue to be met.
The Exchange may, but is not required to,
remove the Shares of the Fund from listing if: (1) following the initial twelve-month period beginning upon the commencement of
trading of the Fund, there are fewer than 50 beneficial holders of the Shares for 30 or more consecutive trading days; (2) the
value of its underlying Index or portfolio of securities on which the Fund is based is no longer calculated or available; (3) the
“indicative optimized portfolio value” (“IOPV”) of the Fund is no longer calculated or available; or (4)
such other event shall occur or condition exists that, in the opinion of the Exchange, makes further dealings on the Exchange inadvisable.
In addition, the Exchange will remove the Shares from listing and trading upon termination of the Trust or the Fund.
The Trust reserves the right to adjust
the Share price of the Fund in the future to maintain convenient trading ranges for investors. Any adjustments would be accomplished
through stock splits or reverse stock splits, which would have no effect on the net assets of the Fund.
As in the case of other publicly-traded
securities, brokers’ commissions on transactions will be based on negotiated commission rates at customary levels.
The base and trading currencies of the
Fund is the U.S. dollar. The base currency is the currency in which the Fund’s net asset value per Share is calculated and
the trading currency is the currency in which Shares of the Fund are listed and traded on the Exchange.
MANAGEMENT OF THE TRUST
The following information supplements and
should be read in conjunction with the section in the Prospectus entitled “MANAGEMENT.”
The Board has responsibility for the overall
management, operations and business affairs of the Trust, including general supervision and review of its investment activities.
The Trustees elect the officers of the Trust who are responsible for administering the day-to-day operations of the Trust and the
Fund.
11
The Trustees and executive officers of
the Trust, along with their year of birth, principal occupations over the past five years, length of time served, total number
of portfolios overseen in the fund complex, public and fund directorships held and other positions and their affiliations, if any,
with the Adviser, are listed below:
TRUSTEES AND OFFICERS OF THE TRUST
TRUSTEES
NAME, ADDRESS AND YEAR OF BIRTH
POSITION(S)
WITH TRUST
TERM OF OFFICE
AND LENGTH
OF TIME SERVED
PRINCIPAL
OCCUPATION(S)
DURING PAST 5 YEARS
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
TRUSTEE
OTHER
DIRECTORSHIPS
HELD BY
TRUSTEE DURING
THE LAST 5 YEARS
Independent Trustees
Deborah Fuhr
(1959)
Independent
Trustee
Term:
Unlimited
Trustee since 2018
Co-Founder
and Managing Partner, ETFGI LLP (research and consulting) (2012 to present);
1
Co-Founder and Board Member, Women in ETFs (Not
for Profit) (2014 to present); Co-founder and Board Member, Women in ETFs Europe Limited (Educational Association) (2015
to present); Director and Board Member, 2 Culfrod Gardens RTM (Property) (2005 to present); Director and Board Member
(2 Culford Gardens Freehold (Property) (2011 to present)
George Hornig
(1954)
Independent Trustee and Chairman of the Audit Committee
Term: Unlimited
Trustee since 2018
Managing Member, George Hornig, LLC (2017 to present) (investments); Senior Managing Director and Chief Operating Officer, Pinebridge Investments (investment adviser) (2010 to 2016).
1
Director, Forrester Research, Inc. (technology research company)
(1997 to 2015); Director, Daniel J. Edelman Holding (2016 to present) (communications marketing firm); Director, Xometry (advanced
manufacturing platform business) (2014 to present); Director, KBL Merger Corp IV (2017 to present) (healthcare).
12
Richard Lyons
(1961)
Lead Independent Trustee and Chairman of the Nominating and Governance Committee
Term: Unlimited
Trustee since 2018
Dean (since 2008), Haas School of Business, UC Berkeley; Chief
Learning
Officer (2006 to 2008), Goldman Sachs (investment banking and
investment
management); Executive Associate Dean (2005 to 2006), Acting
Dean (2004 to 2005),
Professor (2000 to 2004), Associate Professor (1996 to 2000),
Assistant Professor
(1993 to 1996), Haas School of Business, UC Berkeley.
1
Director (2013 to 2016), Matthews A Share Selections Fund, LLC (mutual funds).
Stewart Myers
(1940)
Independent Trustee
Term: Unlimited
Trustee since 2018
Professor, MIT Sloan School of Management (since 2015); Principal,
The Brattle Group, Inc. (since 1991).
1
Director, Entergy Corp. (2009 to 2015).
Interested Trustees
Rory Riggs
(1953)
Trustee and Chief Executive Officer
Term: Unlimited
Trustee since 2017
Founder and Chief Executive Officer, Locus Analytics, LLC (since 2010); Founder and Chief Executive Officer, Syntax Advisors, LLC (Since 2009); and is the Chief Executive Officer and Founder of Syntax Indices (Since 2009).
1
Managing Member of Balfour, LLC (since 1991); Board Member, Nuredis, Inc. (2016 to present); President, Biomatrix Corporation (1996 to 2000); Director, Biomatrix Corporation (1990 to 2000); Acting President and Chief Executive Officer of RF&P Corporation (1991 to 1995); Managing Director, PaineWebber Incorporated (1981 to 1990); Co-founder and Chairman, RP Management, LLC Chairman and co-founder, Royalty Pharma (1996 to present) (biopharmaceuticals); Chairman and Co-Founder, Cibus Global, Ltd. (2012 to present) (gene editing agriculture); Director GeneNews Limited (2000 to present); Director, Intra-Cellular Therapies, Inc. (since 2014); Director, FibroGen, Inc. (1993 to present).
13
Kathy Cuocolo
(1952)
Trustee and President
Term: Unlimited
Trustee since 2018
President, Syntax Advisors, LLC and predecessor companies (2014 to present); Managing Director, Head of Global ETF Services, BNY Mellon (2008 to 2013); Executive Vice President, State Street (1982 to 2003).
1
Greenbacker Renewable Energy LLC, Audit Chair (2013 to present); Guardian Life Family of Funds (2005 – 2007); Select Sector Trust, Chairman (2000 to 2007); The China Fund (1999 to 2003).
OFFICERS
NAME, ADDRESS
AND YEAR OF BIRTH
POSITION(S)
WITH TRUST
TERM OF
OFFICE
AND LENGTH
OF TIME
SERVED
PRINCIPAL OCCUPATION(S)
DURING PAST 5 YEARS
OFFICERS
Rory Riggs
(1953)
Chief Executive
Since 2018
See Trustee table above
Kathy Cuocolo
(1952)
President and Treasurer
Since 2018
See Trustee table above
Carly Arison
(1990)
Secretary
Since 2018
Vice President, Syntax Advisors, LLC and predecessor companies (2012 to present)
Joseph O’Donnell
(1954)
Chief Compliance Officer
Since 2018
Director - Outsourced Business Solutions Group - Foreside LLC October (2017 – present). Board Member, Atlanta Symphony Orchestra (2015 – present); EVP and CCO RidgeWorth Funds (2011 – 2016).
Leadership Structure
and Board of Trustees
Board Responsibilities. The management
and affairs of the Trust and its series, including the Fund described in this SAI, are overseen by the Trustees. The Board has
approved contracts, as described in this SAI, under which certain companies provide essential management services to the Trust.
Like most mutual funds, the day-to-day
business of the Trust, including the management of risk, is performed by third party service providers, such as the Adviser, Sub-Adviser,
Distributor and Administrator. The Trustees are responsible for overseeing the Trust’s service providers and, thus, have
oversight responsibility with respect to risk management performed by those service providers. Risk management seeks to identify
and address risks, i.e., events or circumstances that could have material adverse effects on the business, operations, shareholder
services, investment performance or reputation of the Fund. The Fund and its service providers employ a variety of processes, procedures
and controls to identify various of those possible events or circumstances, to lessen the probability of their occurrence and/or
to mitigate the effects of such events or circumstances if they do occur. Each service provider is responsible for one or more
discrete aspects of the Trust’s business (e.g., a Sub-Adviser is responsible for the day-to-day management of the Fund’s
portfolio investments) and, consequently, for managing the risks associated with that business. The Board has emphasized to the
Fund’s service providers the importance of maintaining vigorous risk management.
14
The Trustees’ role in risk oversight
begins before the inception of the Fund, at which time the Fund’s Adviser presents the Board with information concerning
the investment objectives, strategies and risks of the Fund, as well as proposed investment limitations for the Fund. Additionally,
the Fund’s Adviser provides the Board with an overview of, among other things, their investment philosophies, brokerage practices
and compliance infrastructures. Thereafter, the Board continues its oversight function as various personnel, including the Trust’s
Chief Compliance Officer, as well as personnel of the Adviser and other service providers, such as the Fund’s independent
accountants, make periodic reports to the Audit Committee or to the Board with respect to various aspects of risk management. The
Board and the Audit Committee oversee efforts by management and service providers to manage risks to which the Fund may be exposed.
The Board is responsible for overseeing
the nature, extent and quality of the services provided to the Fund by the Adviser and Sub-Adviser and receives information about
those services at its regular meetings. In addition, on an annual basis, in connection with its consideration of whether to renew
the Advisory Agreement with the Adviser, Sub-Advisory Agreement with the Sub-Adviser, the Board meets with the Adviser and Sub-Adviser
to review such services. Among other things, the Board regularly considers the Advisers’ adherence to the Fund’s investment
restrictions and compliance with various Fund policies and procedures and with applicable securities regulations. The Board also
reviews information about the Fund’s investments.
The Trust’s Chief Compliance Officer
reports regularly to the Board to review and discuss compliance issues. At least annually, the Trust’s Chief Compliance Officer
provides the Board with a report reviewing the adequacy and effectiveness of the Trust’s policies and procedures and those
of its service providers, including the Adviser and Sub-Adviser. The report addresses the operation of the policies and procedures
of the Trust and each service provider since the date of the last report; any material changes to the policies and procedures since
the date of the last report; any recommendations for material changes to the policies and procedures; and any material compliance
matters since the date of the last report.
The Board receives reports from Fund’s
service providers regarding operational risks and risks related to the valuation and liquidity of portfolio securities. Regular
reports are made to the Board concerning investments for which market quotations are not readily available. Annually, the independent
registered public accounting firm reviews with the Audit Committee its audit of the Fund’s financial statements, focusing
on major areas of risk encountered by the Fund and noting any significant deficiencies or material weaknesses in the Fund’s
internal controls. Additionally, in connection with its oversight function, the Board oversees Fund management’s implementation
of disclosure controls and procedures, which are designed to ensure that information required to be disclosed by the Trust in its
periodic reports with the SEC are recorded, processed, summarized, and reported within the required time periods. The Board also
oversees the Trust’s internal controls over financial reporting, which comprise policies and procedures designed to provide
reasonable assurance regarding the reliability of the Trust’s financial reporting and the preparation of the Trust’s
financial statements.
15
From their review of these reports and
discussions with the Adviser, Sub-Adviser, the Chief Compliance Officer, the independent registered public accounting firm and
other service providers, the Board and the Audit Committee learn in detail about the material risks of the Fund, thereby facilitating
a dialogue about how management and service providers identify and mitigate those risks.
The Board recognizes that not all risks
that may affect the Fund can be identified and/or quantified, that it may not be practical or cost-effective to eliminate or mitigate
certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to achieve the Fund’s goals,
and that the processes, procedures and controls employed to address certain risks may be limited in their effectiveness. Moreover,
reports received by the Trustees as to risk management matters are typically summaries of the relevant information. Most of the
Fund’s investment management and business affairs are carried out by or through the Fund’s Adviser, Sub-Adviser and
other service providers, each of which has an independent interest in risk management but whose policies and the methods by which
one or more risk management functions are carried out may differ from the Fund’s and each other’s in the setting of
priorities, the resources available or the effectiveness of relevant controls. As a result of the foregoing and other factors,
the Board’s ability to monitor and manage risk, as a practical matter, is subject to limitations.
Trustees and Officers. There are
6 members of the Board of Trustees, 4 of whom are not interested persons of the Trust, as that term is defined in the 1940 Act
(“Independent Trustees”). Mr. Riggs, an Interested Trustee, serves as Chairman of the Board to act as liaison with
the investment adviser, other service providers, counsel and other Trustees generally between meetings. Mr. Lyons serves as Lead
Independent Trustee and is a spokesperson for and leader of the Independent Trustees. The Board has determined its leadership structure
is appropriate given the specific characteristics and circumstances of the Trust. The Board made this determination in consideration
of, among other things, the fact that the Independent Trustees constitute a majority of the Board, the fact that the chairperson
of each Committee of the Board is an Independent Trustee, the amount of assets under management in the Trust, and the number of
funds (and classes of shares) overseen by the Board. The Board also believes that its leadership structure facilitates the orderly
and efficient flow of information to the Independent Trustees from fund management.
The Board of Trustees has two standing
committees: the Audit Committee and the Nominating and Governance Committee. The Audit Committee and the Nominating and Governance
Committee are each chaired by an Independent Trustee and composed of all of the Independent Trustees.
Individual Trustee Qualifications
The Board has concluded that each of the
Trustees should serve on the Board because of his or her ability to review and understand information about the Fund provided to
him or her by management, to identify and request other information he or she may deem relevant to the performance of his or her
duties, to question management and other service providers regarding material factors bearing on the management and administration
of the Fund, and to exercise his or her business judgment in a manner that serves the best interests of the Fund’s shareholders.
The Board has concluded that each of the Trustees should serve as a Trustee based on his or her own experience, qualifications,
attributes and skills as described below.
16
Rory Riggs: Rory Riggs is
the CEO and Founder of Syntax Indices.
Rory’s idea for Syntax Stratified
Indices came from his career in healthcare and the industry’s statistical use of population sampling and stratification across
sub-populations to control for inadvertent biases in clinical trial results. To address the potential of similar biases in index
results, he and his team identified a new risk category called related business risks; developed a new classification system with
which to identify and group related business risk; and implemented a stratified weighting methodology to control for the inadvertent
over-weighting of related business risks that regularly occur capitalization-weight and equal-weight methodologies. Using this
stratified-weight methodology, Syntax operates a family of Syntax Stratified Indices that includes a Stratified Syntax LargeCap
and MidCap Index that provide stratified-weight versions of the widely-followed S&P 500 and the S&P 400.
Prior to founding Syntax and its parent,
Locus Analytics, Rory has been involved in the creation and development of many successful companies in healthcare and bio-technology.
These companies include: Royalty Pharma; Fibrogen, Inc.; Cibus, LLC; GeneNews Ltd., Sugen, Inc. and eReceivables Inc. He is currently
the chairman and co-founder of Royalty Pharma, the largest investor in revenue-producing intellectual property, principally royalty
interests in marketed and late-stage development biopharmaceutical products. In addition, Rory is Chairman and Co-founder of Cibus,
the leader in non-transgenic (non-GMO) gene editing in agriculture. He also served as the president and director of Biomatrix Corporation
(NYSE: BXM) where he launched Synvisc, an important product in the treatment of osteoarthritis.
Rory received a BA from Middlebury College
and an MBA from Columbia University.
Kathy Cuocolo: Kathy Cuocolo
is president of Syntax Advisors, LLC, bringing over 30 years of experience in the asset management and ETF industry to Syntax.
Prior to Syntax, Kathy was Managing Director,
Head of Global ETF Services at BNY Mellon. Before BNY, Kathy spent 22 years at State Street Corporation, where she rose to Executive
Vice President. While at State Street, Kathy brought the first ETF to market, the S&P 500 SPDR, as well as several of the other
early ETF products such as the Select Sector SPDR, the Dow Diamond, and CountryBaskets. She began her career at PricewaterhouseCoopers
as an audit and consulting manager. She is a Board Member and Audit Chair of Greenbacker Renewable Energy LLC and has been on the
Boards of Select Sector SPDRs, The China Fund and Guardian Family of Funds.
Kathy received her B.A. in Accounting Summa
Cum Laude from Boston College and is a Certified Public Accountant in Massachusetts.
George Hornig: George Hornig
has had a career as a senior operating officer in the financial services industry (asset management, investment banking, insurance
and fin-tech).
17
From 2010 - 2016, George was a Senior Managing
Director of PineBridge Investments. George led the restructuring of the operations of this former division of AIG Insurance to
make it an independent company after its divestiture. Prior to joining PineBridge, George spent 11 years at Credit Suisse Asset
Management as Global Chief Operating Officer. Prior to that, he was Executive Vice President and Chief Operating Officer, Americas,
at Deutsche Bank. In 1988, he was a co-founder and Chief Operating Officer of Wasserstein Perella and Company, following his tenure
at The First Boston Corp. George also practiced law for two years at Skadden Arps at the start of his career. In addition, George’s
career has spanned investments, management and advisor in industries as diverse as health care, manufacturing and the outsourcing
of business services, social media, cybersecurity, augmented reality, and e-waste management. Presently he is managing a portfolio
of acquisition transactions and venture capital investments. Also he is the Chairman of KBL Merger Corp IV (healthcare industry
SPAC), a Director of Edelman (communications marketing firm), and a Director of Xometry (advanced manufacturing platform business).
From 1992 to 2012, he was a Director of Unity Mutual Life and from 1996 to 2018, he was a Director of Forrester Research and Chairman
of the Audit Committee.
George received his AB in Economics from Harvard College, his
MBA from Harvard Business School and his JD from Harvard Law School.
Deborah Fuhr: Deborah Fuhr
is the managing partner and co-founder of ETFGI. Previously she served as global head of ETF research and implementation strategy
and as a managing director at BlackRock/Barclays Global Investors from 2008-2011. Fuhr also worked as a managing director and head
of the investment strategy team at Morgan Stanley in London from 1997-2008, and as an associate at Greenwich Associates.
Deborah Fuhr is the recipient of the 2014
William F. Sharpe Lifetime Achievement Award for outstanding and lasting contributions to the field of index investing, the Nate
Most Greatest Contributor to the ETF industry award , and the ETF.com Lifetime achievement award. She has been named as one of
the “100 Most Influential Women in Finance” by Financial News in 2014, 2013, 2012, 2009, 2008 and 2007. Ms. Fuhr won
the award for the Greatest Overall Contribution to the development of the Global ETF industry in the ExchangeTradedFunds.com survey
in 2011 and 2008, Ms. Fuhr is one of the founders and on the board of Women in ETFs and is on the board of Cancer Research UK’s
‘Women of Influence’ initiative to support female scientists. Ms. Fuhr is on the editorial board of the Journal of
Indexes, and Money Management Executive; the advisory board for the Journal of Index Investing; and the investment panel of experts
for Portfolio Adviser, the FTSE ICB Advisory Committee, the NASDAQ listing and hearing review council, the International Advisory
Committee for the Egyptian Exchange, and the University of Connecticut School of Business International Advisory Board.
She holds a BS degree from the University of Connecticut and
an MBA from the Kellogg School of Management at Northwestern University.
Richard Lyons: Richard Lyons
is the dean of the Haas School of Business, UC Berkeley, and holds the Bank of America Dean’s Chair.
Prior to becoming dean in July 2008, he
served as the chief learning officer at Goldman Sachs in New York, a position he held since 2006. As chief learning officer, Rich
was responsible for leadership development among the firm’s managing directors. Prior to Goldman Sachs, Rich served as acting
dean of the Haas School from 2004 to 2005 and as executive associate dean and Sylvan Coleman Professor of Finance from 2005 to
2006.
18
He received his BS with highest honors from UC Berkeley (finance)
and his Ph.D. from MIT (economics). Before coming to Haas, Professor Lyons spent six years on the faculty at Columbia Business
School. His teaching expertise is in international finance.
Stewart Myers: Stewart C.
Myers is the Robert C. Merton (1970) Professor of Finance, Emeritus at the MIT Sloan School of Management.
Mr. Myers is past President of the American
Finance Association, a Research Associate at the National Bureau of Economic Research and a principal of the Brattle Group, Inc.
His textbook Principles of Corporate Finance (12th ed., with Richard Brealey and Franklin Allen) is known as the “bible”
of financial management. His research focuses on the valuation of real and financial assets, corporate finance and financial
aspects of government regulation of business. He introduced both the tradeoff and pecking order theories of capital structure and
was the first to recognize the importance of real options in corporate finance. Myers is the author of influential research
papers on many topics, including adjusted present value (APV), rate of return regulation, capital allocation and risk management
in banking and insurance, real options, payout policy, and moral hazard and information issues in financing decisions. He has served
as a director of Entergy Corporation and CAT Ltd. and as a manager of the Cambridge Endowment for Research in Finance.
He holds an AB from Williams College and an MBA and a PhD from
Stanford University.
References to the experience, attributes
and skills of Trustees above are pursuant to requirements of the SEC and do not constitute holding out of the Board or any Trustee
as having any special expertise or experience, and shall not impose any greater responsibility or liability on any such person
or on the Board by reason thereof.
In its periodic assessment of the effectiveness
of the Board, the Board considers the complementary individual skills and experience of the individual Trustees primarily in the
broader context of the Board’s overall composition so that the Board, as a body, possesses the appropriate (and appropriately
diverse) skills and experience to oversee the business of the Fund.
REMUNERATION OF THE TRUSTEES AND OFFICERS
No officer, director or employee of the
Adviser, its parent or subsidiaries receives any compensation from the Trust for serving as an officer or Trustee of the Trust.
The Trust pays, in the aggregate, each Independent Trustee an annual fee of $25,000. Trustee fees are allocated between the Fund
in such a manner as deemed equitable, taking into consideration the relative net assets of the series.
STANDING COMMITTEES
Audit Committee. The Board has
an Audit Committee consisting of all Independent Trustees. George Hornig serves as Chair. The Audit Committee meets with the Trust’s
independent auditors to review and approve the scope and results of their professional services; to review the procedures for
evaluating the adequacy of the Trust’s accounting controls; to consider the range of audit fees; and to make recommendations
to the Board regarding the engagement of the Trust’s independent auditors. The Audit Committee was established on March
28, 2018 and met once during the fiscal year ending December 31, 2018.
19
Nominating and Governance Committee.
The Board has established a Nominating and Governance Committee consisting of all Independent Trustees. Richard Lyons serves as
Chairperson. The responsibilities of the Nominating and Governance Committee are to: (1) nominate Independent Trustees; (2) review
on a periodic basis the governance structures and procedures of the Fund; (3) periodically review Trustee compensation, (4) annually
review committee and committee chair assignments, (5) annually review the responsibilities and charter of each committee, (6)
to plan and administer the Board’s annual self-evaluation, (7) annually consider the structure, operations and effectiveness
of the Nominating and Governance Committee, and (8) at least annually evaluate the independence of counsel to the Independent
Trustees. The Nominating and Governance Committee was established on March 28, 2018 and met once during the fiscal year ending
December 31, 2018.
The Trustees adopted the following procedures
with respect to the consideration of nominees recommended by security holders.
1.
The shareholder must submit any such recommendation (a “Shareholder Recommendation”)
in writing to the Trust, to the attention of the Trust’s Secretary, at the address of the principal executive offices of
the Trust.
2.
The Shareholder Recommendation must be delivered to, or mailed and received at, the principal executive
offices of the Trust not less than sixty (60) calendar days nor more than ninety (90) calendar days prior to the date of the Board
or shareholder meeting at which the nominee candidate would be considered for election. Shareholder Recommendations will be kept
on file for two years after receipt of the Shareholder Recommendation. A Shareholder Recommendation considered by the Committee
in connection with the Committee’s nomination of any candidate(s) for appointment or election as an independent Trustee need
not be considered again by the Committee in connection with any subsequent nomination(s).
20
3.
The Shareholder Recommendation must include: (i) a statement in writing setting forth (A) the name,
age, date of birth, business address, residence address and nationality of the person recommended by the shareholder (the “candidate”),
and the names and addresses of at least three professional references; (B) the number of all shares of the Trust (including the
series and class, if applicable) owned of record or beneficially by the candidate, the date such shares were acquired and the investment
intent of such acquisition(s), as reported to such shareholder by the candidate; (C) any other information regarding the candidate
called for with respect to director nominees by paragraphs (a), (d), (e) and (f) of Item 401 of Regulation S-K or paragraph (b)
of Item 22 of Rule 14a-101 (Schedule 14A) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
adopted by the SEC (or the corresponding provisions of any applicable regulation or rule subsequently adopted by the SEC or any
successor agency with jurisdiction related to the Trust); (D) any other information regarding the candidate that would be required
to be disclosed if the candidate were a nominee in a proxy statement or other filing required to be made in connection with solicitation
of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder
or any other applicable law or regulation; and (E) whether the recommending shareholder believes that the candidate is or will
be an “interested person” of the Trust (as defined in the 1940 Act) and, if not an “interested person,”
information regarding the candidate that will be sufficient, in the discretion of the Board or the Committee, for the Trust to
make such determination; (ii) the written and signed consent of the candidate to be named as a nominee and to serve as a Trustee
if elected; (iii) the recommending shareholder’s name as it appears on the Trust’s books; (iv) the number of all shares
of the Trust (including the series and class, if applicable) owned beneficially and of record by the recommending shareholder;
(v) a complete description of all arrangements or understandings between the recommending shareholder and the candidate and any
other person or persons (including their names) pursuant to which the recommendation is being made by the recommending shareholder
including, without limitation, all direct and indirect compensation and other material monetary agreements, arrangements and understandings
between the candidate and recommending shareholder during the past three years, and (vi) a brief description of the candidate’s
relevant background and experience for membership on the Board, such as qualification as an audit committee financial expert.
4.
The Committee may require the recommending shareholder to furnish such other information as it
may reasonably require or deem necessary to verify any information furnished pursuant to paragraph 3 above or to determine the
eligibility of the candidate to serve as a Trustee of the Trust or to satisfy applicable law. If the recommending shareholder fails
to provide such other information in writing within seven days of receipt of a written request from the Committee, the recommendation
of such candidate as a nominee will be deemed not properly submitted for consideration, and the Committee will not be required
to consider such candidate.
OWNERSHIP OF FUND SHARES
As of December 31, 2018, neither the
Independent Trustees nor their immediate family members owned beneficially or of record any securities in the Adviser, Sub-Adviser,
Principal Underwriter or any person controlling, controlled by, or under common control with the Adviser, Sub-Adviser or Principal
Underwriter.
21
The following table sets forth information describing the
dollar range of equity securities beneficially owned by each Trustee in the Trust as of December 31, 2018.
Name of Trustee
Fund
Dollar Range of
Equity Securities in
the
Fund
Aggregate Dollar
Range of Equity
Securities in All Funds
Overseen by Trustee in
Family of Investment
Companies
Independent Trustees:
Deborah Fuhr
None
None
None
George Hornig
None
None
None
Richard Lyons
None
None
None
Stewart Myers
None
None
None
Interested Trustees:
Rory Riggs
None
None
None
Kathy Cuocolo
None
None
None
CODE OF ETHICS. The Trust, the Adviser,
the Sub-Adviser and Foreside Financial Group, LLC (on behalf of Foreside Fund Officer Services, LLC) have each adopted a code of
ethics under Rule 17j-1 of the 1940 Act. These codes of ethics permit, subject to certain conditions, personnel of each
of those entities to invest in securities that may be purchased or held by the Fund. The Distributor relies on the principal underwriters
exception under Rule 17j-1(c)(3), specifically where the Distributor is not affiliated with the Trust or the Adviser, and no officer,
director or general partner of the Distributor serves as an officer, director or general partner of the Trust or the Adviser. Each
code of ethics, filed as an exhibit to the Trust’s registration statement, may be examined at the office of the SEC in Washington,
D.C. or on the Internet at the SEC’s website at http://www.sec.gov.
PROXY VOTING POLICY. The Board believes
that the voting of proxies on securities held by the Fund is an important element of the overall investment process. As such, the
Board has delegated the responsibility to vote such proxies to the Sub-Adviser. The Sub-Adviser’s proxy voting policy is
attached at the end of this SAI as Appendix A. Information regarding how the Fund voted proxies relating to its portfolio securities
during the most recent twelve-month period ended June 30 is available: (1) without charge by calling (866) 972-4492; (2) on the
Fund’s website at www.SyntaxAdvisors.com; and (3) on the SEC’s website at http://www.sec.gov.
DISCLOSURE OF PORTFOLIO HOLDINGS POLICY.
The Trust has adopted a policy regarding the disclosure of information about the Trust’s portfolio holdings. The Board must
approve all material amendments to this policy. The Fund’s portfolio holdings are publicly disseminated each day the Fund
is open for business through financial reporting and news services including publicly accessible Internet web sites. In addition,
a basket composition file, which includes the security names and share quantities to deliver in exchange for Fund shares, together
with estimates and actual cash components, is publicly disseminated daily prior to the opening of the Exchange via the National
Securities Clearing Corporation (the “NSCC”). The basket represents one Creation Unit of the Fund. The Trust, the Adviser
or State Street will not disseminate non-public information concerning the Trust, except: (i) to a party for a legitimate business
purpose related to the day-to-day operations of the Fund or (ii) to any other party for a legitimate business or regulatory purpose,
upon waiver or exception.
22
THE INVESTMENT ADVISER
Syntax Advisors, LLC (“Syntax”
or “Adviser”) acts as investment adviser to the Trust and, subject to the supervision of the Board, is responsible
for the investment management of the Fund. The Adviser’s principal address is 110 East 59th Street, 31st Floor,
New York, NY 10022.
The Adviser serves as investment adviser
to the Fund pursuant to an investment advisory agreement (“Investment Advisory Agreement”) between the Trust and the
Adviser. The Investment Advisory Agreement, with respect to the Fund, continues in effect for two years from its effective date,
and thereafter is subject to annual approval by (1) the Board or (2) vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of the Fund, provided that in either event such continuance also is approved by a majority of the
Board who are not interested persons (as defined in the 1940 Act) of the Trust by a vote cast in person at a meeting called for
the purpose of voting on such approval. The Investment Advisory Agreement with respect to the Fund is terminable without penalty,
on 60 days’ notice, by the Board or by a vote of the holders of a majority (as defined in the 1940 Act) of the Fund’s
outstanding voting securities. The Investment Advisory Agreement is also terminable upon 60 days’ notice by the Adviser and
will terminate automatically in the event of its assignment (as defined in the 1940 Act).
Under the Investment Advisory Agreement,
the Adviser, subject to the supervision of the Board and in conformity with the stated investment policies of the Fund, manages
the investment of the Fund’s assets. The Adviser is responsible for placing purchase and sale orders and providing continuous
supervision of the investment portfolio of the Fund. Pursuant to the Investment Advisory Agreement, the Trust has agreed to indemnify
the Adviser for certain liabilities, including certain liabilities arising under the federal securities laws, unless such loss
or liability results from willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard
of its obligations and duties.
For the services provided to the Fund under
the Investment Advisory Agreement, the Fund pays the Adviser monthly fees based on a percentage of the Fund’s average daily
net assets as set forth in the Fund’s Prospectus. From time to time, the Adviser may waive all or a portion of its fee. Under
the Investment Advisory Agreement, the Adviser agrees to pay all expenses of the Trust, except (i) interest expense, (ii) taxes,
(iii) acquired fund fees and expenses, (iv) brokerage expenses and other expenses (such as stamp taxes) connected with the execution
of portfolio transactions or in connection with creation and redemption transactions, (v) expenses associated with shareholder
meetings, (vi) compensation and expenses of the Independent Trustees, (vii) compensation and expenses of the Trust’s chief
compliance officer and his or her staff, (viii) distribution fees and expenses paid by the Trust under any distribution plan adopted
pursuant to Rule 12b-1 under the 1940 Act, (ix) legal fees or expenses in connection with any arbitration, litigation or pending
or threatened arbitration or litigation, including any settlements in connection therewith, and (x) extraordinary expenses of the
Fund.
The advisory fees paid to the Adviser
for the last three fiscal years have been omitted because the Fund had not commenced investment operations as of December 31,
2018.
23
Syntax has agreed to waive its fees and/or
absorb expenses of the Fund to ensure that Total Annual Operating Expenses (excluding, as applicable, (i) interest expense, (ii)
taxes, (iii) acquired fund fees and expenses, (iv) brokerage expenses and other expenses (such as stamp taxes) connected with the
execution of portfolio transactions or in connection with creation and redemption transactions, (v) expenses associated with shareholder
meetings, (vi) compensation and expenses of the Independent Trustees, (vii) compensation and expenses of the Trust’s chief
compliance officer and his or her staff, (viii) distribution fees and expenses paid by the Trust under any distribution plan adopted
pursuant to Rule 12b-1 under the 1940 Act, (ix) legal fees or expenses in connection with any arbitration, litigation or pending
or threatened arbitration or litigation, including any settlements in connection therewith, and (x) extraordinary expenses of the
Fund.) do not exceed the rates below. Subject to approval by the Fund’s Board of Trustees, any waiver under the Expense Limitation
Agreement is subject to repayment by the Fund within 36 months following the month in which fees are waived or reimbursed, if the
Fund is able to make the payment without exceeding the applicable expense limitation. These arrangements cannot be terminated prior
to one year from the effective date of this prospectus without the approval of the Board of Trustees.
Fund
Total Operating Expenses after
Waiver/Reimbursement
Syntax Stratified LargeCap ETF
0.30%
A discussion regarding the Board’s
consideration of the Investment Advisory Agreement can be found in the Trust’s Semi-Annual Report to Shareholders for the
period ended June 30, 2019 (when available).
SUB-ADVISER
Vantage Consulting Group (“Vantage”
or the “Sub-Adviser”), 3500 Pacific Ave. Virginia Beach, VA 23451, serves as the investment sub-adviser for the Fund
pursuant to an Investment Sub-Advisory Agreement between the Adviser and Vantage, dated March 2, 2018 (referred to as a “Sub-Advisory
Agreement). The Sub-Adviser is responsible for placing purchase and sale orders and shall make investment decisions for the Fund,
subject to the supervision by the Adviser. For its services, the Sub-Adviser is compensated by the Adviser.
PORTFOLIO MANAGER
The Sub-Adviser manages the Fund using
a team of investment professionals. The professional primarily responsible for the day-to-day portfolio management of the Fund
is James Thomas Wolfe.
The following table lists the number and
types of accounts, other than the Fund, managed by Mr. Wolfe and the assets under management in those accounts.
24
Other Accounts
Managed as of March 31, 2019
Portfolio Manager
Registered Investment Company Accounts
Assets Managed (millions)
Pooled Investment Vehicle Accounts
Assets Managed (millions)
Other Accounts
Assets Managed (millions)
James
Thomas Wolfe
0
N/A
2
$23.5
0
N/A
* Mr. Wolfe serves as the portfolio manager
for the Fund’s predecessor private fund. Each predecessor private fund is expected to be merged into its corresponding Fund
from time to time, following each such Fund’s commencement of operations.
OWNERSHIP OF SECURITIES
The portfolio manager listed above does not beneficially
own any Shares of the Fund as of March 31, 2019.
CONFLICTS OF INTEREST
Description of Material Conflicts
of Interest. Because the portfolio manager may manage multiple portfolios for multiple clients, the potential for conflicts
of interest exists. The portfolio manager generally manages portfolios having substantially the same investment style as the Fund.
However, the portfolios managed by the portfolio manager may not have portfolio compositions identical to those of the Fund due,
for example, to specific investment limitations or guidelines present in some portfolios or accounts but not others. The portfolio
manager may purchase securities for one portfolio and not another portfolio, and the performance of securities purchased for one
portfolio may vary from the performance of securities purchased for other portfolios. The portfolio manager may place transactions
on behalf of other accounts that are directly or indirectly contrary to investment decisions made on behalf of the Fund, or make
investment decisions that are similar to those made for the Fund, both of which have the potential to adversely impact the Fund
depending on market conditions. For example, the portfolio manager may purchase a security in one portfolio while appropriately
selling that same security in another portfolio. In addition, some of these portfolios have fee structures that are or have the
potential to be higher than the advisory fees paid by the Fund, which can cause potential conflicts in the allocation of investment
opportunities between the Fund and the other accounts. However, the compensation structure for portfolio manager does not generally
provide incentive to favor one account over another because that part of a manager’s bonus based on performance is not based
on the performance of one account to the exclusion of others. There are many other factors considered in determining the portfolio
manager’s bonus and there is no formula that is applied to weight the factors listed.
COMPENSATION
The Sub-Adviser’s compensation and
incentive program varies by professional and discipline. A portfolio manager’s compensation is comprised of a fixed based
salary and a bonus. The base salary is not based on the value of the assets managed but rather on the individual portfolio manager’s
experience and responsibilities. The bonus also varies by individual and is based upon criteria that incorporate the Sub-Adviser’s
assessment of the Fund’s performance as well as a portfolio manager’s corporate citizenship and overall contribution
to the Firm.
25
THE ADMINISTRATOR, CUSTODIAN AND TRANSFER
AGENT
State Street Bank and Trust Company (“State
Street”), located at State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111, serves as Administrator
for the Trust pursuant to an administration agreement (“Administration Agreement”). Under the Administration Agreement,
State Street is responsible for certain administrative services associated with day-to-day operations of the Fund.
Pursuant to the Administration Agreement,
the Trust has agreed to a limitation on damages and to indemnify the Administrator for certain liabilities, including certain liabilities
arising under the federal securities laws; provided, however, such indemnity of the Administrator shall not apply in the case of
the Administrator’s gross negligence or willful misconduct in the performance of its duties. Under the Custodian Agreement
and Transfer Agency Agreement, as described below, the Trust has also provided indemnities to State Street for certain liabilities.
State Street also serves as Custodian for
the Fund pursuant to a custodian agreement (“Custodian Agreement”). As Custodian, State Street holds the Fund’s
assets, calculates the net asset value of the Shares and calculates net income and realized capital gains or losses. State Street
and the Trust will comply with the self-custodian provisions of Rule 17f-2 under the 1940 Act.
State Street also serves as Transfer Agent
of the Fund pursuant to a transfer agency agreement (“Transfer Agency Agreement”).
Compensation. As compensation for
its services under the Administration Agreement, the Custodian Agreement and Transfer Agency Agreement, State Street shall receive
a fee for its services, calculated based on the average aggregate net assets of the Trust as follows:
For its services as Administrator,
State Street is paid an annual fee based on the net assets of the Fund. As the Fund commenced operation after December 31, 2018,
the Fund has not paid State Street fees for its services as Administrator as of December 31, 2018.
For its services as Custodian and fund
accountant, State Street is paid an annual fee based on the net assets of the Fund. It also receives an annual fee for ETF basket
creation services. As the Fund commenced operation after December 31, 2018, the Fund has not paid State Street fees for its services
as Administrator as of December 31, 2018.
THE DISTRIBUTOR
Foreside Fund Services, LLC (“Foreside”
or the “Distributor”) is the principal underwriter and Distributor of the Fund’s Creation Units. Its principal
address is Three Canal Plaza, Suite 100, Portland, Maine, 04101. Investor information can be obtained by calling (866) 972-4492.
The Distributor has entered into a distribution agreement (“Distribution Agreement”) with the Trust pursuant to which
it distributes Creation Units of the Fund. The Distribution Agreement will continue for two years from its effective date and is
renewable annually thereafter. Shares will be continuously offered for sale by the Trust through the Distributor only in Creation
Units, as described in the Prospectus and below under “PURCHASE AND REDEMPTION OF CREATION UNITS.” Shares in numbers
less than Creation Units are not distributed by the Distributor. The Distributor will deliver the Prospectus to Authorized Participants
(as defined below) purchasing Creation Units and will maintain records of both orders placed with it and confirmations of acceptance
furnished by it. The Distributor is a broker-dealer registered under the Exchange Act and a member of the Financial Industry Regulatory
Authority (“FINRA”). The Distributor has no role in determining the investment policies of the Trust or which securities
are to be purchased or sold by the Trust.
26
The Adviser, or an affiliate of the Adviser,
may directly or indirectly make cash payments to certain broker-dealers for participating in activities that are designed to make
registered representatives and other professionals more knowledgeable about exchange traded products, including the Fund, or for
other activities, such as participation in marketing activities and presentations, educational training programs, conferences,
the development of technology platforms and reporting systems.
The Fund has adopted a Rule 12b-1 Distribution and Service Plan
in accordance with Rule 12b-1 under the 1940 Act pursuant to which payments of up to 0.25% of the Fund’s average daily net
assets may be made for the sale and distribution of its Shares. However, the Board of Trustees
has determined not to authorize payment
of a 12b-1 Plan fee at this time. The 12b-1 Plan fee may only be imposed or increased when the Board of Trustees determines that
it is in the best interests of shareholders to do so. Rule 12b-1 fees are paid out of the Fund’s assets, and over time, these
fees increase the cost of your investment and they may cost you more than certain other types of sales charges.
The Distribution Agreement provides that
it may be terminated at any time, without the payment of any penalty, as to the Fund: (i) by vote of a majority of the Independent
Trustees or (ii) by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund, on at least
60 days written notice to the Distributor. The Distribution Agreement is also terminable upon 60 days’ notice by the Distributor
and will terminate automatically in the event of its assignment (as defined in the 1940 Act).
The continuation of the Distribution Agreement,
any Investor Services Agreements and any other related agreements is subject to annual approval of the Board, including by a majority
of the Independent Trustees, as described above.
Each of the Investor Services Agreements
will provide that it may be terminated at any time, without the payment of any penalty, (i) by vote of a majority of the Independent
Trustees or (ii) by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the relevant Fund,
on at least 60 days’ written notice to the other party. The Distribution Agreement is also terminable upon 60 days’
notice by the Distributor and will terminate automatically in the event of its assignment (as defined in the 1940 Act). Each Investor
Services Agreement is also terminable by the applicable Investor Service Organization upon 60 days’ notice to the other party
thereto.
The Distributor may also enter into agreements
with securities dealers (“Soliciting Dealers”) who will solicit purchases of Creation Unit aggregations of Fund Shares.
Such Soliciting Dealers may also be Participating Parties (as defined in the “Book Entry Only System” section below),
DTC Participants (as defined below) and/or Investor Services Organizations.
27
Pursuant to the Distribution Agreement,
the Trust has agreed to indemnify the Distributor, and may indemnify Soliciting Dealers and Authorized Participants (as described
below) entering into agreements with the Distributor, for certain liabilities, including certain liabilities arising under the
federal securities laws, unless such loss or liability results from willful misfeasance, bad faith or gross negligence in the performance
of its duties or the reckless disregard of its obligations and duties under the Distribution Agreement or other agreement, as applicable.
BROKERAGE TRANSACTIONS
The policy of the Trust regarding purchases
and sales of securities for the Fund is that primary consideration will be given to obtaining the most favorable prices and efficient
executions of transactions. Consistent with this policy, when securities transactions are effected on a stock exchange, the Trust’s
policy is to pay commissions which are considered fair and reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Trust believes that a requirement always to seek the lowest possible commission
cost could impede effective portfolio management and preclude the Fund and the Adviser from obtaining a high quality of brokerage
and research services. In seeking to determine the reasonableness of brokerage commissions paid in any transaction, the Adviser
relies upon its experience and knowledge regarding commissions generally charged by various brokers and on its judgment in evaluating
the brokerage and research services received from the broker effecting the transaction. Such determinations are necessarily subjective
and imprecise, as in most cases an exact dollar value for those services is not ascertainable. The Trust has adopted policies and
procedures that prohibit the consideration of sales of the Fund’s Shares as a factor in the selection of a broker or dealer
to execute its portfolio transactions.
In selecting a broker/dealer for each specific
transaction, the Sub-Adviser chooses the broker/dealer deemed most capable of providing the services necessary to obtain the most
favorable execution and does not take the sale of Fund Shares into account. The Sub-Adviser considers the full range of brokerage
services applicable to a particular transaction that may be considered when making this judgment, which may include, but is not
limited to: liquidity, price, commission, timing, aggregated trades, capable floor brokers or traders, competent block trading
coverage, ability to position, capital strength and stability, reliable and accurate communications and settlement processing,
use of automation, knowledge of other buyers or sellers, arbitrage skills, administrative ability, underwriting and provision of
information on a particular security or market in which the transaction is to occur. The specific criteria will vary depending
upon the nature of the transaction, the market in which it is executed, and the extent to which it is possible to select from among
multiple broker/dealers. The Sub-Adviser will also use electronic crossing networks when appropriate.
28
The Sub-Adviser does not currently use
the Fund’s assets for, or participate in, third party soft dollar arrangements, although the Sub-Adviser may receive proprietary
research from various full service brokers, the cost of which is bundled with the cost of the broker’s execution services.
The Sub-Adviser does not “pay up” for the value of any such proprietary research.
The Sub-Adviser assumes general supervision
over placing orders on behalf of the Trust for the purchase or sale of portfolio securities. If purchases or sales of portfolio
securities of the Trust and one or more other investment companies or clients supervised by the Sub-Adviser are considered at or
about the same time, transactions in such securities are allocated among the several investment companies and clients in a manner
deemed equitable and consistent with its fiduciary obligations to all by the Adviser. In some cases, this procedure could have
a detrimental effect on the price or volume of the security so far as the Trust is concerned. However, in other cases, it is possible
that the ability to participate in volume transactions and to negotiate lower brokerage commissions will be beneficial to the Trust.
The primary consideration is prompt execution of orders at the most favorable net price.
The Fund will not deal with affiliates
in principal transactions unless permitted by exemptive order or applicable rule or regulation. The aggregate dollar amount of
brokerage commissions paid by the Fund for the last three fiscal years have been omitted because the Fund had not yet commenced
investment operations as of December 31, 2018.
The Fund is required to identify any securities
of its “regular brokers and dealers” (as such term is defined in the 1940 Act) which it may hold at the close of its
most recent fiscal year. “Regular brokers or dealers” of the Trust are the ten brokers or dealers that, during the
most recent fiscal year: (i) received the greatest dollar amounts of brokerage commissions from the Trust’s portfolio transactions;
(ii) engaged as principal in the largest dollar amounts of portfolio transactions of the Trust; or (iii) sold the largest dollar
amounts of the Trust’s Shares.
Holdings in Securities of Regular Broker-Dealers
for the most recent fiscal year have been omitted because the Fund had not yet commenced investment operations as of December
31, 2018.
PORTFOLIO TURNOVER RATE
Portfolio turnover may vary from year
to year, as well as within a year. High turnover rates are likely to result in comparatively greater brokerage expenses or transaction
costs. The overall reasonableness of brokerage commissions and transaction costs is evaluated by the Adviser based upon its knowledge
of available information as to the general level of commissions and transaction costs paid by other institutional investors for
comparable services. Portfolio turnover information is not included as the Fund commenced operation after December 31, 2018.
29
BOOK ENTRY ONLY SYSTEM
The following information supplements and
should be read in conjunction with the section in the Prospectus entitled “ADDITIONAL PURCHASE AND SALE INFORMATION.”
DTC acts as securities depositary for the
Shares. Shares of the Fund are represented by securities registered in the name of DTC or its nominee, Cede & Co. and deposited
with, or on behalf of, DTC. Except in the limited circumstance provided below, certificates will not be issued for Shares.
DTC, a limited-purpose trust company, was
created to hold securities of its participants (the “DTC Participants”) and to facilitate the clearance and settlement
of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the
DTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their
representatives) own DTC. More specifically, DTC is owned by a number of its DTC Participants and by the New York Stock Exchange
(“NYSE”) and the FINRA. Access to the DTC system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (the “Indirect
Participants”).
Beneficial ownership of Shares is limited
to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership
of beneficial interests in Shares (owners of such beneficial interests are referred to herein as “Beneficial Owners”)
is shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants)
and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants).
Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase of Shares.
Conveyance of all notices, statements and
other communications to Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement between the Trust and DTC,
DTC is required to make available to the Trust upon request and for a fee to be charged to the Trust a listing of the Shares of
the Fund held by each DTC Participant. The Trust, either directly or through a third party service, shall inquire of each such
DTC Participant as to the number of Beneficial Owners holding Shares, directly or indirectly, through such DTC Participant. The
Trust, either directly or through a third party service, shall provide each such DTC Participant with copies of such notice, statement
or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such
notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners.
In addition, the Trust shall pay to each such DTC Participant and/or third party service a fair and reasonable amount as reimbursement
for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.
30
Share distributions shall be made
to DTC or its nominee, Cede & Co., as the registered holder of all Shares. DTC or its nominee, upon receipt of any such distributions,
shall credit immediately DTC Participants’ accounts with payments in amounts proportionate to their respective beneficial
interests in Shares of the Fund as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants
and Beneficial Owners of Shares held through such DTC Participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer form or registered in a “street name,”
and will be the responsibility of such DTC Participants.
The Trust has no responsibility
or liability for any aspects of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial
ownership interests in such Shares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC
Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants.
DTC may determine to discontinue
providing its service with respect to Shares at any time by giving reasonable notice to the Trust and discharging its responsibilities
with respect thereto under applicable law. Under such circumstances, the Trust shall take action either to find a replacement for
DTC to perform its functions at a comparable cost or, if such a replacement is unavailable, to issue and deliver printed certificates
representing ownership of Shares, unless the Trust makes other arrangements with respect thereto satisfactory to the Exchange.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Although the Fund does not have
information concerning their beneficial ownership held in the names of DTC Participants, as of April 19, 2019 the names, addresses
and percentage ownership of each DTC Participant that owned of record 5% or more of the outstanding Shares of the Fund were as
follows:
Fund
Name
Name
& Address
%
Ownership (Record or Beneficial)
SYNTAX
STRATIFIED LARGECAP ETF
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
59.87%
Jefferies Group LLC
520 Madison Avenue
New York, NY 10022
17.70%
National Financial Services Corporation
200 Liberty Street
New York, NY 10281
6.81%
An Authorized Participant (as defined
below) may hold of record more than 25% of the outstanding Shares of the Fund. From time to time, Authorized Participants may be
a beneficial and/or legal owner of the Fund, may be deemed to have control of the Fund and may be able to affect the outcome of
matters presented for a vote of the shareholders of the Fund(s). Authorized Participants may execute an irrevocable proxy granting
the Distributor, State Street or an affiliate (the “Agent”) power to vote or abstain from voting such Authorized Participant’s
beneficially or legally owned Shares of the applicable Fund. In such cases, the Agent shall mirror vote (or abstain from voting)
such Shares in the same proportion as all other beneficial owners of the applicable Fund.
As of March 31, 2019, the Trustees
and officers of the Trust, as a group, other than Rory Riggs owned less than 1% of the Fund’s outstanding Shares. As of
December 31, 2018, Rory Riggs was the sole shareholder of the Fund and owned 100% of the Fund’s shares.
31
PURCHASE AND REDEMPTION OF CREATION
UNITS
The Fund issues and redeems its
Shares on a continuous basis, at net asset value, only in a large specified number of Shares called a “Creation Unit,”
either principally in-kind for securities included in the relevant Index or in cash for the value of such securities. The value
of the Fund is determined once each business day, as described under “Determination of Net Asset Value.” Creation Unit
sizes are set forth in the table below:
FUND
Creation Unit Size
Syntax Stratified LargeCap ETF
25,000
PURCHASE (CREATION). The
Trust issues and sells Shares of the Fund only: in Creation Units on a continuous basis through the Principal Underwriter, without
a sales load (but subject to transaction fees), at their NAV per Share next determined after receipt of an order, on any Business
Day (as defined below), in proper form pursuant to the terms of the Authorized Participant Agreement (“Participant Agreement”).
A “Business Day” with respect to the Fund is, generally, any day on which the NYSE Arca is open for business.
FUND DEPOSIT. The consideration
for purchase of a Creation Unit of the Fund generally consists of either (i) the in-kind deposit of a designated portfolio of securities
instruments (“Deposit Instruments”) per each Creation Unit, constituting a substantial replication, or (ii) the Deposit
Cash constituting the cash value of the Deposit Instruments and “Cash Amount,” computed as described below. When accepting
purchases of Creation Units for cash, the Fund may incur additional costs associated with the acquisition of Deposit Instruments
that would otherwise be provided by an in-kind purchaser.
Together, the Deposit Instruments
or Deposit Cash, as applicable, and the Cash Amount constitute the “Fund Deposit,” which represents the minimum initial
and subsequent investment amount for a Creation Unit of any Fund. The “Cash Amount” is an amount equal to the difference
between the net asset value of the Shares (per Creation Unit) and the aggregate market value of the Deposit Instruments or Deposit
Cash, as applicable. If the Cash Amount is a positive number (i.e., the net asset value per Creation Unit exceeds the market value
of the Deposit Instruments or Deposit Cash, as applicable), the Cash Amount shall be such positive amount. If the Cash Amount is
a negative number (i.e., the net asset value per Creation Unit is less than the market value of the Deposit Instruments or Deposit
Cash, as applicable), the Cash Amount shall be such negative amount and the creator will be entitled to receive cash in an amount
equal to the Cash Amount. The Cash Amount serves the function of compensating for any differences between the net asset value per
Creation Unit and the market value of the Deposit Instruments or Deposit Cash, as applicable. Computation of the Cash Amount excludes
any stamp duty or other similar fees and expenses payable upon transfer of beneficial ownership of the Deposit Instruments, if
applicable, which shall be the sole responsibility of the Authorized Participant (as defined below).
32
The Custodian, through NSCC, makes
available on each Business Day, immediately prior to the opening of business on the Exchange (currently 9:30 a.m., Eastern time),
the list of the names and the required amount of the instruments comprising the Deposit Instruments or the required amount of Deposit
Cash, as applicable, as well as the estimated amount of the Cash Amount to be included in the current Fund Deposit (based on information
at the end of the previous Business Day) for the Fund. Such Fund Deposit is subject to any applicable adjustments as described
below, in order to effect purchases of Creation Units of the Fund until such time as the next-announced composition of the Deposit
Instruments or the required amount of Deposit Cash, as applicable, is made available.
The identity and required amount
of each instrument comprising the Deposit Instruments or the amount of Deposit Cash, as applicable, required for the Fund Deposit
for the Fund changes as rebalancing adjustments and corporate action events are reflected from time to time by the Adviser with
a view to the investment objective of the Fund. The composition of the Deposit Instruments may also change in response to adjustments
to the weighting or composition of the component securities of the Fund’s Index.
As noted above, the Trust reserves
the right to permit or require the substitution of Deposit Cash to replace any Deposit Instrument which shall be added to the Deposit
Instruments, including, without limitation, in situations where such Deposit Instrument: (i) may not be eligible for transfer through
the systems of DTC for corporate securities and municipal securities; (ii) in the case of foreign funds holding non-US Deposit
Instruments, where such instruments are not eligible for trading due to local trading restrictions, local restrictions on securities
transfers , or other similar circumstances; (iii) may not be available in sufficient quantity for delivery; (iv) may not be eligible
for trading by an Authorized Participant (as defined below) or the investor for which it is acting; or (v) a holder of Shares of
a foreign Fund holding non-US instruments would be subject to unfavorable income tax treatment if the holder receives redemption
proceed “in-kind” (collectively, “non-standard orders”). The Trust also reserves the right to include or
remove Deposit Instruments from the basket in anticipation of index rebalancing changes. The adjustments described above will reflect
changes, known to the Adviser on the date of announcement to be in effect by the time of delivery of the Fund Deposit, in the composition
of the subject Index being tracked by the relevant Fund or resulting from certain corporate actions.
PROCEDURES FOR PURCHASE OF CREATION
UNITS. To be eligible to place orders with the Principal Underwriter, as facilitated via the Transfer Agent, to purchase a
Creation Unit of the Fund, an entity must be (i) a “Participating Party,” i.e., a broker-dealer or other participant
in the clearing process through the Continuous Net Settlement System of the NSCC (the “Clearing Process”), a clearing
agency that is registered with the SEC; or (ii) a DTC Participant (see “BOOK ENTRY ONLY SYSTEM”). In addition, each
Participating Party or DTC Participant (each, an “Authorized Participant”) must execute a Participant Agreement that
has been agreed to by the Principal Underwriter and the Transfer Agent, and that has been accepted by the Trust, with respect to
purchases and redemptions of Creation Units. Each Authorized Participant will agree, pursuant to the terms of a Participant Agreement,
on behalf of itself or any investor on whose behalf it will act, to certain conditions, including that it will pay to the Trust,
an amount of cash sufficient to pay the Deposit Instruments together with the creation transaction fee (described below) and any
other applicable fees, taxes and additional variable charge.
33
All orders to purchase Shares directly
from the Fund, including non-standard orders, must be placed for one or more whole Creation Units and in the manner and by the
time set forth in the Participant Agreement and/or applicable order form. The date on which an order to purchase Creation Units
(or an order to redeem Creation Units, as set forth below) is received and accepted is referred to as the “Order Placement
Date.”
An Authorized Participant may require
an investor to make certain representations or enter into agreements with respect to the order, (e.g., to provide for payments
of cash, when required). Investors should be aware that their particular broker may not have executed a Participant Agreement and
that, therefore, orders to purchase Shares directly from the Fund in Creation Units have to be placed by the investor’s broker
through an Authorized Participant that has executed a Participant Agreement. In such cases there may be additional charges to such
investor. At any given time, there may be only a limited number of broker-dealers that have executed a Participant Agreement and
only a small number of such Authorized Participants may have international capabilities.
On days when the Exchange closes
earlier than normal, the Fund may require orders to create Creation Units to be placed earlier in the day. In addition, if a market
or markets on which the Fund’s investments are primarily traded is closed, the Fund will also generally not accept orders
on such day(s). Orders must be transmitted by an Authorized Participant by telephone or other transmission method acceptable to
the Distributor pursuant to procedures set forth in the Participant Agreement and in accordance with the applicable order form.
Those placing orders through an Authorized Participant should allow sufficient time to permit proper submission of the purchase
order by the cut-off time on such Business Day. Economic or market disruptions or changes, or telephone or other communication
failure may impede the ability to reach the Distributor or an Authorized Participant.
Fund Deposits must be delivered
by an Authorized Participant through the Federal Reserve System (for cash) or through DTC (for corporate securities), through a
subcustody agent for (for foreign securities) and/or through such other arrangements allowed by the Trust or its agents. With respect
to foreign Deposit Instruments, the Custodian shall cause the subcustodian of such Fund to maintain an account into which the Authorized
Participant shall deliver, on behalf of itself or the party on whose behalf it is acting, such Deposit Instruments. Foreign Deposit
Instruments must be delivered to an account maintained at the applicable local subcustodian. The Fund Deposit transfer must be
ordered by the Authorized Participant in a timely fashion so as to ensure the delivery of the requisite number of Deposit Instruments
or Deposit Cash, as applicable, to the account of the Fund or its agents by no later than the Settlement Date. The “Settlement
Date” for the Fund is generally the third Business Day after the Order Placement Date. All questions as to the number of
Deposit Instruments or Deposit Cash to be delivered, as applicable, and the validity, form and eligibility (including time of receipt)
for the deposit of any tendered securities or cash, as applicable, will be determined by the Trust, whose determination shall be
final and binding. The amount of cash represented by the Deposit Instruments must be transferred directly to the Custodian through
the Federal Reserve Bank wire transfer system in a timely manner so as to be received by the Custodian no later than the Settlement
Date. If the Cash Amount and the Deposit Instruments or Deposit Cash, as applicable, are not received in a timely manner by the
Settlement Date, the creation order may be cancelled. Upon written notice to the Transfer Agent, such canceled order may be resubmitted
the following Business Day using the Fund Deposit as newly constituted to reflect the then current NAV of the Fund. The delivery
of Creation Units so created generally will occur no later than the third Business Day following the day on which the purchase
order is deemed received by the Transfer Agent.
34
The order shall be deemed to be
received on the Business Day on which the order is placed provided that the order is placed in proper form prior to the applicable
cut-off time and the federal funds in the appropriate amount are deposited by 2:00 p.m. or 3:00 p.m. Eastern time (per applicable
instructions), with the Custodian on the Settlement Date. If the order is not placed in proper form as required, or federal funds
in the appropriate amount are not received by 2:00 p.m. or 3:00 p.m. Eastern time (per applicable instructions) on the Settlement
Date, then the order may be deemed to be rejected and the Authorized Participant shall be liable to the Fund for losses, if any,
resulting therefrom. A creation request is considered to be in “proper form” if all procedures set forth in the Participant
Agreement, order form and this SAI are properly followed.
ISSUANCE OF A CREATION UNIT.
Except as provided herein, Creation Units will not be issued until the transfer of good title to the Trust of the Deposit Instruments
or payment of Deposit Cash, as applicable, and the payment of the Deposit Instruments has been completed. When the sub-custodian
has confirmed to the Custodian that the required Deposit Instruments (or the cash value thereof) have been delivered to the account
of the relevant sub-custodian or sub-custodians, the Principal Underwriter and the Adviser shall be notified of such delivery,
and the Trust will issue and cause the delivery of the Creation Units.
In instances where the Trust accepts
Deposit Instruments for the purchase of a Creation Unit, the Creation Unit may be purchased in advance of receipt by the Trust
of all or a portion of the applicable Deposit Instruments as described below. In these circumstances, the initial deposit will
have a value greater than the net asset value of the Shares on the date the order is placed in proper form since in addition to
available Deposit Instruments, cash must be deposited in an amount equal to the sum of (i) the Deposit Instruments, plus (ii) an
additional amount of cash equal to a percentage of the market value as set forth in the Participant Agreement, of the undelivered
Deposit Instruments (the “Additional Cash Deposit”), which shall be maintained in a general non-interest bearing collateral
account. An additional amount of cash shall be required to be deposited with the Trust, pending delivery of the missing Deposit
Instruments to the extent necessary to maintain the Additional Cash Deposit with the Trust in an amount at least equal to the applicable
percentage, as set forth in the Participant Agreement, of the daily marked to market value of the missing Deposit Instruments.
The Trust may use such Additional Cash Deposit to buy the missing Deposit Instruments at any time. Authorized Participants will
be liable to the Trust for all costs, expenses, dividends, income and taxes associated with missing Deposit Instruments, including
the costs incurred by the Trust in connection with any such purchases. These costs will be deemed to include the amount by which
the actual purchase price of the Deposit Instruments exceeds the market value of such Deposit Instruments on the day the purchase
order was deemed received by the Principal Underwriter plus the brokerage and related transaction costs associated with such purchases.
The Trust will return any unused portion of the Additional Cash Deposit once all of the missing Deposit Instruments have been properly
received by the Custodian or purchased by the Trust and deposited into the Trust. In addition, a transaction fee as set forth below
under “Creation Transaction Fees” will be charged and an additional variable charge may also be applied. The delivery
of Creation Units so created generally will occur no later than the Settlement Date.
35
ACCEPTANCE OF ORDERS OF CREATION
UNITS. The Trust reserves the absolute right to reject an order for Creation Units transmitted in respect of the Fund at its
discretion, including, without limitation, if (a) the order is not in proper form; (b) the Deposit Instruments or Deposit Cash,
as applicable, delivered by the Participant are not as disseminated through the facilities of the NSCC for that date by the Custodian;
(c) the investor(s), upon obtaining the Shares ordered, would own 80 percent or more of the currently outstanding Shares of the
Fund; (d) acceptance of the Deposit Instruments would have certain adverse tax consequences to the Fund; (e) the acceptance of
the Fund Deposit would, in the opinion of counsel, be unlawful; (f) the acceptance of the Fund Deposit would otherwise, in the
discretion of the Trust or the Adviser, have an adverse effect on the Trust or the rights of beneficial owners; (g) the acceptance
or receipt of the order for a Creation Unit would, in the opinion of counsel to the Trust, be unlawful; or (h) in the event that
circumstances outside the control of the Trust, the Custodian, the Transfer Agent and/or the Adviser make it for all practical
purposes not feasible to process orders for Creation Units. Examples of such circumstances include acts of God or public service
or utility problems such as fires, floods, extreme weather conditions and power outages resulting in telephone, telecopy and computer
failures; market conditions or activities causing trading halts; systems failures involving computer or other information systems
affecting the Trust, the Principal Underwriter, the Custodian, the Transfer Agent, DTC, NSCC, Federal Reserve System, or any other
participant in the creation process, and other extraordinary events. The Trust or its agents shall communicate to the Authorized
Participant its rejection of an order. The Trust, the Transfer Agent, the Custodian and the Principal Underwriter are under no
duty, however, to give notification of any defects or irregularities in the delivery of Fund Deposits nor shall either of them
incur any liability for the failure to give any such notification. The Trust, the Transfer Agent, the Custodian and the Principal
Underwriter shall not be liable for the rejection of any purchase order for Creation Units.
All questions as to the number of
shares of each security in the Deposit Instruments and the validity, form, eligibility and acceptance for deposit of any securities
to be delivered shall be determined by the Trust, and the Trust’s determination shall be final and binding.
REDEMPTION. Shares may be
redeemed only in Creation Units at their net asset value next determined after receipt of a redemption request in proper form by
the Fund through the Transfer Agent and only on a Business Day. EXCEPT UPON LIQUIDATION OF THE FUND, THE TRUST WILL NOT REDEEM
SHARES IN AMOUNTS LESS THAN WHOLE CREATION UNITS. Investors must accumulate enough Shares in the secondary market to constitute
a Creation Unit in order to have such Shares redeemed by the Trust. There can be no assurance, however, that there will be sufficient
liquidity in the public trading market at any time to permit assembly of a Creation Unit. Investors should expect to incur brokerage
and other costs in connection with assembling a sufficient number of Shares to constitute a redeemable Creation Unit.
36
With respect to the Fund, the Custodian,
through the NSCC, makes available immediately prior to the opening of business on the Exchange (currently 9:30 a.m. Eastern time)
on each Business Day, the list of the names and share quantities of the Fund’s portfolio instruments that will be applicable
(subject to possible amendment or correction) to redemption requests received in proper form (as defined below) on that day (“Redemption
Instruments”). In certain circumstances, Redemption Instruments received on redemption may not be identical to Deposit Instruments.
Redemption proceeds for a Creation
Unit typically are paid in-kind, but may be paid through any combination of cash, securities or other instruments as determined
solely by the Fund. In addition, an investor may request a redemption in cash that the Fund may, in its sole discretion, permit.
With respect to in-kind redemptions of the Fund, redemption proceeds for a Creation Unit will consist of Redemption Securities
– as announced by the Custodian on the Business Day of the request for redemption received in proper form plus cash in an
amount equal to the difference between the net asset value of the Shares being redeemed, as next determined after a receipt of
a request in proper form, and the value of the Redemption Instruments (the “Cash Redemption Amount”), less a fixed
redemption transaction fee and any applicable additional variable charge as set forth below. In the event that the Redemption
Instruments have a value greater than the net asset value of the Shares, a compensating cash payment equal to the differential
is required to be made by or through an Authorized Participant by the redeeming shareholder. Notwithstanding the foregoing, at
the Fund’s discretion, an Authorized Participant may receive the corresponding cash value of the securities in lieu of the
in-kind securities value representing one or more redemption Instruments.
PROCEDURES FOR REDEMPTION OF
CREATION UNITS. After the Trust has deemed an order for redemption received, the Trust will initiate procedures to transfer
the requisite Redemption Instruments and the Cash Redemption Amount to the Authorized Participant by the Settlement Date. With
respect to in-kind redemptions of the Fund, the calculation of the value of the Redemption Instruments and the Cash Redemption
Amount to be delivered upon redemption will be made by the Custodian according to the procedures set forth under “Determination
of Net Asset Value,” computed on the Business Day on which a redemption order is deemed received by the Trust. Therefore,
if a redemption order in proper form is submitted to the Principal Underwriter by a DTC Participant by the specified time on the
Order Placement Date, and the requisite number of Shares of the Fund are delivered to the Custodian prior to 2:00 p.m. or 3:00
p.m. Eastern time (per applicable instructions) on the Settlement Date, then the value of the Redemption Instruments and the Cash
Redemption Amount to be delivered will be determined by the Custodian on such Order Placement Date. If the requisite number of
Shares of the Fund are not delivered by 2:00 p.m. or 3:00 p.m. Eastern time (per applicable instructions) on the Settlement Date,
the Fund will not release the underlying securities for delivery unless collateral is posted in such percentage amount of missing
Shares as set forth in the Participant Agreement (marked to market daily).
37
With respect to in kind redemptions
of the Fund, in connection with taking delivery of shares of Redemption Instruments upon redemption of Creation Units, an Authorized
Participant must maintain appropriate custody arrangements with a qualified broker-dealer, bank or other custody providers in each
jurisdiction in which any of the Redemption Instruments are customarily traded (or such other arrangements as allowed by the Trust
or its agents), to which account such Redemption Instruments will be delivered. Deliveries of redemption proceeds generally will
be made within three Business Days of the trade date. Due to the schedule of holidays in certain countries, however, the delivery
of in-kind redemption proceeds may take longer than three business days after the day on which the redemption request is received
in proper form. The section below entitled “Local Market Holidays Schedules” identifies the instances where more than
seven days would be needed to deliver redemption proceeds. Pursuant to an order of the SEC, in respect of the Fund, the Trust will
make delivery of in-kind redemption proceeds within the number of days stated in the Local Market Holidays section to be the maximum
number of days necessary to deliver redemption proceeds. If the Authorized Participant has not made appropriate arrangements to
take delivery of the Redemption Instruments in the applicable foreign jurisdiction and it is not possible to make other such arrangements,
or if it is not possible to effect deliveries of the Redemption Instruments in such jurisdiction, the Trust may, in its discretion,
exercise its option to redeem such Shares in cash, and the Authorized Participant will be required to receive its redemption proceeds
in cash.
If it is not possible to make other
such arrangements, or if it is not possible to effect deliveries of the Redemption Instruments, the Trust may in its discretion
exercise its option to redeem such Shares in cash, and the redeeming investor will be required to receive its redemption proceeds
in cash. In addition, an investor may request a redemption in cash that the Fund may, in its sole discretion, permit. In either
case, the investor will receive a cash payment equal to the NAV of its Shares based on the NAV of Shares of the relevant Fund next
determined after the redemption request is received in proper form (minus a redemption transaction fee and additional charge for
requested cash redemptions specified above, to offset the Trust’s brokerage and other transaction costs associated with the
disposition of Redemption Instruments). The Fund may also, in its sole discretion, upon request of a shareholder, provide such
redeemer a portfolio of securities that differs from the exact composition of the Redemption Instruments but does not differ in
net asset value.
An Authorized Participant submitting
a redemption request is deemed to represent to the Trust that it (or its client) (i) owns outright or has full legal authority
and legal beneficial right to tender for redemption the requisite number of Shares to be redeemed and can receive the entire proceeds
of the redemption, and (ii) the Shares to be redeemed have not been loaned or pledged to another party nor are they the subject
of a repurchase agreement, securities lending agreement or such other arrangement which would preclude the delivery of such Shares
to the Trust. The Trust reserves the right to verify these representations at its discretion, but will typically require verification
with respect to a redemption request from the Fund in connection with higher levels of redemption activity and/or short interest
in the Fund. If the Authorized Participant, upon receipt of a verification request, does not provide sufficient verification of
its representations as determined by the Trust, the redemption request will not be considered to have been received in proper form
and may be rejected by the Trust.
38
Redemptions of Shares for Redemption
Instruments will be subject to compliance with applicable federal and state securities laws and the Fund (whether or not it otherwise
permits cash redemptions) reserves the right to redeem Creation Units for cash to the extent that the Trust could not lawfully
deliver specific Redemption Instruments upon redemptions or could not do so without first registering the Redemption Instruments
under such laws. An Authorized Participant or an investor for which it is acting subject to a legal restriction with respect to
a particular security included in the Redemption Instruments applicable to the redemption of Creation Units may be paid an equivalent
amount of cash. The Authorized Participant may request the redeeming investor of the Shares to complete an order form or to enter
into agreements with respect to such matters as compensating cash payment. Further, an Authorized Participant that is not a “qualified
institutional buyer,” (“QIB”), as such term is defined under Rule 144A of the Securities Act, will not be able
to receive Redemption Instruments that are restricted securities eligible for resale under Rule 144A. An Authorized Participant
may be required by the Trust to provide a written confirmation with respect to QIB status in order to receive Redemption Instruments.
The right of redemption may be suspended
or the date of payment postponed with respect to the Fund (1) for any period during which the Exchange is closed (other than customary
weekend and holiday closings); (2) for any period during which trading on the Exchange is suspended or restricted; (3) for any
period during which an emergency exists as a result of which disposal of the Shares of the Fund or determination of the NAV of
the Shares is not reasonably practicable; or (4) in such other circumstance as is permitted by the SEC.
CREATION AND REDEMPTION TRANSACTION
FEES. A transaction fee, as set forth in the table below, is imposed for the transfer and other transaction costs associated
with the purchase or redemption of Creation Units, as applicable. Authorized Participants will be required to pay a fixed creation
transaction fee and/or a fixed redemption transaction fee, as applicable, on a given day regardless of the number of Creation Units
created or redeemed on that day. The Fund may adjust the transaction fee from time to time. The Creation/Redemption Transaction
Fee may be waived for the Fund when the Adviser believes that waiver of such fee is in the best interest of the Fund. When determining
whether to waive the Creation/Redemption Transaction Fee, the Adviser considers a number of factors including whether waiving such
fee will facilitate the initial launch of the Fund; facilitate portfolio rebalancings in a less costly manner; improve the quality
of the secondary trading market for the Fund’s shares; and not result in the Fund bearing additional costs or expenses as
a result of such waiver.
An additional charge or a variable
charge (discussed below) will be applied to certain creation and redemption transactions, including non-standard orders and whole
or partial cash purchases or redemptions. With respect to creation orders, Authorized Participants are responsible for the costs
of transferring the securities constituting the Deposit Instruments to the account of the Trust and with respect to redemption
orders, Authorized Participants are responsible for the costs of transferring the Redemption Instruments from the Trust to their
account or on their order. Investors who use the services of a broker or other such intermediary may also be charged a fee for
such services.
FUND
TRANSACTION FEE
MAXIMUM TRANSACTION FEE
Syntax Stratified LargeCap ETF
$500
$2000
39
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction with the sections in the Prospectus entitled “PURCHASE
AND SALE OF FUND SHARES” and “ADDITIONAL PURCHASE AND SALE INFORMATION.”
Net asset value per Share for the
Fund of the Trust is computed by dividing the value of the net assets of such Fund (i.e., the value of its total assets less total
liabilities) by the total number of Shares outstanding. Expenses and fees, including the management, administration and distribution
fees, are accrued daily and taken into account for purposes of determining net asset value. The net asset value of the Fund is
calculated by the Custodian and determined as of the close of the regular trading session on the NYSE (ordinarily 4:00 p.m. Eastern
time) on each day that such exchange is open.
In computing the Fund’s net
asset value per Share, the Fund’s securities holdings are based on the market price of the securities, which generally means
a valuation obtained from an exchange or other market (or based on a price quotation or other equivalent indication of value supplied
by an exchange or other market) or a valuation obtained from an independent pricing service. In the case of shares of funds that
are not traded on an exchange (e.g., mutual funds), last sale price means such fund’s published net asset value per share.
Other portfolio securities and assets for which market quotations are not readily available are valued based on fair value as determined
in good faith by the Oversight Committee in accordance with procedures adopted by the Board. In these cases, the Fund’s net
asset value may reflect certain portfolio securities’ fair values rather than their market prices. Fair value pricing involves
subjective judgments and it is possible that the fair value determination for a security is materially different than the value
that could be realized upon the sale of the security. In addition, fair value pricing could result in a difference between the
prices used to calculate the Fund’s net asset value and the prices used by the Index. This may result in a difference between
the Fund’s performance and the performance of the Index.
DIVIDENDS AND DISTRIBUTIONS
The following information supplements
and should be read in conjunction with the section in the Prospectus entitled “DISTRIBUTIONS.”
GENERAL POLICIES. Dividends
from net investment income, if any, are declared and paid annually for the Fund. Distributions of net realized securities gains,
if any, generally are declared and paid once a year, but the Trust may make distributions on a more frequent basis for the Fund
to improve index tracking or to comply with the distribution requirements of the Internal Revenue Code, in all events in a manner
consistent with the provisions of the 1940 Act. In addition, the Trust intends to distribute at least annually amounts representing
the full dividend yield on the underlying portfolio securities of the Fund, net of expenses of such Fund, as if such Fund owned
such underlying portfolio securities for the entire dividend period. As a result, some portion of each distribution may result
in a return of capital for tax purposes for shareholders.
Dividends and other distributions
on Shares are distributed, as described below, on a pro rata basis to Beneficial Owners of such Shares. Dividend payments are made
through DTC Participants and Indirect Participants to Beneficial Owners then of record with proceeds received from the Trust.
40
The Trust may make additional distributions
to the extent necessary (i) to distribute the entire annual taxable income of the Trust, plus any net capital gains and (ii) to
avoid imposition of the excise tax imposed by Section 4982 of the Internal Revenue Code. Management of the Trust reserves the right
to declare special dividends if, in its reasonable discretion, such action is necessary or advisable to preserve the status of
the Fund as a “regulated investment company” under the Internal Revenue Code or to avoid imposition of income or excise
taxes on undistributed income.
DIVIDEND REINVESTMENT. Broker
dealers, at their own discretion, may also offer a dividend reinvestment service under which Shares are purchased in the secondary
market at current market prices. Investors should consult their broker dealer for further information regarding any dividend reinvestment
service offered by such broker dealer.
U.S. FEDERAL INCOME TAXATION
Set forth below is a discussion of certain
U.S. federal income tax considerations affecting the Fund and the purchase, ownership and disposition of Shares. It is based upon
the U.S. Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), U.S. Treasury Department regulations
promulgated thereunder, judicial authorities, and administrative rulings and practices, all as in effect as of the date of this
SAI and all of which are subject to change, possibly with retroactive effect. The following information supplements and should
be read in conjunction with the section in the Prospectus entitled “U.S. Federal Income Taxation.”
Except to the extent discussed below, this
summary assumes that the Fund’s shareholder holds Shares as capital assets within the meaning of the Internal Revenue Code,
and does not hold Shares in connection with a trade or business. This summary does not address all potential U.S. federal income
tax considerations possibly applicable to an investment in Shares, and does not address the tax consequences to Fund shareholders
subject to special tax rules, including, but not limited to, partnerships and the partners therein, those who hold Shares through
an IRA, 401(k) plan or other tax-advantaged account, and, except to the extent discussed below, tax-exempt shareholders. This discussion
does not discuss any aspect of U.S. state, local, estate, and gift, or non-U.S., tax law. This discussion is not intended or written
to be legal or tax advice to any shareholder in the Fund or other person and is not intended or written to be used or relied on,
and cannot be used or relied on, by any such person for the purpose of avoiding any U.S. federal tax penalties that may be imposed
on such person. Prospective Fund shareholders are urged to consult their own tax advisers with respect to the specific U.S. federal,
state, and local, and non-U.S., tax consequences of investing in Shares based on their particular circumstances.
The Fund has not requested and will not
request an advance ruling from the U.S. Internal Revenue Service (“IRS”) as to the U.S. 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 U.S. federal tax consequences of the purchase, ownership or
disposition of Shares, as well as the tax consequences arising under the laws of any state, non-U.S. country or other taxing jurisdiction.
41
Tax Treatment of the Fund
In General. The Fund intends to
qualify and elect to be treated as a separate regulated investment company (“RIC”) under the Internal Revenue Code.
As a RIC, the Fund generally will not be required to pay corporate-level U.S. federal income taxes on any ordinary income or capital
gains that it distributes to its shareholders.
To qualify and remain eligible for the
special tax treatment accorded to RICs, the Fund must meet certain income, asset and distribution requirements, described in more
detail below. Specifically, the Fund must (i) derive at least 90% of its gross income in each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign currencies,
other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business
of investing in such stock, securities or currencies and net income derived from interests in qualified publicly traded partnerships
(“QPTPs”) (i.e., partnership that are traded on an established securities market or readily tradable on a secondary
market, other than partnerships that derive at least 90% of their income from interest, dividends, and other qualifying RIC income
described above), and (ii) diversify its holdings so that, at the end of each quarter of the Fund’s taxable year, (a) at
least 50% of the value of the Fund’s assets is represented by cash, securities of other RICs, U.S. government securities
and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater in value than
5% of the Fund’s total assets and not greater than 10% of the outstanding voting securities of such issuer, and (b) not more
than 25% of the value of its assets is invested in the securities (other than U.S. government securities or securities of other
RICs) of any one issuer, any two or more issuers of which 20% or more of the voting stock of each such issuer is held by the Fund
and that are determined to be engaged in the same or similar trades or businesses or related trades or business or in the securities
of one or more QPTPs. Furthermore, the Fund must distribute annually at least 90% of the sum of (i) its “investment company
taxable income” (which includes dividends, interest and net short-term capital gains) and (ii) certain net tax-exempt income,
if any.
Failure to Maintain RIC Status.
If the Fund fails to qualify as a RIC for any year (subject to certain curative measures allowed by the Internal Revenue Code),
the Fund will be subject to regular corporate-level U.S. federal income tax in that year on all of its taxable income, regardless
of whether the Fund makes any distributions to its shareholders. In addition, in such case, distributions will be taxable to the
Fund’s shareholders generally as ordinary dividends to the extent of the Fund’s current and accumulated earnings and
profits, possibly eligible for (i) in the case of an individual Fund shareholder, treatment as a qualified dividend (as discussed
below) subject to tax at preferential long-term capital gains rates or (ii) in the case of a corporate Fund shareholder, a dividends-received
deduction. The remainder of this discussion assumes that the Fund will qualify for the special tax treatment accorded to RICs.
Excise Tax. The Fund will be subject
to a 4% excise tax on certain undistributed income generally if the Fund does not distribute to its shareholders in each calendar
year at least 98% of its ordinary income for the calendar year, 98.2% of its capital gain net income for the twelve months ended
October 31 of such year, plus 100% of any undistributed amounts from prior years. For these purposes, the Fund will be treated
as having distributed any amount on which it has been subject to U.S. corporate income tax for the taxable year ending within such
calendar year. The Fund intends to make distributions necessary to avoid this 4% excise tax, although there can be no assurance
that it will be able to do so.
42
Phantom Income. With respect to
some or all of its investments, the Fund may be required to recognize taxable income in advance of receiving the related cash payment.
For example, under the “wash sale” rules, the Fund may not be able to deduct currently 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 existing cash assets of the Fund or cash generated from selling
Portfolio Securities. The Fund may realize gains or losses from such sales, in which event the Fund’s shareholders may receive
a larger capital gain distribution than they would in the absence of such transactions. (See also —“Certain Debt Instruments”
below.)
Certain Debt Instruments. Some of
the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by the Fund
(such as zero coupon debt instruments or debt instruments with payment in-kind interest) may be treated as debt securities that
are issued originally at a discount. Generally, the amount of original issue discount is treated as interest income and is included
in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when
the debt security matures.
If the Fund acquires debt securities (with
a fixed maturity date of more than one year from the date of issuance) in the secondary market, such debt securities may be treated
as having market discount. Generally, any gain recognized on the disposition of, and any partial payment of principal on, a debt
security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the
“accrued market discount” on such debt security. Market discount generally accrues in equal daily installments. The
Fund may make one or more of the elections applicable to debt securities having market discount, which could affect the character
and timing of recognition of income.
Some debt securities (with a fixed maturity
date of one year or less from the date of issuance) that may be acquired by the Fund may be treated as having acquisition discount,
or original issue discount in the case of certain types of debt securities. Generally, the Fund will be required to include the
acquisition discount, or original issue discount, in income over the term of the debt security, even though payment of that amount
is not received until a later time, usually when the debt security matures. The Fund may make one or more of the elections applicable
to debt securities having acquisition discount, or original issue discount, which could affect the character and timing of recognition
of income.
Non-U.S. Investments. Dividends,
interest and proceeds from the direct or indirect sale of non-U.S. securities may be subject to non-U.S. withholding tax and other
taxes, including financial transaction taxes. Even if the Fund is entitled to seek a refund in respect of such taxes, it may not
have sufficient information to do so or may choose not to do so. Tax treaties between certain countries and the United States
may reduce or eliminate such taxes in some cases. Non-U.S. taxes paid by the Fund will reduce the return from the Fund’s investments.
43
Special or Uncertain Tax Consequences.
The Fund’s investment or other activities could be subject to special and complex tax rules that may produce differing tax
consequences, such as disallowing or limiting the use of losses or deductions, causing the recognition of income or gain without
a corresponding receipt of cash, affecting the time as to when a purchase or sale of stock or securities is deemed to occur or
altering the characterization of certain complex financial transactions.
The Fund may engage in investment or other
activities the treatment of which may not be clear or may be subject to recharacterization by the IRS. In particular, the tax treatment
of swaps and certain other derivatives and income from foreign currency transactions is unclear for purposes of determining the
Fund’s status as a RIC. If a final determination on the tax treatment of the Fund’s investment or other activities
differs from the Fund’s original expectations, the final determination could adversely affect the Fund’s status as
a RIC or the timing or character of income recognized by the Fund, requiring the Fund to purchase or sell assets, alter its portfolio
or take other action in order to comply with the final determination.
Tax Treatment of Fund Shareholders
Taxation of U.S. Shareholders
The following is a summary of certain U.S. federal income
tax consequences of the purchase, ownership and disposition of Fund Shares applicable to “U.S. shareholders.” For purposes of this
discussion, a “U.S. shareholder” is a beneficial owner of Fund Shares who, for U.S. federal income tax purposes, is (i) an individual
who is a citizen or resident of the United States; (ii) a corporation (or an entity treated as a corporation for U.S. federal income
tax purposes) created or organized in the United States or under the laws of the United States, or of any state thereof, or the
District of Columbia; (iii) an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless
of its source; or (iv) a trust, if (a) a U.S. court is able to exercise primary supervision over the administration of such trust
and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid
election in place to be treated as a U.S. person.
Fund Distributions. In general,
Fund distributions are subject to U.S. federal income tax when paid, regardless of whether they consist of cash or property and
regardless of whether they are re-invested in Shares. However, any Fund distribution declared in October, November or December
of any calendar year and payable to shareholders of record on a specified date during such month will be deemed to have been received
by the Fund shareholder on December 31 of such calendar year, provided such dividend is actually paid during January of the following
calendar year.
44
Distributions of the Fund’s net investment
income and the Fund’s net short-term capital gains in excess of net long-term capital losses (collectively referred to as
“ordinary income dividends”) are taxable as ordinary income to the extent of the Fund’s current and accumulated
earnings and profits (subject to an exception for “qualified dividend income, as discussed below). Corporate shareholders
of the Fund may be eligible to take a dividends-received deduction with respect to such distributions, provided the distributions
are attributable to dividends received by the Fund on stock of U.S. corporations with respect to which the Fund meets certain holding
period and other requirements. To the extent designated as “capital gain dividends” by the Fund, distributions of the
Fund’s net long-term capital gains in excess of net short-term capital losses (“net capital gain”) are taxable
at long-term capital gain tax rates to the extent of the Fund’s current and accumulated earnings and profits, regardless
of the Fund shareholder’s holding period in the Fund’s Shares. Such dividends will not be eligible for a dividends-received
deduction by corporate shareholders.
The Fund’s net capital gain is computed
by taking into account the Fund’s capital loss carryforwards, if any. Under the Regulated Investment Company Modernization
Act of 2010, capital losses incurred in tax years beginning after December 22, 2010 can be carried forward indefinitely and retain
the character of the original loss. To the extent that these carryforwards are available to offset future capital gains, it is
probable that the amount offset will not be distributed to shareholders. In the event that the Fund were to experience an ownership
change as defined under the Code, the Fund’s loss carryforwards, if any, may be subject to limitation.
Distributions of “qualified dividend income” (defined below)
are taxed to certain non-corporate shareholders at the reduced rates applicable to long-term capital gain to the extent of the
Fund’s current and 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 the dividend-paying stocks. Dividends subject to these special rules, however, are not actually treated as capital
gains and, thus, are not included in the computation of a non-corporate shareholder’s net capital gain and generally cannot be
used to offset capital losses. The portion of distributions that the Fund may report as qualified dividend income generally is
limited to the amount of qualified dividend income received by the Fund, but if for any Fund taxable year 95% or more of the Fund’s
gross income (exclusive of net capital gain from sales of stock and securities) consist of qualified dividend income, all distributions
of such income for that taxable year may be reported as qualified dividend income. For this purpose, “qualified dividend income”
generally means income from dividends received by the Fund from U.S. corporations and qualified non-U.S. corporations. Income from
dividends received by the Fund from a real estate investment trust (“REIT”) or another RIC generally is qualified dividend income
only to the extent that the dividend distributions are made out of qualified dividend income received by such REIT or other RIC.
To the extent that the Fund makes a distribution of income
received by such Fund in lieu of dividends with respect to securities on loan pursuant to a securities lending transaction, such
income will not constitute qualified dividend income to individual shareholders and will not be eligible for the dividends-received
deduction for corporate shareholders.
Distributions in excess of the Fund’s current and accumulated
earnings and profits will, as to each shareholder, be treated as a tax-free return of capital to the extent of the shareholder’s
tax basis in its Shares of the Fund, and as a capital gain thereafter (assuming the shareholder holds its Shares of the Fund as
capital assets).
45
The Fund intends to distribute its net
capital gain at least annually. However, by providing written notice to its shareholders no later than 60 days after its year-end,
the Fund may elect to retain some or all of its net capital gain and designate the retained amount as a “deemed distribution.”
In that event, the Fund pays U.S. federal income tax on the retained net capital gain, and the Fund shareholder recognizes a proportionate
share of the Fund’s undistributed net capital gain. In addition, a shareholder can claim a tax credit or refund for the shareholder’s
proportionate share of the Fund’s U.S. federal income taxes paid on the undistributed net capital gain and increase the shareholder’s
tax basis in the Fund Shares by an amount equal to the shareholder’s proportionate share of the Fund’s undistributed
net capital gain, reduced by the amount of the shareholder’s tax credit or refund. Organizations or persons not subject to
U.S. federal income tax on such net capital gain may be entitled to a refund of their pro rata share of such taxes paid by the
Fund upon timely filing appropriate returns or claims for refund with the IRS.
With respect to non-corporate Fund shareholders
(i.e., individuals, trusts and estates), ordinary income and short-term capital gain are taxed at a current maximum rate
of 39.6% and long-term capital gain is taxed at a current maximum rate of 20%. Corporate shareholders are taxed at a current maximum
rate of 35% on their income and gain.
In addition, high-income individuals (and
certain trusts and estates) generally will be subject to a 3.8% Medicare tax on “net investment income,” in addition
to otherwise applicable U.S. federal income tax. “Net investment income” generally will include dividends (including
capital gain dividends) received from the Fund and net gains from the redemption or other disposition of Shares. Please consult
your tax advisor regarding this tax.
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 or exchange of Shares generally is treated 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 or exchange of Shares held for one year or less generally is 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 (or deemed to be paid) with respect to such Shares. All or a
portion of any loss realized upon a sale or exchange of Fund Shares will be disallowed under the “wash sale” rules if substantially
identical shares are purchased (through reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before
and ending 30 days after the disposition of the Fund Shares. In such a case, the basis of the newly purchased shares will be adjusted
to reflect the disallowed loss.
Legislation passed by Congress requires
reporting to the IRS and to taxpayers of adjusted cost basis information for “covered securities,” which generally
include shares of a RIC acquired on or after January 1, 2012. Shareholders should contact their brokers to obtain information with
respect to the available cost basis reporting methods and available elections for their accounts.
46
Creation Unit Issues and Redemptions.
On an issue of Shares as part of a Creation Unit, made by means of an in-kind deposit, an Authorized Participant recognizes capital
gain or loss equal to the difference between (i) the fair market value (at issue) of the issued Shares (plus any cash received
by the Authorized Participant as part of the issue) and (ii) the Authorized Participant’s aggregate basis in the exchanged
securities (plus any cash paid by the Authorized Participant as part of the issue). On a redemption of Shares as part of a Creation
Unit where the redemption is conducted in-kind by a payment of Fund Securities, an Authorized Participant recognizes capital gain
or loss equal to the difference between (i) the fair market value (at redemption) of the securities received (plus any cash received
by the Authorized Participant as part of the redemption) and (ii) the Authorized Participant’s basis in the redeemed Shares
(plus any cash paid by the Authorized Participant as part of the redemption). However, the IRS may assert, under the “wash
sale” rules or on the basis that there has been no significant change in the Authorized Participant’s economic position,
that any loss on an issue or redemption of Creation 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 (or deemed to be paid) with respect
to such Shares.
Reportable Transactions. If a shareholder
recognizes a loss with respect to Shares of $2 million or more (for an individual Fund shareholder) or $10 million or more (for
a corporate shareholder) in any single taxable year (or a greater loss over a combination of years), the Fund shareholder may be
required to file a disclosure statement with the IRS. Significant penalties may be imposed upon the failure to comply with these
reporting rules. Shareholders should consult their tax advisors to determine the applicability of these rules in light of their
individual circumstances.
Taxation of Non-U.S. Shareholders
The following is a summary of certain U.S.
federal income tax consequences of the purchase, ownership and disposition of Fund Shares applicable to “non-U.S. shareholders.”
For purposes of this discussion, a “non-U.S. shareholder” is a beneficial owner of Fund Shares that is not a U.S. shareholder
(as defined above) and is not an entity or arrangement treated as a partnership for U.S. federal income tax purposes. The following
discussion is based on current law, and is for general information only. It addresses only selected, and not all, aspects of U.S.
federal income taxation.
47
Dividends. With respect to non-U.S.
shareholders of the Fund, the Fund’s ordinary income dividends generally will be subject to U.S. federal withholding tax
at a rate of 30% (or at a lower rate established under an applicable tax treaty). However, ordinary income dividends that are “interest-related
dividends” or “short-term capital gain dividends” (each as defined below) and capital gain dividends generally
will not be subject to U.S. federal withholding (or income tax), provided that the non-U.S. shareholder furnishes the Fund with
a completed IRS Form W-8BEN or W-8BEN-E, as applicable, (or acceptable substitute documentation) establishing the non-U.S. shareholder’s
non-U.S. status and the Fund does not have actual knowledge or reason to know that the non-U.S. shareholder would be subject to
such withholding tax if the non-U.S. shareholder were to receive the related amounts directly rather than as dividends from the
Fund. “Interest-related dividends” generally means dividends designated by the Fund
as attributable to such Fund’s U.S.-source interest income, other than certain contingent interest and interest from obligations
of a corporation or partnership in which such Fund is at least a 10% shareholder, reduced by expenses that are allocable to such
income. “Short-term capital gain dividends” generally means dividends designated by the Fund as attributable to the
excess of such Fund’s net short-term capital gain over its net long-term capital loss. Depending on its circumstances,
the Fund may treat such dividends, in whole or in part, as ineligible for these exemptions from
withholding.
Notwithstanding the
foregoing, special rules apply in certain cases, including as described below. For example, in cases where dividend income from
a non-U.S. shareholder’s investment in the Fund is effectively connected with a trade or business of the non-U.S. shareholder
conducted in the United States, the non-U.S. shareholder generally will be exempt from withholding tax, but will be subject to
U.S. federal income tax at the graduated rates applicable to U.S. shareholders. Such income generally must be reported on a U.S.
federal income tax return. Furthermore, such income also may be subject to the 30% branch profits tax in the case of a non-U.S.
shareholder that is a corporation. In addition, if a non-U.S. shareholder is an individual who is present in the United States
for 183 days or more during the taxable year and has a “tax home” in the United States, any gain incurred by such shareholder
with respect to his or her capital gain dividends and short-term capital gain dividends would be subject to a 30% U.S. federal
income tax (which, in the case of short-term capital gain dividends, may, in certain instances, be withheld at source by the Fund).
Lastly, special rules apply with respect to dividends that are subject to the Foreign Investment in Real Property Act (“FIRPTA”),
discussed below (see—“Investments in U.S. Real Property”).
Sales of Fund Shares. Under current
law, gain on a sale or exchange of Shares generally will be exempt from U.S. federal income tax (including withholding at the source)
unless (i) the non-U.S. shareholder is an individual who was physically present in the United States for 183 days or more during
the taxable year and has a “tax home” in the United States, in which case the non-U.S. shareholder would incur a 30%
U.S. federal income tax on his capital gain, (ii) the gain is effectively connected with a U.S. trade or business conducted by
the non-U.S. shareholder (in which case the non-U.S. shareholder generally would be taxable on such gain at the same graduated
rates applicable to U.S. shareholders, would be required to file a U.S. federal income tax return and, in the case of a corporate
non-U.S. shareholder, may also be subject to the 30% branch profits tax), or (iii) the gain is subject to FIRPTA, as discussed
below (see —“Investments in U.S. Real Property”).
Credits or Refunds. To claim a credit
or refund for any Fund-level taxes on any undistributed long-term capital gains (as discussed above) or any taxes collected through
withholding, a non-U.S. Fund shareholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return
even if the non-U.S. Fund shareholder would not otherwise be required to do so.
48
Investments in U.S. Real Property.
Subject to the exemptions described below, a non-U.S. shareholder generally will be subject to U.S. federal income tax under FIRPTA
on any gain from the sale or exchange of Shares if the Fund is a “U.S. real property holding corporation” (as defined
below) at any time during the shorter of the period during which the non-U.S. shareholder held such Shares and the five-year period
ending on the date of the disposition of those Shares. Any such gain will be taxed in the same manner as for a U.S. Fund shareholder
and in certain cases will be collected through withholding at the source in an amount equal to 15% of the sales proceeds. The Fund
will be a “U.S. real property holding corporation” if the fair market value of its “U.S. real property interests”
(“USRPIs”) (which includes shares of U.S. real property holding corporations and certain participating debt securities)
equals or exceeds 50% of the fair market value of such interests plus its interests in real property located outside the United
States plus any other assets used or held for use in a business.
An exemption from FIRPTA applies if either
(i) the class of Shares disposed of by the non-U.S. shareholder is regularly traded on an established securities market (as determined
for U.S. federal income tax purposes) and the non-U.S. shareholder did not actually or constructively hold more than 5% of such
class of Shares at any time during the five-year period prior to the disposition, or (ii) the Fund is a “domestically-controlled
RIC.” A “domestically-controlled RIC” is any RIC in which at all times during the relevant testing period 50%
or more in value of the RIC’s stock is owned by U.S. persons.
Furthermore, special rules apply under
FIRPTA in respect of distributions attributable to gains from USRPIs. In general, if the Fund is a U.S. real property holding corporation
(taking certain special rules into account), distributions by such Fund attributable to gains from USRPIs will be treated as income
effectively connected with a trade or business within the United States, subject generally to tax at the same graduated rates applicable
to U.S. shareholders and, in the case of a corporation that is a non-U.S. shareholder, a “branch profits” tax at a
rate of 30% (or other applicable lower treaty rate). Such distributions will be subject to U.S. federal withholding tax and generally
will give rise to an obligation on the part of the non-U.S. shareholder to file a U.S. federal income tax return.
Even if the Fund is treated as a U.S. real
property holding corporation, distributions on the Fund’s Shares will not be treated, under the rule described above, as
income effectively connected with a U.S. trade or business in the case of a non-U.S. shareholder that owns (for the applicable
period) 5% or less (by class) of Shares and such class is regularly traded on an established securities market for U.S. federal
income tax purposes (but such distribution will be treated as ordinary dividends subject to a 30% withholding tax or lower applicable
treaty rate).
Non-U.S. shareholders that engage in certain
“wash sale” and/or substitute dividend payment transactions the effect of which is to avoid the receipt of distributions
from the Fund that would be treated as gain effectively connected with a U.S. trade or business will be treated as having received
such distributions.
49
All shareholders of the Fund should consult
their tax advisers regarding the application of the rules described above.
Back-Up Withholding
The Fund (or a financial
intermediary such as a broker through which a shareholder holds Shares in the Fund) may be required to report certain information
on the Fund shareholder to the IRS and withhold U.S. federal income tax (“backup withholding”) at a 28% rate from taxable
distributions and redemption or sale proceeds payable to the Fund shareholder if (i) the Fund shareholder fails to provide the
Fund with a correct taxpayer identification number or make required certifications, or if the IRS notifies the Fund that the Fund
shareholder is otherwise subject to backup withholding, and (ii) the Fund shareholder is not otherwise exempt from backup withholding.
Non-U.S. shareholders can qualify for exemption from backup withholding by submitting a properly completed IRS Form W-8BEN or W-8BEN-E.
Backup withholding is not an additional tax and any amount withheld may be credited against the Fund shareholder’s U.S. federal
income tax liability.
Foreign Account Tax Compliance Act
The U.S. Foreign Account Tax Compliance
Act (“FATCA”) generally imposes a 30% withholding tax on “withholdable payments” (defined below) made to
(i) a “foreign financial institution” (“FFI”), unless the FFI enters into an agreement with the IRS to
provide information regarding certain of its direct and indirect U.S. account holders and satisfy certain due diligence and other
specified requirements, and (ii) a “non-financial foreign entity” (“NFFE”) unless such NFFE provides certain
information to the withholding agent about certain of its direct and indirect “substantial U.S. owners” or certifies
that it has no such U.S. owners. The beneficial owner of a “withholdable payment” may be eligible for a refund or credit
of the withheld tax. The U.S. government also has entered into several intergovernmental agreements with other jurisdictions to
provide an alternative, and generally easier, approach for FFIs to comply with FATCA.
“Withholdable payments” generally
include, among other items, (i) U.S.-source interest and dividends, and (ii) gross proceeds from the sale or disposition, occurring
on or after January 1, 2019, of property of a type that can produce U.S.-source interest or dividends.
The Fund may be required to impose a 30%
withholding tax on withholdable payments to a shareholder if the shareholder fails to provide the Fund with the information, certifications
or documentation required under FATCA, including information, certification or documentation necessary for the Fund to determine
if the shareholder is a non-U.S. shareholder or a U.S. shareholder and, if it is a non-U.S. shareholder, if the non-U.S. shareholder
has “substantial U.S. owners” and/or is in compliance with (or meets an exception from) FATCA requirements. The Fund
will not pay any additional amounts to shareholders in respect of any amounts withheld. The Fund may disclose any shareholder information,
certifications or documentation to the IRS or other parties as necessary to comply with FATCA.
50
The requirements of, and exceptions from,
FATCA are complex. All prospective shareholders are urged to consult their own tax advisors regarding the potential application
of FATCA with respect to their own situation.
Section 351
The Trust, on behalf of the Fund, has the
right to reject an order for a purchase of shares of the Fund if the purchaser (or any group of purchasers) would, upon obtaining
the shares so ordered, own 80% or more of the outstanding shares of a given Fund and if, pursuant to Section 351 of the Internal
Revenue Code, that Fund would have a basis in the Deposit Securities different from the market value of such securities on the
date of deposit. The Trust also has the right to require information necessary to determine beneficial share ownership for purposes
of the 80% determination.
CAPITAL STOCK AND SHAREHOLDER
REPORTS
The Fund issues Shares of beneficial
interest, par value $.01 per Share. The Board may designate additional funds.
Each Share issued by the Trust has
a pro rata interest in the assets of the corresponding series of the Trust. Shares have no preemptive, exchange, subscription or
conversion rights and are freely transferable. Each Share is entitled to participate equally in dividends and distributions declared
by the Board with respect to the Fund, and in the net distributable assets of the Fund on liquidation.
Each Share has one vote with respect
to matters upon which a shareholder vote is required consistent with the requirements of the 1940 Act and the rules promulgated
thereunder. Shares of all series of the Trust (i.e., Shares of the Fund) vote together as a single class, except that if the matter
being voted on affects only a particular fund it will be voted on only by that fund and if a matter affects a particular fund differently
from other funds, that fund will vote separately on such matter. Under Delaware law, the Trust is not required to hold an annual
meeting of shareholders unless required to do so under the 1940 Act. The policy of the Trust is not to hold an annual meeting of
shareholders unless required to do so under the 1940 Act. All Shares of the Trust (regardless of the fund) have noncumulative voting
rights for the election of Trustees. Under Delaware law, Trustees of the Trust may be removed by vote of the shareholders.
The Declaration of Trust contains
an express disclaimer of shareholder liability for acts or obligations of the Trust, requires that Trust obligations include such
disclaimer, and provides for indemnification and reimbursement of expenses out of the Trust’s property for any shareholder
held personally liable for the obligations of the Trust. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations. Given the
above limitations on shareholder personal liability, and the nature of the Fund’s assets and operations, the risk to shareholders
of personal liability is believed to be remote.
51
Shareholder inquiries may be made
by writing to the Trust, c/o Syntax Advisors, LLC, 110 East 59th Street, 31st Floor, New York, NY 10022.
COUNSEL AND INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Chapman and Cutler LLP serves as
counsel to the Trust and the Fund. Ernst & Young LLP serves as the independent registered public accounting firm to the Trust.
INDEPENDENT AUDITORS
The financial statements of Syntax 500 Series of
Syntax Index Series, LP for the year ended December 31, 2018, have been audited by Ernst & Young, Dublin, Ireland, independent
auditors.
52
FINANCIAL STATEMENTS
Syntax
Stratified LargeCap ETF
Statement
of Assets and Liabilities
December
31, 2018
Assets
Cash
$
100,000
Total Assets
$
100,000
Total Liabilities
$
0
Net Assets Consist of Paid in Capital
$
100,000
Net Assets
$
100,000
Net Asset Value per share 2,500 authorized and outstanding
$
40.00
See accompanying notes to the
statement of assets and liabilities.
53
Syntax
Stratified LargeCap ETF Fund
Notes
to Statement of Assets and Liabilities
December
31, 2018
1.
Organization
Syntax ETF Trust (the “Trust”),
was organized under the laws of the State of Delaware as a statutory trust on June 27, 2013 pursuant to an Agreement and Declaration
of Trust (the “Trust Deed”). Syntax Stratified LargeCap ETF (the “Fund”), is a series of the Trust. The
Fund has had no operations through December 31, 2018 other than those relating to organizational matters and the sale and issuance
of 2,500 shares of beneficial interest in the Fund to Rory Riggs, CEO of Syntax Advisors, LLC, a related party of the Trust, at
a net asset value of $40.00 per share.
The initial seed capital of
$100,000 represents 2,500 issued shares or 10% of a creation Unit, which has been issued on the Transfer Agent records but will
not be placed into DTC for trading until the commencement of operations. The shares will be placed into DTC upon commencement
of operations along with an additional deposit representing an additional 90%, or $900,000, of a Creation unit value of $1,000,000.
The Fund is registered under
the U.S. Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end, diversified management investment
company. The Fund has no fixed termination date and will continue unless the Fund is otherwise terminated under the terms of the
Trust or unless and until required by law. Syntax Advisors, LLC (the “Advisor” or “Syntax Advisors”),
a New York limited liability company, serves as the Fund’s investment adviser.
The Syntax Stratified LargeCap
ETF (the “Fund”) seeks to provide investment results that, before expenses, correspond generally to the total return
performance of publicly traded equity securities of companies in the Syntax Stratified LargeCap Index (the “Index”).
The Fund’s investment
objective is to provide long-term total investment returns (capital gains plus income). To achieve the Fund’s investment
objective, the Advisor will seek to track the performance of the Syntax Stratified LargeCap Index, which is a stratified-weight
version of the widely used S&P 500® Index. In addition, the Fund may invest in cash and cash equivalents or money market
instruments, such as repurchase agreements and money market funds. Refer to the Additional Strategies Information section of the
Fund’s prospectus for more information on the methodology of the Syntax Indices.
2.
Significant
Accounting Policies
The fund is an investment company
and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB)
Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The accompanying financial statements
of the Fund are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)
and in accordance with Accounting Standards Codification (ASC) as set forth by the Financial Accounting Standards Board (“FASB”).
The Fund maintains its financial records in U.S. dollars and follows the accrual basis of accounting.
54
Syntax
Stratified LargeCap ETF Fund
Notes
to Statement of Assets and Liabilities
December
31, 2018
In preparing the Fund’s
financial statements in accordance with GAAP, estimates or assumptions (which could differ from actual results) may be used that
affect reported amounts and disclosures.
The following is a summary of
significant accounting policies followed by the Fund.
Federal Income Taxes:
It is the Fund’s policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable income to its Shareholders. Therefore, no provision for
federal income taxes is required. The Fund files tax returns with the U.S. Internal Revenue Service.
Distribution of Income and
Gains: The Fund declares and pays dividends annually from net investment income. Net realized gains, if any, are distributed
at least annually. Distributions from net realized gains for book purposes may include short- term capital gains, which are included
as ordinary income for tax purposes.
Cash: Cash consists of
cash held at the Fund’s custodian, State Street Bank and Trust Company.
Security transactions and
investment income: Security transactions are recorded on the trade date. Security gains and losses are calculated on the specific
identification basis. Dividend income, if any, is recorded on the ex-dividend date or, in the case of foreign securities, as soon
as the Fund is informed of the ex-dividend dates, net of foreign taxes. Interest income, including accretion of discounts and
amortization of premiums, is recorded on the accrual basis commencing on the settlement date.
Organizational and offering
costs: Syntax Advisors has agreed to pay all of the Fund’s organizational and offering costs. The organizational and
offering costs are not subject to repayment to Syntax Advisors by the Fund
3.
Capital
Share Transactions
The Fund will issue or redeem
capital shares to certain institutional investors (typically market makers or other broker-dealers) on a continuous basis through
the Distributor in large blocks of 25,000 capital shares (“Creation Units”). Creation Unit transactions are typically
conducted in exchange for the deposit or delivery of a designated portfolio of in-kind securities and/or cash constituting a substantial
replication, or a representation, of the securities included in the S&P 500.
55
Syntax
Stratified LargeCap ETF Fund
Notes
to Statement of Assets and Liabilities
December
31, 2018
4.
Fund
Fees and Expenses
Investment
Management Fees: The Fund pays the Advisor a unitary management fee at a rate of 0.45% of the Fund’s average daily net
assets that is subject to an Expense Limitation Agreement. Syntax Advisors, LLC (“Syntax Advisors”) provides investment
advisory, supervisory and administration services under an investment management agreement. The Fund pays a management fee to
Syntax Advisors based on daily Average Net Assets (“ANA”) of 0.45%. Syntax Advisors, LLC (the “Adviser”)
has agreed to waive its fees and/or absorb expenses of the Fund to ensure that Total Annual Operating Expenses (excluding any
(i) interest expense, (ii) taxes, (iii) acquired fund fees and expenses, (iv) brokerage expenses and other expenses (such as stamp
taxes) connected with the execution of portfolio transactions or in connection with creation and redemption transactions, (v)
expenses associated with shareholder meetings, (vi) compensation and expenses of the Independent Trustees, (vii) compensation
and expenses of the Trust’s chief compliance officer and his or her staff, (viii) distribution fees and expenses paid by
the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act, (ix) legal fees or expenses in connection
with any arbitration, litigation or pending or threatened arbitration or litigation, including any settlements in connection therewith,
and (x) extraordinary expenses of the Fund) do not exceed 0.30%. These arrangements cannot be terminated prior to one year from
the effective date without the approval of the Board of Trustees. Subject to approval by the Fund’s Board of Trustees, any
waiver under the Expense Limitation Agreement is subject to repayment by the Fund within 36 months following the month in which
fees are waived or reimbursed, if the Fund is able to make the payment without exceeding the applicable expense limitation. No
management fees will be charged until the Fund commences operations.
Distributor,
distribution and service fees: Foreside Fund Services, LLC (“Distributor”) is the Distributor of Fund shares.
The Distributor will not distribute Fund shares in less than creation units and does not maintain a secondary market in Fund shares.
The Distributor may enter into selected dealer agreements with other broker-dealers or other qualified financial institutions
for the sale of creation units of Fund shares.
The
Fund has a distribution and service plan (“Distribution Plan”) pursuant to Rule 12b-1 under the 1940 Act, to which
payments at an annual rate of up to 0.25% of the Fund’s average daily net assets may be made for the sale and distribution
of its Fund shares. No payments pursuant to the Distribution Plan will be made through at least the next twelve (12) months
of operation. Additionally, the implementation of any such payments would be approved by the Board prior to implementation
5.
Indemnifications
In
the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties which provide
general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future
claims that may be made again the Fund that have not yet occurred. However, based on experience and knowledge of management, the
Fund expects the risk of loss to be remote.
6.
Related
Party Transactions
There
are no related party transactions during the period except as previously disclosed.
7.
Subsequent
Events
In
the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s
Statement of Assets and Liabilities through the date that the financial statements were issued. The operational launch of the
Trust and the Syntax Stratified LargeCap Fund was on January 2, 2019 at $40.00 per ETF share, with a creation Unit of $39,000,000
representing 975,000 shares outstanding at launch, which was inclusive of the initial $100,000 shown on the balance sheet representing
2,500 shares (see note 1 above). All ETF shares have been deposited into DTCC by the Fund’s Custodian and the Fund commenced
trading on January 4, 2019.
56
Report
of Independent Registered Public Accounting Firm
To
the Board of Trustees of Syntax ETF Trust and Shareholders of Syntax Stratified LargeCap ETF
Opinion
on the Financial Statements
We
have audited the accompanying statement of assets and liabilities and the related notes (collectively referred to as the “financial
statements”) of Syntax Stratified LargeCap ETF (the “Fund”) (one of the funds constituting the Syntax ETF Trust
(the “Trust”)) as of December 31, 2018. In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Fund at December 31, 2018, in conformity with U.S. generally accepted accounting principles.
Basis
for Opinion
These
financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the
Fund’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over
financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting
but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audit provides a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We
have served as the auditor of one or more Syntax investment companies since 2018.
Boston,
Massachusetts
April
18, 2019
57
Syntax
Index Series LP
Syntax
500 Series
Financial
statements for the year ended December 31, 2018
We
have audited the accompanying financial statements of Syntax 500 Series (the ’’Series’’) of Syntax Index
Series, L.P. (the “Partnership”), which comprise the statement of assets and liabilities, including the schedule of
investments, as of December 31, 2018, and the related statements of operations, changes in partners’ capital and cash flows for
the year then ended, and the related notes to the financial statements.
Management’s
Responsibility for the Financial Statements
Management
is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted
accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation
and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditor’s
Responsibility
Our
responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance
with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement.
An
audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of
the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
60
Opinion
In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Syntax 500 Series of Syntax Index Series, L.P. at December 31, 2018, and the results of its operations, changes in its partners’
capital and its cash flows, for the year then ended in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young
Ernst & Young
Dublin, Ireland
April 24, 2019
61
SYNTAX
INDEX SERIES LP
Syntax
500 Series
STATEMENT
OF ASSETS AND LIABILITIES
December
31, 2018
December
31, 2018
Assets
Cash and cash equivalents
2(c)
$
120,716
Investments (cost: $35,543,620)
2(d)
33,520,427
Amounts due from broker
26,650
Dividends receivable
45,321
Total
assets
$
33,713,114
Liabilities
and Partners’ Capital
Accrued expenses
$
67,557
Amounts due
to broker
26,559
Total Liabilities
94,116
General Partner capital
1,475,538
Limited Partners’
capital
32,143,460
Total Partners’
capital
33,618,998
Total
Liabilities and Partners’ Capital
$
33,713,114
See
accompanying Notes, which are an integral part of the Financial Statements.
62
SYNTAX
INDEX SERIES LP
Syntax
500 Series
SCHEDULE
OF INVESTMENTS
December
31, 2018
Syntax
500 Series
Common
Stocks
Shares
Value
3M Company
233
44,396
A. O. Smith
Corporation
1,102
47,055
Abbott Laboratories
1,719
124,335
AbbVie Inc.
533
49,137
Abiomed Inc.
96
31,204
Accenture
Plc
391
55,135
ACTIVISION
BLIZZARD INC
1,699
79,122
Adobe Systems
Incorporated
705
159,499
Advance Auto
Parts Inc.
334
52,592
Advanced Micro
Devices Inc.
2,036
37,585
AES Corporation
7,631
110,344
Affiliated
Managers Group Inc.
425
41,412
Aflac Incorporated
1,169
53,260
Agilent Technologies
Inc.
877
59,162
Air Products
and Chemicals Inc.
117
18,726
Akamai Technologies
Inc.
1,403
85,695
Alaska Air
Group Inc.
879
53,487
Albemarle
Corporation
215
16,570
Alexandria
Real Estate Equities Inc.
199
22,933
Alexion Pharmaceuticals
Inc.
417
40,599
Align Technology
Inc.
282
59,059
Allegion PLC
1,057
84,253
Allergan Inc.
307
41,034
Alliance Data
Systems Corporation
351
52,678
Alliant Energy
Corporation
620
26,195
Allstate Corporation
1,150
95,025
Altria Group
Inc.
2,596
128,216
Amazon.com
Inc.
19
28,537
Ameren Corporation
402
26,222
American Airlines
Group
1,689
54,234
American Electric
Power Company Inc.
652
48,730
American Express
Company
192
18,301
American International
Group Inc.
1,217
47,962
American Tower
Corporation
183
28,949
American Water
Works Company Inc.
1,879
170,557
Ameriprise
Financial Inc.
368
38,408
AmerisourceBergen
Corporation
924
68,746
AMETEK Inc.
648
43,870
Amgen Inc.
238
46,331
Amphenol Corporation
Class A
822
66,598
Anadarko Petroleum
Corporation
537
23,542
Analog Devices
Inc.
1,116
95,786
ANSYS Inc.
1,626
232,420
Anthem Inc
353
92,708
Aon plc
113
16,426
Apache Corporation
905
23,756
Apartment
Investment and Management Co
968
42,476
Apple Inc.
735
115,939
Applied Materials
Inc.
2,484
81,326
Aptiv PLC
1,383
85,151
Archer-Daniels-Midland
Company
4,091
167,608
Arconic Inc
4,620
77,893
Arista Networks
Inc
331
69,742
Arthur J.
Gallagher & Co.
234
17,246
Assurant Inc.
506
45,257
AT&T Inc.
4,025
114,874
Autodesk Inc.
1,852
238,186
Automatic
Data Processing Inc.
451
59,135
AutoZone Inc.
63
52,815
AvalonBay
Communities Inc.
244
42,468
Avery Dennison
Corporation
1,000
89,830
Baker Hughes
a GE Company
6,376
137,084
Ball Corporation
950
43,681
Bank of America
Corporation
2,486
61,255
Common Stocks
Shares
Value
Bank
of New York Mellon Corporation
937
44,105
Baxter International
Inc.
1,851
121,833
BB&T Corporation
533
23,090
Becton Dickinson
and Company
197
44,388
Berkshire Hathaway
Inc. Class B
608
124,141
Best Buy Co.
Inc.
1,648
87,278
Biogen Idec Inc.
145
43,633
BlackRock Inc.
106
41,639
Boeing Company
191
61,598
Bookings Holdings
Inc.
17
29,281
BorgWarner Inc.
2,636
91,575
Boston Properties
Inc.
194
21,835
Boston Scientific
Corporation
849
30,004
Brighthouse Financial
1,633
49,774
Bristol-Myers
Squibb Company
875
45,483
Broadcom Inc
478
121,546
Broadridge Financial
Solutions Inc.
472
45,430
Brown-Forman
Corporation Class B
1,940
92,305
C.H. Robinson
Worldwide Inc.
359
30,188
Cabot Oil &
Gas Corporation
2,348
52,478
Cadence Design
Systems Inc.
2,816
122,440
Campbell Soup
Company
1,997
65,881
Capital One Financial
Corporation
773
58,431
Cardinal Health
Inc.
1,459
65,071
CarMax Inc.
894
56,081
Carnival Corporation
720
35,496
Caterpillar Inc.
480
60,994
CBOE Holdings
Inc.
302
29,545
CBRE Group Inc.
Class A
424
16,977
CBS Corporation
Class B
1,266
55,350
Celanese Corporation
Class A
914
82,233
Celgene Corporation
669
42,876
Centene Corp.
764
88,089
CenterPoint Energy
Inc.
3,115
87,936
CenturyLink Inc.
7,150
108,323
Cerner Corporation
1,450
76,038
CF Industries
Holdings Inc.
723
31,458
Charles Schwab
Corporation
984
40,866
Charter Communications
(New)
393
111,993
Chevron Corporation
2,403
261,422
Chipotle Mexican
Grill Inc.
399
172,284
Chubb Ltd (New)
949
122,592
Church &
Dwight Co. Inc.
2,276
149,670
Cigna Corporation
(New)
473
89,832
Cimarex Energy
Co.
798
49,197
Cincinnati Financial
Corporation
1,533
118,685
Cintas Corporation
403
67,700
Cisco Systems
Inc.
1,594
69,068
Citigroup Inc.
1,105
57,526
Citizen Financial
Group Inc
804
23,903
Citrix Systems
Inc.
743
76,128
Clorox Company
951
146,587
CME Group Inc.
Class A
162
30,475
CMS Energy Corporation
531
26,364
Coca-Cola Company
2,776
131,444
Cognizant Technology
Solutions Corporation
1,077
68,368
Colgate-Palmolive
Company
2,402
142,967
Comcast Corporation
Class A
3,346
113,931
Comerica Incorporated
1,763
121,100
ConAgra Brands
Inc.
2,618
55,920
Concho Resources
Inc.
238
24,464
ConocoPhillips
424
26,436
Consolidated
Edison Inc.
1,088
83,188
Constellation
Brands Inc. Class A
503
80,892
All
investments are in quoted US entities.
See
accompanying Notes, which are an integral part of the Financial Statements.
63
SYNTAX
INDEX SERIES LP
Syntax 500 Series
SCHEDULE
OF INVESTMENTS (Continued)
December
31, 2018
Syntax
500 Series (Continued)
Common
Stocks
Shares
Value
Cooper
Companies Inc.
243
61,844
Copart Inc.
633
30,245
Corning Incorporated
2,176
65,737
Costco Wholesale
Corporation
1,323
269,508
Coty Inc Class
A
21,425
140,548
Crown Castle
International Corp.
265
28,787
CSX Corporation
347
21,559
Cummins Inc.
341
45,571
CVS Caremark
Corporation
3,385
221,785
D.R. Horton Inc.
3,427
118,780
Danaher Corporation
454
46,816
Darden Restaurants
Inc.
1,768
176,552
DaVita HealthCare
Partners Inc.
699
35,971
Deere & Company
408
60,861
Delta Air Lines
Inc.
1,023
51,048
DENTSPLY International
Inc.
1,235
45,954
Devon Energy
Corporation
2,118
47,740
Diamondback Energy
Inc
295
27,347
Digital Realty
Trust Inc.
798
85,027
Discover Financial
Services
983
57,977
Discovery Communications
C
1,169
26,981
Discovery Communications
Inc. Class A
1,088
26,917
DISH Network
Corporation Class A
3,971
99,156
Dollar General
Corporation
580
62,686
Dollar Tree Inc.
709
64,037
Dominion Resources
Inc.
678
48,450
Dover Corporation
598
42,428
DowDuPont Inc
864
46,207
DTE Energy Company
238
26,251
Duke Energy Corporation
309
26,667
Duke Realty Corporation
868
22,481
DXC Technology
Company
1,285
68,323
E*TRADE Financial
Corporation
399
17,508
Eastman Chemical
Company
255
18,643
Eaton Corp. Plc
969
66,532
eBay Inc.
1,053
29,558
Ecolab Inc.
296
43,616
Edison International
1,529
86,801
Edwards Lifesciences
Corporation
190
29,102
Electronic Arts
Inc.
1,013
79,936
Eli Lilly and
Company
408
47,214
Emerson Electric
Co.
251
14,997
Entergy Corporation
581
50,007
EOG Resources
Inc.
273
23,808
Equifax Inc.
375
34,924
Equinix Inc.
236
83,204
Equity Residential
652
43,039
Essex Property
Trust Inc.
174
42,667
Estee Lauder
Companies Inc. Class A
1,157
150,526
Everest RE Group
Ltd.
212
46,165
Evergy Inc
464
26,341
Eversource Energy
403
26,211
Exelon Corporation
2,585
116,584
Expedia Inc.
257
28,951
Expeditors International
of Washington In
432
29,415
Extra Space Storage
Inc.
469
42,435
Exxon Mobil Corporation
3,620
246,848
F5 Networks Inc.
442
71,617
Facebook Inc.
Class A
317
41,556
Fastenal Company
1,016
53,127
Federal Realty
Investment Trust
155
18,296
FedEx Corporation
247
39,849
Fidelity National
Information Services In
291
29,842
Fifth Third Bancorp
1,028
24,189
Common
Stocks
Shares
Value
First
Republic Bank
310
26,939
FirstEnergy Corp.
1,333
50,054
Fiserv Inc.
399
29,323
FleetCor Technologies
Inc.
115
21,358
FLIR Systems
Inc.
2,118
92,218
Flowserve Corporation
1,455
55,319
Fluor Corporation
2,770
89,194
FMC Corporation
393
29,066
Foot Locker Inc.
1,234
65,649
Ford Motor Company
10,701
81,863
Fortinet Inc.
1,000
70,430
Fortive Corp
221
14,953
Fortune Brands
Home & Security Inc.
1,128
42,853
Franklin Resources
Inc.
1,292
38,321
Freeport-McMoRan
Copper & Gold Inc.
8,620
88,872
Gap Inc.
1,713
44,127
Garmin Ltd.
1,868
118,282
Gartner Inc.
525
67,116
General Dynamics
Corporation
360
56,596
General Electric
Company
6,412
48,539
General Mills
Inc.
2,092
81,462
General Motors
Company
2,597
86,870
Genuine Parts
Company
553
53,099
Gilead Sciences
Inc.
696
43,535
Global Payments
Inc.
199
20,523
Goldman Sachs
Group Inc.
704
117,603
Goodyear Tire
& Rubber Company
4,394
89,682
Google Inc. Class
A
22
22,989
Google Inc. Class
C
22
22,783
H&R Block
Inc.
1,690
42,875
Halliburton Company
2,358
62,676
Hanesbrands Inc.
6,710
84,076
Harley-Davidson
Inc.
2,627
89,633
Harris Corporation
614
82,675
Hartford Financial
Services Group Inc.
1,105
49,117
Hasbro Inc.
651
52,894
HCA Holdings
Inc.
640
79,648
HCP Inc.
1,401
39,130
Helmerich &
Payne Inc.
1,169
56,042
Henry Schein
Inc.
907
71,218
Hershey Company
634
67,952
Hess Corporation
537
21,749
Hewlett Packard
Enterprises
6,417
84,769
Hewlett-Packard
Company
8,287
169,552
Hilton Worldwide
Holdings Inc.
564
40,495
HollyFrontier
Corporation
2,530
129,334
Hologic Inc.
2,176
89,434
Home Depot Inc.
529
90,893
Honeywell International
Inc.
334
44,128
Hormel Foods
Corporation
4,095
174,775
Host Hotels &
Resorts Inc.
2,279
37,991
Humana Inc.
324
92,820
Huntington Bancshares
Incorporated
2,001
23,852
Huntington Ingalls
Industries Inc.
230
43,771
IDEXX Laboratories
Inc.
480
89,290
IHS Markit Ltd.
1,246
59,771
Illinois Tool
Works Inc.
348
44,088
Illumina Inc.
187
56,087
Incyte Corporation
689
43,814
Ingersoll-Rand
Plc
475
43,334
Intel Corporation
848
39,797
Intercontinental
Exchange Inc.
394
29,680
International
Business Machines Corporatio
609
69,225
International
Flavors & Fragrances Inc.
135
18,126
All
investments are in quoted US entities.
See
accompanying Notes, which are an integral part of the Financial Statements.
64
SYNTAX
INDEX SERIES LP
Syntax 500 Series
SCHEDULE
OF INVESTMENTS (Continued)
December
31, 2018
Syntax
500 Series (Continued)
Common
Stocks
Shares
Value
International
Paper Company
700
28,252
Interpublic Group
of Companies Inc.
2,738
56,485
Intuit Inc.
404
79,527
Intuitive Surgical
Inc.
62
29,693
Invesco Ltd.
2,391
40,025
IPG Photonics
Corporation
129
14,614
IQVIA Holdings
Inc (Q)
514
59,711
Iron Mountain
Incorporated
2,086
67,607
J. M. Smucker
Company
768
71,800
J.B. Hunt Transport
Services Inc.
328
30,517
Jack Henry &
Associates Inc.
232
29,353
Jacobs Engineering
Group Inc.
1,554
90,847
Jefferies Group
Inc.
6,896
119,715
Johnson &
Johnson
915
118,081
Johnson Controls
Intl ADR
1,427
42,311
JPMorgan Chase
& Co.
607
59,255
Juniper Networks
Inc.
2,628
70,719
Kansas City Southern
236
22,526
Kellogg Company
1,134
64,649
KeyCorp
1,608
23,766
Keysight Technologies
Inc
247
15,334
Kimberly-Clark
Corporation
1,332
151,768
Kimco Realty
Corporation
1,233
18,063
Kinder Morgan
Inc. Class P
7,515
115,581
KLA-Tencor Corporation
907
81,167
Kohl’s Corporation
993
65,876
Kraft Heinz Company
1,649
70,973
Kroger Co.
9,261
254,678
L Brands Inc.
1,479
37,966
L-3 Technologies
Inc.
477
82,836
Laboratory Corporation
of America Holdings
295
37,276
Lam Research
Corporation
600
81,702
Lamb Weston Holdings
Inc
1,031
75,840
Leggett &
Platt Incorporated
1,262
45,230
Lennar Corporation
Class A
3,025
118,429
Lincoln National
Corporation
974
49,976
Linde PLC
116
18,101
LKQ Corporation
2,226
52,823
Lockheed Martin
Corporation
159
41,633
Loews Corporation
2,698
122,813
Lowe’s Companies
Inc.
977
90,236
LyondellBasell
Industries NV
369
30,686
M&T Bank
Corporation
165
23,616
Macerich Company
425
18,394
Macy’s Inc
1,987
59,173
Marathon Oil
Corporation
1,819
26,084
Marathon Petroleum
Corporation
2,285
134,838
Marriott International
Inc. Class A
377
40,927
Marsh & McLennan
Companies Inc.
209
16,668
Martin Marietta
Materials Inc.
348
59,811
Masco Corporation
1,544
45,147
MasterCard Incorporated
Class A
104
19,620
Mattel Inc.
4,646
46,414
Maxim Integrated
Products Inc.
1,845
93,818
McCormick &
Company Incorporated
516
71,848
McDonald’s Corporation
1,493
265,112
McKesson Corporation
626
69,154
Medtronic PLC.
324
29,471
Merck & Co.
Inc.
596
45,540
MetLife Inc.
1,340
55,020
Mettler-Toledo
International Inc.
26
14,705
MGM Resorts International
2,296
55,701
Michael Kors
Holdings Ltd
1,923
72,920
Microchip Technology
Incorporated
567
40,779
Common
Stocks
Shares
Value
Micron
Technology Inc.
1,187
37,664
Microsoft Corporation
1,532
155,605
Mid-America Apartment
Communities Inc.
450
43,065
Mohawk Industries
Inc.
390
45,614
Molson Coors
Brewing Company Class B
1,472
82,668
Mondelez International
Inc. Class A
1,572
62,927
Monster Beverage
Corporation
2,600
127,972
Moody’s Corporation
251
35,150
Morgan Stanley
3,067
121,607
Mosaic Company
983
28,713
Motorola Solutions
Inc.
961
110,553
MSCI Inc.
243
35,825
Mylan Inc.
6,285
172,209
NASDAQ OMX Group
Inc.
352
28,713
National Oilwell
Varco Inc.
5,129
131,815
Nektar Therapeutics
1,250
41,088
NetApp Inc.
1,487
88,729
Netflix Inc.
114
30,513
Newell Rubbermaid
Inc.
2,481
46,122
Newfield Exploration
Company
3,721
54,550
Newmont Mining
Corporation
2,740
94,941
News Corporation
Class A
2,482
28,171
News Corporation
Class B
2,440
28,182
NextEra Energy
Inc.
288
50,060
Nielsen N.V.
2,364
55,152
NIKE Inc. Class
B
1,005
74,511
NiSource Inc.
6,639
168,299
Noble Energy
Inc.
2,510
47,088
Nordstrom Inc.
1,251
58,309
Norfolk Southern
Corporation
151
22,581
Northern Trust
Corporation
469
39,204
Northrop Grumman
Corporation
173
42,368
Norwegian Cruise
Line Holdings Ltd.
851
36,074
NRG Energy Inc.
2,872
113,731
Nucor Corporation
1,616
83,725
NVIDIA Corporation
277
36,980
Occidental Petroleum
Corporation
420
25,780
Omnicom Group
Inc
803
58,812
ONEOK Inc.
2,020
108,979
Oracle Corporation
1,739
78,516
O’Reilly Automotive
Inc.
157
54,060
PACCAR Inc
1,076
61,483
Packaging Corporation
of America
325
27,125
Parker-Hannifin
Corporation
302
45,040
Paychex Inc.
924
60,199
PayPal Holdings
Inc
354
29,768
Pentair plc
1,555
58,748
People’s United
Financial Inc.
7,979
115,137
PepsiCo Inc.
601
66,398
PerkinElmer Inc.
726
57,027
Perrigo Co. Plc
3,199
123,961
Pfizer Inc.
1,041
45,440
PG&E Corporation
3,503
83,196
Philip Morris
International Inc.
1,658
110,688
Phillips 66
1,575
135,686
Pinnacle West
Capital Corporation
307
26,156
Pioneer Natural
Resources Company
199
26,172
PNC Financial
Services Group Inc.
205
23,967
PPG Industries
Inc.
303
30,976
PPL Corporation
918
26,007
Principal Financial
Group Inc.
930
41,078
Procter &
Gamble Company
1,618
148,727
Progressive Corporation
1,470
88,685
Prologis Inc.
469
27,540
All
investments are in quoted US entities.
See
accompanying Notes, which are an integral part of the Financial Statements.
65
SYNTAX
INDEX SERIES LP
Syntax
500 Series
SCHEDULE
OF INVESTMENTS (Continued)
December
31, 2018
Syntax
500 Series (Continued)
Common
Stocks
Shares
Value
Prudential
Financial Inc.
633
51,621
Public Service
Enterprise Group Incorpora
936
48,719
Public Storage
224
45,340
PulteGroup Inc.
4,748
123,401
PVH Corp.
489
45,453
Qorvo Inc
1,609
97,715
QUALCOMM Incorporated
2,112
120,194
Quanta Services
Inc.
3,013
90,691
Quest Diagnostics
Incorporated
474
39,470
Ralph Lauren
Corporation Class A
449
46,454
Raymond James
Financial Inc.
234
17,412
Raytheon Company
268
41,098
Realty Income
Corporation
306
19,290
Red Hat Inc.
919
161,413
Regency Centers
Corporation
330
19,364
Regeneron Pharmaceuticals
Inc.
120
44,820
Regions Financial
Corporation
1,807
24,178
Republic Services
Inc.
919
66,251
ResMed Inc.
538
61,262
Robert Half International
Inc.
1,053
60,232
Rockwell Automation
Inc.
97
14,597
Rollins Inc.
1,868
67,435
Roper Industries
Inc.
167
44,509
Ross Stores Inc.
768
63,898
Royal Caribbean
Cruises Ltd.
378
36,965
S&P Global
Inc
219
37,217
salesforce.com
inc.
591
80,949
SBA Communications
Corporation
176
28,493
Schlumberger
NV
1,748
63,068
Seagate Technology
PLC
2,367
91,343
Sealed Air Corporation
1,343
46,790
Sempra Energy
237
25,641
Sherwin-Williams
Company
79
31,083
Simon Property
Group Inc.
111
18,647
Skyworks Solutions
Inc.
1,418
95,034
SL Green Realty
Corp.
273
21,589
Snap-on Incorporated
371
53,903
Southern Company
593
26,045
Southwest Airlines
Co.
1,092
50,756
Stanley Black
& Decker Inc.
463
55,440
Starbucks Corporation
2,795
179,998
State Street
Corporation
718
45,284
Stryker Corporation
273
42,793
SunTrust Banks
Inc.
466
23,505
SVB Financial
Group
635
120,599
Symantec Corporation
3,764
71,121
Synchrony Financial
2,521
59,143
Synopsys Inc.
1,388
116,925
Sysco Corporation
4,180
261,919
T. Rowe Price
Group
441
40,713
Take-Two Interactive
Software Inc.
785
80,808
Tapestry Inc.
2,108
71,145
Target Corporation
905
59,811
TE Connectivity
Ltd.
937
70,865
TechnipFMC PLC
3,394
66,455
Texas Instruments
Incorporated
1,033
97,619
Textron Inc.
1,226
56,384
Thermo Fisher
Scientific Inc.
259
57,962
Tiffany &
Co.
882
71,010
TJX Companies
Inc.
1,344
60,131
Torchmark Corporation
676
50,382
Total System
Services Inc.
239
19,428
Tractor Supply
Company
614
51,232
TransDigm Group
Incorporated
131
44,548
Common
Stocks
Shares
Value
Travelers
Companies Inc.
1,009
120,828
TripAdvisor Inc.
752
40,563
Twenty-First
Century Fox Inc. Class A
1,241
59,717
Twenty-First
Century Fox Inc. Class B
1,248
59,629
Twitter Inc.
1,268
36,442
Tyson Foods Inc.
Class A
3,300
176,220
U.S. Bancorp
499
22,804
UDR Inc.
1,086
43,027
Ulta Salon Cosmetics
& Fragrance Inc.
370
90,591
Under Armour
Inc. Class A
1,920
33,926
Under Armour
Inc. Class C
2,056
33,246
Union Pacific
Corporation
160
22,117
UNITED CONTL
HLDGS INC
624
52,248
United Parcel
Service Inc. Class B
462
45,059
United Rentals
Inc.
519
53,213
United Technologies
Corporation
384
40,888
UnitedHealth
Group Incorporated
367
91,427
Universal Health
Services Inc. Class B
670
78,095
Unum Group
1,754
51,533
V.F. Corporation
1,213
86,535
Valero Energy
Corporation
1,866
139,894
Varian Medical
Systems Inc.
255
28,894
Ventas Inc.
1,296
75,933
VeriSign Inc.
598
88,677
VERISK ANALYTICS
INC
321
35,002
Verizon Communications
Inc.
2,130
119,749
Vertex Pharmaceuticals
Incorporated
268
44,410
Viacom Inc. Class
B
2,132
54,792
Visa Inc. Class
A
150
19,791
Vornado Realty
Trust
356
22,083
Vulcan Materials
Company
611
60,367
W.W. Grainger
Inc.
192
54,213
Walgreens Boots
Alliance
3,091
211,208
Wal-Mart Stores
Inc.
2,977
277,308
Walt Disney Company
1,083
118,751
Waste Management
Inc.
750
66,743
Waters Corporation
322
60,745
WellCare Health
Plans Inc.
256
60,439
Wells Fargo &
Company
1,307
60,227
Welltower Inc
1,121
77,809
Western Digital
Corporation
2,356
87,101
Western Union
Company
3,346
57,083
WestRock Co Class
A
685
25,866
Weyerhaeuser
Company
2,531
55,328
Whirlpool Corporation
403
43,069
Williams Companies
Inc.
5,181
114,241
Willis Towers
Watson
113
17,160
Wisconsin Energy
Corporation
701
48,551
Wynn Resorts
Limited
570
56,379
Xcel Energy Inc.
529
26,064
Xerox Corporation
7,456
147,331
Xilinx Inc.
457
38,923
Xylem Inc.
929
61,983
YUM! Brands Inc.
2,983
274,197
Zimmer Holdings
Inc.
418
43,355
Zions Bancorporation
2,930
119,368
Zoetis Inc. Class
A
515
44,053
Total
Common Stocks (Cost $35,543,620)
$
33,520,427
All
investments are in quoted US entities.
See
accompanying Notes, which are an integral part of the Financial Statements.
66
SYNTAX
INDEX SERIES LP
Syntax
500 Series
SCHEDULE
OF INVESTMENTS (Continued)
December
31, 2018
Percent
of
Securities Investments By
Specific Risk Groups
Country
Cost
Fair
Value
Net
Assets
Syntax 500
Series
Common
Stocks
Financials
Risk Group
US
$
4,849,321
$
4,290,162
12.76
%
Energy Risk
Group
US
4,538,494
4,172,719
12.41
%
Industrials
Risk Group
US
4,574,865
4,229,258
12.58
%
Information
Tools Risk Group
US
4,256,111
4,211,575
12.53
%
Information
Products & Services Risk Group
US
4,372,865
4,105,638
12.21
%
Consumer Risk
Group
US
4,560,733
4,229,382
12.58
%
Food Risk Group
US
4,150,027
4,159,997
12.37
%
Healthcare
Risk Group
US
4,241,204
4,121,695
12.26
%
Total
$
35,543,620
33,520,427
99.71
%
Note:
No investment, or combination of investments in any single issuer, constituted more than
5%
of the net assets of the Fund.
All
investments are in quoted US entities.
See
accompanying Notes, which are an integral part of the Financial Statements.
67
SYNTAX
INDEX SERIES LP
Syntax
500 Series
STATEMENT
OF OPERATIONS
Year
ended December 31, 2018
Syntax
500
Series
Income
Dividend income
$
670,619
Interest income
-
Total income
670,619
Expenses
Management fees
83,112
Expenses in
excess of cap
2(g)
(16,090
)
Total
expenses
67,022
Net investment
income
603,597
Net realized gain on investments
297,562
Net unrealized
loss on investments
(3,696,999
)
Net
realized gains and net change in unrealized loss on investments
(3,399,437
)
Net
decrease in partners’ capital resulting from operations
$
(2,795,840
)
Pro-rata allocation
of income
Limited Partners
$
(2,691,802
)
General Partner
(104,038
)
Net
decrease in partners’ capital resulting from operations
$
(2,795,840
)
See
accompanying Notes, which are an integral part of the Financial Statements.
68
SYNTAX
INDEX SERIES LP
Syntax
500 Series
STATEMENT
OF CHANGES IN PARTNERS’ CAPITAL
Year
ended December 31, 2018
General
Partner
Limited
Partners
Total
Partners’ capital January 1, 2017
$
1,574,884
$
28,000,162
$
29,575,046
Capital contributions
4,692
6,835,100
6,839,792
Capital withdrawals
-
-
-
Net
decrease in Partners’ capital resulting from operations
(104,038
)
(2,691,802
)
(2,795,840
)
Total
increase/(decrease) in Partners’ capital during the year
(99,346
)
4,143,298
4,043,952
Partners’
capital December 31, 2017
$
1,475,538
$
32,143,460
$
33,618,998
See
accompanying Notes, which are an integral part of the Financial Statements.
69
SYNTAX
INDEX SERIES LP
Syntax
500 Series
STATEMENT
OF CASH FLOWS
Year
ended December 31, 2018
Syntax
500
Series
Cash Flows from
operating activities:
Net
decrease in partners’ capital from operations
$
(2,795,840
)
Adjustments
to reconcile net increase in partners’ capital from operations to net cash flows from operating activities:
Purchase of
investment securities
(16,276,526
)
Proceeds from
disposition of investment securities
9,266,730
Unrealized
loss on investments
3,696,999
Net realized
gain on investments
(297,562
)
Decrease (increase)
in interest and dividends receivable
(14,611
)
Increase (decrease)
in amounts due to brokers
(1,300,208
)
Decrease (increase)
in amounts due from brokers
(26,650
)
Increase
(decrease) in accrued expenses
(21,941
)
Net
cash used in operating activities
(7,769,609
)
Cash flows from
financing activities:
Proceeds from
contributions
6,839,792
Increase in
contributions receivable
996,006
Decrease in
contributions received in advance
(325,000
)
Decrease
in withdrawals payable
(5,531
)
Net
cash provided by financing activities
7,505,267
Net decrease
in cash and cash equivalents
(264,342
)
Beginning
cash and cash equivalents balance
385,058
Ending
cash and cash equivalents balance
$
120,716
See
accompanying Notes, which are an integral part of the Financial Statements.
70
SYNTAX
INDEX SERIES LP
Syntax
500 Series
NOTES
TO THE FINANCIAL STATEMENTS
December
31, 2018
1.
ORGANIZATION
AND PURPOSE
These
separate set of financial statements of the Syntax 500 Series within the Syntax Index Series, LP have been prepared for the purpose
of the Syntax ETF Trust’s Statement of Additional Information in the Registration Statement (Form N-1A No. 333-215607).
As further described in Note 11 Subsequent Events, on January 2, 2019 the Syntax 500 Series transferred substantially all of its
asset and liabilities to the Syntax Stratified LargeCap ETF (ticker: SSPY). In exchange for the transfer the investors of the
Syntax 500 Series received shares in the Syntax Stratified LargeCap ETF in place of each investors holding in the Syntax 500 Series.
Following this, the Syntax 500 Series within Syntax Index Series, LP ceased its trading activities.
Syntax
Index Series LP (“Fund” or “Partnership”) was formed as a limited partnership and organized under the
laws of the State of Delaware. The name was changed from Syntax 900 I, L.P. to Syntax Index Series LP on January 1, 2015. The
Partnership commenced operations on November 28, 2010. The General Partner of the Partnership is Syntax Index Series GP, LLC
(“General Partner”). The name of the General Partner was changed from Syntax 900 I GP, LLC to Syntax Index Series
GP, LLC on December 14, 2016. The Partnership’s investment manager is Syntax LLC (“Manager”). The name of
the Manager was changed from Syntax Analytics LLC to Syntax LLC on March 23, 2015. Further, on March 15, 2017, the investment
management agreement was assigned to Syntax Advisors, LLC. The registered offices of the General Partner are located at 110
East 59th Street, 31st Floor, New York, NY 10022.
On
January 1, 2015, with the consent of a majority of the Limited Partners, the Partnership was restructured into a Delaware Series
Limited Partnership. The Partnership also changed its name from Syntax 900 I, L.P. to Syntax Index Series LP at the time of the
restructuring. Prior to the restructuring, the Partnership operated as a single investment vehicle that was managed as eleven
sub-portfolios. These sub-portfolios reflect the securities included in each of the Syntax 900, 500 and 400 as well as the Syntax
Financials, Energy, Industrials, Information Tools, Information Products, Consumer Products, Food and Healthcare Portfolios. In
the opinion of the General Partner, it was in the best interests of the Partnership and the Limited Partners to create segregated,
individually investable portfolios (“Series”) within the Partnership to hold securities included in each index and
industry grouping described above. The assets, liabilities and income of each Series are accounted for individually and separate
from other Series. The assets and liabilities of the Partnership were split among the newly created Series.
The
investment objective of the Partnership and of the Syntax 500 Series is to deliver returns that provide an equity risk premium
commensurate with the risk of a broad-based, diversified US large cap equity portfolio. The investment universe that Syntax uses
to accomplish its investment objectives are 500 large-cap US companies. An integral part of the Fund’s investment objective
is to provide this broad-based equity exposure while minimizing non-systematic risk. A portfolio is exposed to non-systematic
risk when its intended weights or exposures to specific risks deviate from their original values due to changes in market values
of the constituents of the portfolio. The Fund manages its portfolio’s exposure to non-systematic risk by hierarchically
stratifying the constituents of its portfolio into specific predetermined risk groups and sub-groups. It then assigns specific
relative weights to each predetermined risk exposure. The Fund actively maintains these risk exposures by resetting the weights
no less than quarterly. Syntax believes that through this active risk management process, a portfolio’s exposure to and
the impact from non-systematic risks can be minimized and Syntax can create an optimal risk profile in which the only concentrated
risk is systematic. Traditional indices use another approach: capitalization weighting. These indices typically have relative
weights based on their respective market capitalizations.
71
SYNTAX
INDEX SERIES LP
Syntax
500 Series
NOTES
TO THE FINANCIAL STATEMENTS
December 31, 2018
1.
ORGANIZATION
AND PURPOSE (Continued)
Because
of the hierarchical risk stratification methodology used by the Fund to manage specific risk exposure and control for selection
biases in a portfolio, the Fund’s investment objective is, by definition, not to provide returns consistent with a capitalization-weighted
portfolio. Rather, the Fund’s investment strategy is to provide investors with normalized returns that should be expected
from an equity portfolio that consistently maintains broad-based and well-distributed exposure to each risk category in its portfolio.
By using Syntax’ patented attribute based bar code technology, the Fund’s strategy is to control for these selection
biases that are endemic to a capitalization weighted portfolio and, thus, protect its portfolio from the downside pressure that
results from non-systematic variables. By using the 500 large-cap companies as its investment universe, the Fund provides a direct
ongoing comparison between these two different approaches to portfolio management.
The
debts, liabilities and obligations incurred, contracted for or otherwise existing with respect to the Series are enforceable only
against the assets of the Series and not against any other assets of the Partnership generally or any other Series and none of
the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the Partnership
generally or any other Series are enforceable against the assets of the Series.
2.
SIGNIFICANT
ACCOUNTING POLICIES
(a)
Basis of Accounting
The
financial statements are expressed in US dollars. They are prepared in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”). The Fund is an investment company and follows accounting and reporting
guidance in Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
(b)
Use of Estimates
The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Management believes that the estimates utilized in preparing
its financial statements are reasonable and prudent. Actual results could differ from these estimates.
(c)
Cash and Cash Equivalents
Cash
and cash equivalents include amounts due from banks on demand and interest bearing deposits with original maturities of three
months or less. There are no restrictions on cash balances.
(d)
Investments
Security
transactions are recorded on the trade date basis. Realized gains and losses are computed by use of the specific identification
method. Dividend income is recognized on the ex-dividend date while interest is recorded on an accruals basis.
Securities
are fair valued as of the close of trading on the primary market in which each security trades on the reporting date. Equity securities
are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades.
Securities not traded on the valuation date are fair valued at the mean of the latest quoted bid and ask prices. To the extent
these securities are actively traded and valuation adjustments are not applied, they are categorized in level 1 of the fair value
hierarchy.
(e)
Amounts Due from/to Broker
Amounts
due from broker and amounts due to broker represent amounts receivable and payable resulting from trades pending settlement as
of December 31, 2018.
72
SYNTAX
INDEX SERIES LP
Syntax
500 Series
NOTES
TO THE FINANCIAL STATEMENTS
December 31, 2018
2.
SIGNIFICANT
ACCOUNTING POLICIES (Continued)
(f)
Accrued Expenses
Expenses
such as custodian fees are estimated and accrued monthly. Management believes that the amounts so accrued are reasonable and reflective
of actual charges incurred. The General Partner pays or reimburses the Fund for all Fund expenses including the cost of the audit
of the Partnership’s financial statements, tax return preparation fees, bank charges.
(g)
Expense Cap
The
General Partner has agreed to limit the expenses for the life of the Fund, including management fees and trading costs, charged
to limited partners to no more than 0.25% per annum in the 500 Series. Actual expenses to the Fund exceeded this limit by $16,090
during the year which amount the General Partner reimbursed the Fund.
(h)
Tax
The
Partnership files annual tax returns as a combined whole and, therefore, the Series is included in the Partnership’s annual
tax filing. As a result, the following discussion is related to the Partnership as a whole and not to the Series individually.
The Partnership is subject to the provisions of the FASB ASC 740-10-65-1 requirements for accounting for uncertainty in income
taxes. These standards establish consistent thresholds as it relates to accounting for income taxes. It defines the threshold
for recognizing the benefits of tax-return positions in the financial statements as “more-likely-than-not” to be sustained
by the taxing authority and requires measurement of a tax position meeting the more-likely-than-not criterion, based on the largest
benefit that is more than 50% likely to be realized. The general partner has analyzed the Partnership’s inventory of tax positions
taken with respect to applicable income tax issues for all open tax years (in each respective jurisdiction) and has concluded
that no provision for income tax is required in the Partnership’s financial statements. The federal and state income tax returns
of the Partnership for 2018 are subject to examination by the IRS and state taxing authorities, generally for three years after
they were filed.
(i)
Recently Adopted Accounting Pronouncement
In
August 2018, the FASB issued ASU No. 2018-13 (“ASU 2018-13”), “Fair Value Measurement (Topic 820): Disclosure
Framework – Changes to the Disclosure Requirements for Fair Value Measurement”.
ASU
2018-13 removes the requirement to disclose the following: the policy for the timing of transfers between the levels of the fair
value hierarchy, the valuation processes for Level 3 fair value measurements and the changes in unrealized gains/(losses) for
the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period. ASU 2018-13
also requires the following modification: in lieu of a rollforward for recurring Level 3 investments, the Partnership is required
to disclose the purchases of Level 3 assets and liabilities and the transfers into and out of Level 3 of the fair value hierarchy.
ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, however early adoption is permitted. The General
Partner has elected to early adopt ASU 2018-13 as of January 1, 2018.
73
SYNTAX
INDEX SERIES LP
Syntax
500 Series
NOTES
TO THE FINANCIAL STATEMENTS
December 31, 2018
3.
FAIR
VALUE
Investments
in securities are carried at fair value. Under ASC Topic 820, fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes
a three-tier fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement)
and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC Topic
820 are described below:
Level
1
Unadjusted
quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities:
Level
2
Quoted
prices in markets that are not active or financial instruments for which all significant
inputs are observable, either directly or indirectly:
Level
3
Prices
or valuation that requires inputs that are both significant to the fair value measurement
and unobservable.
There
were no transfers of securities between levels of the fair value hierarchy during the year ended December 31, 2018. All investments
in securities were classified as Level 1 at December 31, 2018 with a fair value of $33,520,427.
4.
MANAGEMENT
FEE
The
Investment Manager (Syntax Advisors, LLC) is entitled to receive a management fee at an annual rate of between 0.25% and 0.30%
calculated based on assets under management as of the last day of each calendar month including General Partner capital. Management
fees are charged at the Series level. The rates charged vary by Series between 0.25% and 0.30%. Management fees are charged to
the 500 Series at 0.25% per annum and totaled $83,112 during the year.
5.
FINANCIAL
INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK
At
December 31, 2018, the Partnership had all of its individual counterparty credit risk with Citibank N.A. and State Street Bank
in the United States. Senior debt of Citibank N.A. is rated A+ by Standard and Poor’s and is rated A1 by Moody’s.
Senior debt of State Street Bank is rated A by Standard and Poor’s and is rated A1 by Moody’s. In addition, all cash
and cash equivalents are held with Citibank N.A. and State Street Bank in the United States. The Partnership continuously monitors
the credit standing of its broker and does not expect any material losses as a result of this concentration. All cash and securities
in the 500 Series are held at State Street Bank.
All
securities transactions of the Partnership are cleared by registered brokers/dealers pursuant to customer agreements. In the event
the brokers/dealers are unable to fulfill their obligations, the Partnership would be subject to credit risk.
74
SYNTAX
INDEX SERIES LP
Syntax
500 Series
NOTES
TO THE FINANCIAL STATEMENTS
December 31, 2018
6.
PORTFOLIO
GAINS AND LOSSES
The
500 Series within the Fund is a passive portfolio in that it owns and maintains a portfolio of securities whose only constituents
are those constituting the Syntax 500. Gains and losses for the Series are allocated pro-rata to those Partners invested in the
Series. Except for additions and deletions to the constituent base that happen from time to time as part of the indexing process,
the underlying securities in the Series do not change. The primary difference between the Fund and a traditional US stock index
is their approach to risk management. As opposed to capitalization-weighting the constituents, the Fund hierarchically stratifies
the constituents into specific risk exposures. The Fund manages the portfolio’s specific risk exposure using a predetermined
weighting algorithm for each group and each hierarchically ordered sub-group. Because the constituents of the Series are dynamic
and their relative market values change over time, the relative weights of these risk groups will change over time also. To adjust
for this, the Fund resets the relative weights of each risk group within the Series on a quarterly basis. This process by which
the Fund resets risk exposures will generate inter-period gains and losses. The only source of gains and/or losses from the sales
of securities for the Fund is from this quarterly rebalancing process of resetting the relative risk exposures of the constituents
within each Series of the Fund and from additions and deletions to the portfolio as the underlying constituents change.
Index
Series
Net
Investment Income
Realized
Gain
Unrealized
(Loss)
Net
Increase/(Decrease) in
Assets from
Operations
Syntax 500 Series
$
603,597
$
297,562
$
(3,696,999
)
$
(2,795,840
)
7.
COMMITMENTS
AND CONTINGENCIES
Management
is aware of no outstanding commitments or contingencies.
8.
FINANCIAL
HIGHLIGHTS
The
following represents operating performance of the 500 Series within the Fund, ratios to average net assets and total return information
for the year ended December 31, 2018:
Syntax
500 Series Highlights
Total return to limited
partners (a)
-6.57
%
Ratio of expenses to average limited
partners’ capital (b)
0.20
%
Ratio of net investment income to
average limited partners’ capital (c)
1.83
%
(a)
Total
return is calculated based on net asset value for the limited partner class taken as
a whole. An individual investor’s return may vary from these returns based on timing
of capital transactions.
(b)
The
expense ratio is calculated as a percentage of average net assets and is calculated for
the limited partner class taken as a whole. The ratio in the table above is net of Expenses
in excess of cap. The computation of such ratios based on the amount of expenses assessed
to an individual investor’s capital may vary from these ratios based on the timing
of capital transactions.
(c)
The
ratio of net investment income is calculated as a percentage of average net assets.
75
SYNTAX
INDEX SERIES LP
Syntax
500 Series
NOTES
TO THE FINANCIAL STATEMENTS
December 31, 2018
10.
RELATED
PARTY TRANSACTIONS
Capital
Transactions
The
General Partner had $1,475,538 invested in the 500 Series at December 31, 2018. Persons who are members of the General Partner’s
family had $156,264 invested in the 500 Series at December 31, 2018 and management of the Investment Manager had $92,632 invested
in the Series at December 31, 2018. As discussed in Note 2(g) above, the General Partner has reimbursed the Fund for expenses
in excess of the cap.
11.
INDEMNIFICATIONS
In the normal course of business, the
Partnership enters into contracts that contain a variety of representations and warranties which provide general indemnifications.
The Partnerships maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against
the Partnership that have not yet occurred. However, based on experience, management expects the risk of loss to be remote.
12.
SUBSEQUENT
EVENTS
In
connection with the preparation of the accompanying financial statements as of December 31, 2018, management has evaluated the
impact of all subsequent events on the Fund through April 24, 2019, the date the financial statements were issued, and has determined
that there were no additional subsequent events requiring recognition or disclosure other than as set forth below.
On
January 2, 2019, the Syntax 500 Series made an in-kind, tax free distribution of its entire Net Asset Value to the Syntax Stratified
LargeCap ETF (ticker: SSPY). In exchange for the in-kind contribution, the Syntax 500 Series received 841,316 shares of the Syntax
Stratified LargeCap ETF. Such shares, and residual cash, were subsequently distributed on a pro rata basis to the investors in
the Syntax 500 Series. Following the distribution, the Syntax 500 Series ceased trading activities.
76
APPENDIX
A
PROXY
VOTING POLICIES
Background
An
investment adviser has a duty of care and loyalty to its Clients and Investors with respect to monitoring corporate events and
exercising proxy authority in the best interests of such Clients and Investors. Vanguard Consulting Group will adhere to Rule
206(4)-6 of the Advisers Act and all other applicable laws and regulations in regard to the voting of proxies.
Policies
and Procedures
As
an investment advisor, VCG may have the authority to vote proxies relating to securities on behalf of clients. In certain circumstances,
when permitted by the client VCG may outsource the proxy voting. These policies and procedures are designed to deal with the complexities
which may arise in cases where VCG’s interests conflict or appear to conflict with the interests of its clients and to communicate
to clients the methods and rationale whereby VCG exercises proxy authority. This document is available to any client upon request.
VCG will also make available the record of VCG’s votes promptly upon request.
The
CCO of VCG is responsible for monitoring the effectiveness of this policy. Unless contractually obligated to vote in a certain
manner, VCG will reach its voting decisions independently, after appropriate investigation. It does not generally intend to delegate
its decision making or to rely on the recommendations of any third party, although it may take such recommendations into consideration.
Where VCG deviates from the guidelines listed below, or depends upon a third party to make the decision, the reasons shall be
documented. VCG may consult with such other experts, such as CPA’s, investment bankers, attorneys, etc., as it regards necessary
to help it reach informed decisions.
Non-Voting
of Proxies
VCG
will generally not vote proxies in the following situations:
•
Proxies
are received for equity securities where, at the time of receipt, VCG’s position,
across all clients that it advises, is less than, or equal to, 1% of the total outstanding
voting equity (an “immaterial position”).
•
Proxies
are received for equity securities where, at the time of receipt, VCG’s Clients
and Investors no longer hold that position.
Management
Proposals
Absent
good reason to the contrary, VCG will generally give substantial weight to management recommendations regarding voting. This is
based on the view that management is usually in the best position to know which corporate actions are in the best interests of
common shareholders as a whole.
77
VCG
will generally vote for routine matters proposed by issuer management, such as setting a time or place for an annual meeting,
changing the name or fiscal year of the company, or voting for directors in favor of the management proposed slate. Other routine
matters in which VCG will generally vote along with company management include: appointment of auditors, fees paid to board members,
and change in the board structure. As long as the proposal does not: i) measurably change the structure, management, control or
operations of the company; ii) measurably change the terms of, or fees or expenses associated with, an investment in the company;
and the proposal is consistent with customary industry standards and practices, as well as the laws of the state of incorporation
applicable to the company, VCG will generally vote along with management.
Non-Routine
Matters
Non-routine
matters might include such things as:
•
Amendments to management incentive plans
•
The authorization of additional common or preferred stock
•
Initiation or termination of barriers to takeover or
acquisition
•
Mergers or acquisitions
•
Corporate reorganizations
•
“Contested” director slates
In
non-routine matters, VCG will attempt to be generally familiar with the questions at issue. Non- routine matters will be voted
on a case-by-case basis, given the complexity of many of these issues.
Processing
Proxy Votes
The
CCO will be responsible for determining whether each proxy is for a “routine” matter, as described above, and whether
the Policy and Procedures set forth herein actually address the specific issue. For proxies that are not clearly “routine”,
VCG, in conjunction with the CCO, will determine how to vote each such proxy by applying these policies and procedures. Upon making
a decision, the proxy will be executed and returned for submission to the company. VCG’s proxy voting record will be updated
at the time the proxy is submitted.
An
independent proxy voting advisory and research firm may be appointed as a “Proxy Service” for voting VCG’s proxies
after approval by the CCO.
Documenting
Proxy Voting
VCG
will maintain copies of each proxy statement received and of each executed proxy; however, VCG may rely on the SEC’s EDGAR
system for records of proxy statements. VCG will also maintain records relating to each proxy, including the voting decision on
each proxy, and any documents that were material to making the voting decision.
VCG
will also maintain a record of each written request from a Client or Investor for proxy voting information and VCG’s written
response to any request from a Client or Investor for proxy voting information. These records shall be maintained in compliance
with Rule 204-2.
78
Actual
and Apparent Conflicts of Interest
Potential
conflicts of interest between VCG and its clients may arise when VCG’s relationships with an issuer or with a related third
party actually conflict, or appear to conflict, with the best interests of the VCG’s clients.
If
the issue is specifically addressed in these policies and procedures, VCG will vote in accordance with these policies. In a situation
where the issue is not specifically addressed in these Policies and Procedures and an apparent or actual conflict exists, VCG
shall either: i) delegate the voting decision to an independent third party; ii) inform clients of the conflict of interest and
obtain advance consent of a majority of such clients for a particular voting decision; or iii) obtain approval of a voting decision
from VCG’s CCO, who will be responsible for documenting the rationale for the decision made and voted.
In
all such cases, VCG will make disclosures to clients of all material conflicts and will keep documentation supporting its voting
decisions.
79
Syntax
ETF Trust
PART C - OTHER INFORMATION
Item 28.
Exhibits
(a)
Declaration of Syntax ETF Trust (“Registrant”) is incorporated herein by reference to Exhibit (a) of the Registrant’s Initial Registration Statement on Form N-1A, as filed with the SEC on January 18, 2017.
(b)
Amended and Restated By-Laws of the Registrant are filed herewith.
(c)
Not applicable.
(d)
(i)
Investment Advisory Agreement by and between Registrant and Syntax Advisors, LLC, is incorporated herein by reference to Exhibit (d)(i) of Pre-Effective Amendment 5, as filed with the SEC on August 22, 2018.
(ii)
Investment Sub-Advisory Agreement by and between Syntax Advisors, LLC and Vantage Consulting Group, is incorporated herein by reference to Exhibit (d)(ii) of Pre-Effective Amendment 5, as filed with the SEC on August 22, 2018.
(iii)
Expense Limitation and Reimbursement Agreement by between the Registrant and the Syntax Advisors, LLC, is incorporated herein by reference to Exhibit (d)(iii) of Pre-Effective Amendment 5, as filed with the SEC on August 22, 2018.
(e)
ETF Distribution Agreement by and between Registrant and Foreside Fund Services, LLC, is incorporated herein by reference to Exhibit (e) of Pre-Effective Amendment 5, as filed with the SEC on August 22, 2018.
(f)
Not Applicable.
(g)
Master Custodian Agreement by and between Registrant and State Street Bank and Trust Company, is incorporated herein by reference to Exhibit (g) of Pre-Effective Amendment 5, as filed with the SEC on August 22, 2018.
(h)
(i)
Administration Agreement by and between Registrant and State Street Bank and Trust Company, is incorporated herein by reference to Exhibit (h)(i) of Pre-Effective Amendment 5, as filed with the SEC on August 22, 2018.
(ii)
Transfer Agency and Service Agreement by and between Registrant and State Street Bank and Trust Company, is incorporated herein by reference to Exhibit (h)(ii) of Pre-Effective Amendment 5, as filed with the SEC on August 22, 2018.
(iii)
Fund CCO and AMLO Agreement with Foreside Fund Officer Services, LLC, is incorporated herein by reference to Exhibit (h)(iii) of Pre-Effective Amendment 5, as filed with the SEC on August 22, 2018.
(i)
Not Applicable.
(j)
(i)
Consent of Independent Registered Public Accounting Firm, is filed herewith.
(ii)
Consent of Independent Auditors, is filed herewith.
(k)
Not Applicable.
(l)
Not Applicable.
(m)
Rule 12b-1 Plan, is incorporated herein by reference to Exhibit (m) of Pre-Effective Amendment 5, as filed with the SEC on August 22, 2018.
(n)
Not Applicable.
(o)
Reserved.
(p)
(i)
Code of Ethics of the Registrant is incorporated herein by reference to Exhibit (p)(i) of Pre-Effective Amendment 5, as filed with the SEC on August 22, 2018.
(ii)
Code of Ethics of Syntax Advisors, LLC is incorporated herein by reference to Exhibit (p)(ii) of Pre-Effective Amendment 5, as filed with the SEC on August 22, 2018..
(iii)
Code of Ethics of Vantage Consulting Group is incorporated herein by reference to Exhibit (p)(iii) of Pre-Effective Amendment 5, as filed with the SEC on August 22, 2018..
(iv)
Code of Ethics of Foreside Fund Services, LLC is incorporated herein by reference to Exhibit (p)(iv) of Pre-Effective Amendment 5, as filed with the SEC on August 22, 2018..
(q)
Power of Attorney dated February 15, 2019, is filed herewith.
Item 29.
Persons Controlled by or under Common Control with Registrant.
No person is directly or indirectly
controlled by or under common control with the Registrant.
Additionally, see the “Control
Persons and Principal Holders of Securities” section of the Statement of Additional Information for a list of shareholders
who own more than 5% of the fund’s outstanding shares and such information is incorporated by reference to this Item.
Item 30.
Indemnification
Reference is made to Section 8 of the
Registrant’s Trust Instrument referenced in Item 28(a)(1) with respect to the indemnification of the Registrant’s trustees
and officers, which is set forth below:
Section 8.1 General Provisions.
Section 8.1.1 General Limitation of Liability.
No personal liability for any debt or obligation of the Trust shall attach to any Trustee of the Trust. Without limiting the foregoing,
a Trustee shall not be responsible for or liable in any event for any neglect or wrongdoing of any officer, agent, employee, investment
advisor, subadvisor, principle underwriter or custodian of the Trust, nor shall any Trustee be responsible or liable for the act
or omission of any other Trustee. Every note, bond, contract, instrument, certificate, Share or undertaking and every other act
or thing whatsoever executed or done by or on behalf of the Trust or the Trustees or any Trustee in connection with Trust shall
be conclusively deemed to have been executed or done only in or with respect to their, his or her capacity as Trustees or Trustee
and neither such Trustees or Trustee nor the Shareholders shall be personally liable thereon.
Section 8.1.2 Notice
of Limited Liability. Every note, bond, contract, instrument, certificate or undertaking made or issued by the Trustees or
by any officers or officer shall recite that the same was executed or made by or on behalf of the Trust by them as Trustees or
Trustee or as officers or officer and not individually and that the obligations of such instrument are not binding upon any of
them or the Shareholders individually but are binding only upon the assets and property of the Trust or belonging or attributable
to a Series or Class thereof, and may contain such further recitals as they, he or she may deem appropriate, but the omission
thereof shall not operate to bind any Trustees or Trustee or officers or officer or Shareholders or Shareholder individually.
Section 8.1.3 Liability
Limited to Assets of the Trust. All persons extending credit to, contracting with or having any claim against the Trust shall
look only to the assets of the Trust or belonging to a Series or Class thereof, as appropriate, for payment under such credit,
contract or claim, and neither the Shareholders nor the Trustees nor any of the Trust’s officers, employees or agents, whether
past, present or future, shall be personally liable therefor.
Section 8.2 Liability
of Trustee. The exercise by the Trustees of their powers and discretion hereunder shall be binding upon the Trust, the Shareholders
and any other person dealing with the Trust. The liability of this Trustees, however, shall be limited by this Section 8.2.
Section 8.2.1 Liability
for Own Actions. A Trustee shall be liable to the Trust or the Shareholders only for his or her own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee, and for nothing
else, and shall not be liable for errors of judgment or mistakes of fact or law.
Section 8.2.2 Liability
for Actions of Others. The Trustees shall not be responsible or liable in any event for any neglect or wrongdoing of any officer,
agent, employee, consultant, advisor, administrative distributor, principal underwriter, custodian, transfer agent, dividend disbursing
agent, Shareholder servicing agent or accounting agent of the Trust, nor shall any Trustee be responsible for any act or omission
of any other Trustee.
Section 8.2.3 Advice
of Experts and Reports of Others. The Trustees may take advice of counsel or other experts with respect to the meaning and
operation of this Declaration of Trust and their duties as Trustees hereunder, and shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice. In discharging their duties, the Trustees, when
acting in good faith, shall be entitled to rely upon the books of account of the Trust and upon written reports made to the Trustees
by any officers appointed by them, any independent public accountant and (with respect to the subject matter of the contract involved)
any officer, partner or responsible employee of any other party to any contract entered into hereunder.
Section 8.2.4 Bond.
Except as provided for in Section 8.5.4, the Trustees shall not be required to give any bond as such, nor any surety
if a bond is required.
Section 8.2.5 Declaration
of Trust Governs Issues of Liability. The provisions of this Declaration of Trust, to the extent that they restrict the duties
and liabilities of the Trustees otherwise existing at law or in equity, are agreed by the Shareholders and all other Persons bound
by this Declaration of Trust to replace such other duties and liabilities of the Trustees.
Section 8.3 Liability
of Third Persons Dealing with Trustees. No person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees or to see to the application of any payments made or property
transferred to the Trust or upon the order of the Trustees.
Section 8.4 Liability
of Shareholders. Without limiting the provisions of this Section 8.4 or the DSTA, the Shareholders shall be entitled
to the same limitation of personal liability extended to stockholders of private corporations organized for profit under the General
Corporation Law of the State of Delaware.
Section 8.4.1 Limitation
of Liability. No personal liability for any debt or obligation of the Trust shall attach to any Shareholder or former Shareholder
of the Trust, and neither the Trustees, nor any officer, employee or agent of the Trust shall have any power to bind any Shareholder
personally or to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay by way of subscription for any Shares or otherwise.
Section 8.4.2 Indemnification
of Shareholders. In case any Shareholder or former Shareholder of the Trust shall be held to be personally liable solely by
reason of being or having been a Shareholder and not because of such Shareholder’s acts or omissions or for some other reason,
the Shareholder or former Shareholder (or, in the case of a natural person, his or her heirs, executors, administrators or other
legal representatives or, in the case of a corporation or other entity, its corporate or other general successor) shall be entitled
out of the assets of the Trust to be held harmless from and indemnified against all loss and expense arising from such liability;
provided, however, there shall be no liability or obligation of the Trust arising hereunder to reimburse any Shareholder
for taxes paid by reason of such Shareholder’s ownership of any Shares or for losses suffered by reason of any changes in
value of any Trust assets. The Trust shall, upon request by the Shareholder or former Shareholder, assume the defense of any claim
made against the Shareholder for any act or obligation of the Trust and satisfy any judgment thereon.
Section 8.5 Indemnification.
Section 8.5.1 Indemnification
of Covered Persons. Subject to the exceptions and limitations contained in Section 8.5.2, every person who is
or has been a Trustee, officer, employee or agent of the Trust, including persons who serve at the request of the Trust as directors,
trustees, officers, employees or agents of another organization in which the Trust has an interest as a shareholder, creditor
or otherwise (each, a “Covered Person”), shall be indemnified by the Trust to the fullest extent permitted
by law against liability and against all expenses reasonably incurred or paid by him or her in connection with any claim, action,
suit or proceeding in which he or she becomes involved as a party or otherwise by virtue of his or her being or having been such
a director, trustee, officer, employee or agent and against amounts paid or incurred by him or her in settlement thereof.
Section 8.5.2 Exceptions.
No indemnification shall be provided hereunder to a Covered Person:
(a) for
any liability to the Trust or its Shareholders arising out of a final adjudication by the court or other body before which the
proceeding was brought that the Covered Persons engaged in willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office;
(b) with
respect to any matter as to which the Covered Person shall have been finally adjudicated not to have acted in good faith in the
reasonable belief that his or her action was in the best interests of the Trust; or
(c) in
the event of a settlement or other disposition not involving a final adjudication (as provided in paragraph (a) or
(b) of this Section 8.5.2) and resulting in a payment by a Covered Person, unless there has been either a determination
that such Covered Person did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office or position by the court or other body approving the settlement or other disposition,
or a reasonable determination, based on a review of readily available facts (as opposed to a full trial-type inquiry), that he
or she did not engage in such conduct, such determination being made by: (i) a vote of a majority of the Disinterested Trustees
(as such term is defined in Section 8.5.2) acting on the matter (provided that a majority of Disinterested Trustees
then in office act on the matter); or (ii) a written opinion of independent legal counsel.
Section 8.5.3 Rights
of Indemnification. The rights of indemnification herein provided may be insured against by policies maintained by the Trust,
and shall be severable, shall not affect any other rights to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be a Covered Person, and shall inure to the benefit of the heirs, executors and administrators
of such a person. Nothing contained herein shall affect any rights to indemnification to which Trust personnel other than Covered
Persons may be entitled by contract or otherwise under law.
Section 8.5.4 Expenses
of Indemnification. Expenses of preparation and presentation of a defense to any claim, action, suit or proceeding subject
to a claim for indemnification under this Section 8.5 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay such amount if it is ultimately determined that he or
she is not entitled to indemnification under this Section 8.5, provided that either:
(a) Such
undertaking is secured by a surety bond or some other appropriate security of the Trust shall be insured against losses arising
out of any such advances; or
(b) a
majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office
act on the matter) or independent legal counsel in a written opinion shall determine, based upon a review of the readily available
facts (as opposed to the facts available upon a full trial), that there is a reason to believe that the recipient ultimately will
be found entitled to indemnification.
Section 8.5.5 Certain
Defined Terms Relating to Indemnification. As used in this Section 8.5, the following words shall have the meanings
set forth below:
(a) “Claim,”
“action,” “suit” or “proceeding” shall apply to all claims, actions, suits, proceedings (civil,
criminal, administrative or other, including appeals), actual or threatened;
(b) a
“Disinterested Trustee” is one (i) who is not an Interested Person of the Trust (including anyone, as such Disinterested
Trustee, who has been exempted from being an Interested Person by any rule, regulation or order of the Commission), and (ii) against
whom none of such actions, suits or other proceedings or another action, suit or other proceeding on the same or similar grounds
is then or has been pending; and
(c) “Liability”
and “expenses” shall include, without limitation, attorneys’ fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
Section 8.6 Jurisdiction, Venue, and Waiver
of Jury Trial. In accordance with Section 3804(e) of the DSTA, any suit, action or proceeding brought by or in the right of
any Shareholder or any person claiming any interest in any Shares seeking to enforce any provision of, or based on any matter arising
out of, or in connection with, this Declaration of Trust or the Trust, any Series or Class or any Shares, including any claim of
any nature against the Trust, any Series or Class, the Trustees or officers of the Trust, shall be brought exclusively in the Court
of Chancery of the State of Delaware to the extent there is subject matter jurisdiction in such court for the claims asserted or,
if not, then in the Superior Court of the State of Delaware, and all Shareholders and other such Persons hereby irrevocably consent
to the jurisdiction of such courts (and the appropriate appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waive, to the fullest extent permitted by law, any objection they may make now or hereafter have to the laying of the
venue of any such suit, action or proceeding in such court or that any such suit, action or proceeding brought in any such court
has been brought in an inconvenient forum and further, IN CONNECTION WITH ANY SUCH SUIT, ACTION, OR PROCEEDING BROUGHT IN THE SUPERIOR
COURT IN THE STATE OF DELAWARE, ALL SHAREHOLDERS AND ALL OTHER SUCH PERSONS HEREBY IRREVOCABLY WAIVE THE RIGHT TO A TRIAL BY JURY
TO THE FULLEST EXTENT PERMITTED BY LAW. All Shareholders and other such persons agree that service of summons, complaint or other
process in connection with any proceedings may be made by registered or certified mail or by overnight courier addressed to such
person at the address shown on the books and records of the Trust for such person or at the address of the person shown on the
books and records of the Trust with respect to the Shares that such person claims an interest in. Service of process in any such
suit, action or proceeding against the Trust or any Trustee or officer of the Trust may be made at the address of the Trust’s
registered agent in the State of Delaware. Any service so made shall be effective as if personally made in the State of Delaware.
Item 31.
Business and Other Connections of Investment Adviser
Syntax Advisors, LLC (the “Adviser”)
serves as the investment adviser for the Registrant with respect to each of its series. The principal business address
of the Adviser is 110 East 59th Street, 31st Floor New York, NY 10022. With respect to the Adviser, the response
to this Item is incorporated by reference to the Adviser’s Uniform Application for Investment Adviser Registration (“Form
ADV”) on file with the Securities and Exchange Commission (“SEC”) and dated March 28, 2018.
Vantage Consulting Group (the “Sub-Adviser”)
serves as the investment sub-adviser for the Registrant with respect to each of its series. The principal business address
of the Sub-Adviser is 3500 Pacific Ave. Virginia Beach, VA 23451. With respect to the Sub-Adviser, the response to this
Item is incorporated by reference to the Sub-Adviser’s Uniform Application for Investment Adviser Registration (“Form
ADV”) on file with the Securities and Exchange Commission (“SEC”) and dated March 29, 2018.
The Adviser’s and Sub-Adviser’s
respective Form ADVs may be obtained, free of charge, at the SEC’s website at www.adviserinfo.sec.gov.
Item 32.
Principal Underwriters.
(a)
Foreside Fund Services, LLC (the “Distributor”) serves as principal underwriter for the following investment companies
registered under the Investment Company Act of 1940, as amended:
1.
ABS Long/Short Strategies Fund
2.
Absolute Shares Trust
3.
AdvisorShares Trust
4.
American Century ETF Trust
5.
ARK ETF Trust
6.
Braddock Multi-Strategy Income Fund, Series of Investment Managers Series Trust
7.
Bridgeway Funds, Inc.
8.
Brinker Capital Destinations Trust
9.
Calvert Ultra-Short Duration Income NextShares, Series of Calvert Management Series
10.
Center Coast Brookfield MLP & Energy Infrastructure Fund
Robinson Opportunistic Income Fund, Series of Investment Managers Series Trust
59.
Robinson Tax Advantaged Income Fund, Series of Investment Managers Series Trust
60.
Salient MF Trust
61.
SharesPost 100 Fund
62.
Six Circles Trust
63.
Sound Shore Fund, Inc.
64.
Steben Alternative Investment Funds
65.
Strategy Shares
66.
Syntax ETF Trust
67.
The 504 Fund (f/k/a The Pennant 504 Fund)
68.
The Chartwell Funds
69.
The Community Development Fund
70.
The Relative Value Fund
71.
Third Avenue Trust
72.
Third Avenue Variable Series Trust
73.
Tidal ETF Trust
74.
TIFF Investment Program
75.
Transamerica ETF Trust
76.
U.S. Global Investors Funds
77.
Variant Alternative Income Fund
78.
VictoryShares Developed Enhanced Volatility Wtd ETF, Series of Victory Portfolios II
79.
VictoryShares Dividend Accelerator ETF, Series of Victory Portfolios II
80.
VictoryShares Emerging Market High Div Volatility Wtd ETF, Series of Victory Portfolios II
81.
VictoryShares Emerging Market Volatility Wtd ETF, Series of Victory Portfolios II
82.
VictoryShares International High Div Volatility Wtd ETF, Series of Victory Portfolios II
83.
VictoryShares International Volatility Wtd ETF, Series of Victory Portfolios II
84.
VictoryShares US 500 Enhanced Volatility Wtd ETF, Series of Victory Portfolios II
85.
VictoryShares US 500 Volatility Wtd ETF, Series of Victory Portfolios II
86.
VictoryShares US Discovery Enhanced Volatility Wtd ETF, Series of Victory Portfolios II
87.
VictoryShares US EQ Income Enhanced Volatility Wtd ETF, Series of Victory Portfolios II
88.
VictoryShares US Large Cap High Div Volatility Wtd ETF, Series of Victory Portfolios II
89.
VictoryShares US Multi-Factor Minimum Volatility ETF, Series of Victory Portfolios II
90.
VictoryShares US Small Cap High Div Volatility Wtd ETF, Series of Victory Portfolios II
91.
VictoryShares US Small Cap Volatility Wtd ETF, Series of Victory Portfolios II
92.
Vivaldi Opportunities Fund
93.
West Loop Realty Fund, Series of Investment Managers Series Trust (f/k/a Chilton Realty Income & Growth Fund)
94.
Wintergreen Fund, Inc.
95.
WisdomTree Trust
96.
WST Investment Trust
(b)
The following are the Officers and Manager of the Distributor, the Registrant’s underwriter. The Distributor’s
main business address is Three Canal Plaza, Suite 100, Portland, Maine 04101.
Name
Address
Position with Underwriter
Position
with Registrant
Richard J. Berthy
Three Canal Plaza, Suite 100, Portland, ME 04101
President, Treasurer and Manager
None
Mark A. Fairbanks
Three Canal Plaza, Suite 100, Portland, ME 04101
Vice President
None
Jennifer K. DiValerio
899 Cassatt Road, 400 Berwyn Park, Suite 110, Berwyn, PA 19312
Vice President
None
Nanette K. Chern
Three Canal Plaza, Suite 100, Portland, ME 04101
Vice President and Chief Compliance Officer
None
Jennifer E. Hoopes
Three Canal Plaza, Suite 100, Portland, ME 04101
Secretary
None
(c)
Not applicable.
Item 33.
Location of Accounts and Records
The account books and other documents
required to be maintained by Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder
will be maintained at the offices of:
(a)
Syntax Advisors, LLC, 110 East 59th Street, 31st
Floor New York, NY 10022 (records as investment adviser);
(b)
Vantage Consulting Group, 3500 Pacific Ave. Virginia Beach, VA 23451;
(c)
State Street Bank and Trust Company, One Lincoln Street, Boston, MA 02111 (records as administrator,
custodian and transfer agent); and
(d)
Foreside Fund Services, LLC, Three Canal Plaza, Suite 100, Portland, Maine 04101 (records as distributor).
Item 34.
Management Services
The Registrant has no management related
service contract which is not discussed in Part A or Part B of this form.
Item 35.
Undertakings
Not Applicable.
SIGNATURES
Pursuant to the requirements of the
Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for
effectiveness of this Registration Statement under Rule 485(b) under the Securities Act and has duly caused this Post-Effective
Amendment No. 2 to Registration Statement No. 333-215607 to be signed on its behalf by the undersigned, duly authorized, in the
City of New York, State of New York, on the 25th day of April, 2019.
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment No. 2 to its Registration Statement has been signed by the following persons in the capacities and
on the dates indicated:
Signature
Title
Date
/s/ Rory B. Riggs
Chief Executive Officer (Principal Executive Officer) and Trustee
April 25, 2019
Rory B. Riggs
/s/ Kathy Cuocolo
President, Treasurer (Principal Financial Officer) and Trustee
April 25, 2019
Kathy Cuocolo
/s/ Deborah Fuhr*
Trustee
April 25, 2019
Deborah Fuhr
/s/ George Hornig*
Trustee
April 25, 2019
George Hornig
/s/ Richard Lyons*
Trustee
April 25, 2019
Richard Lyons
/s/ Stewart Myers*
Trustee
April 25, 2019
Steward Myers
* by: /s/ Kathy Cuocolo
Kathy Cuocolo
(Attorney-in-Fact and pursuant to
Power of Attorney)
These Bylaws of Syntax ETF
Trust, a Delaware statutory trust (the “Trust”), are subject to the Declaration of Trust, dated January 12,
2017, as from time to time amended, supplemented or restated (the “Trust Agreement”). Capitalized terms used
herein and not otherwise defined shall have the meaning assigned to them in the Trust Agreement.
Article
I
PRINCIPAL
OFFICE
Section 1.1 Principal
Office. The principal office of the Trust shall be located in New York, New York, or such other location as the Trustees may,
from time to time, determine. The Trust may establish and maintain such other offices and places of business as the Trustees may,
from time to time, determine.
Section 1.2 Registered
Agent. The Trustees shall establish a registered office in the State of Delaware and shall appoint a registered agent for service
of process on the Trust, which agent may be either an individual resident in the State of Delaware whose business office is identical
with the Trust's registered office, or a domestic corporation, or a foreign corporation authorized to transact business in the
State of Delaware, having a business office identical with such registered office.
Article
II
OFFICERS
AND THEIR ELECTION
Section 2.1 Officers.
The officers of the Trust shall be a CEO, a President, a Treasurer, a Secretary, a Chief Compliance Officer and such other officers
as the Trustees may from time to time elect. The Trustees may delegate to any officer or committee the power to appoint any subordinate
officers or agents. It shall not be necessary for any Trustee or other officer to be a Shareholder of the Trust.
Section 2.2 Election
of Officers. The Treasurer and Secretary shall be chosen by the Trustees. The CEO and the President shall be chosen by the
Trustees from among their number. Two or more offices may be held by a single person, except the offices of President and Secretary.
Subject to the provisions of Section 3.13, the CEO, the President, the Treasurer and Secretary shall each hold office until their
successors are chosen and qualified and all other officers shall hold office at the pleasure of the Trustees.
Section 2.3 Resignations.
Any officer of the Trust may resign, Section 2.2 notwithstanding, by filing a written resignation with the CEO, the Trustees or
the Secretary, which resignation shall take effect upon being so filed or at such time as may be therein specified.
Article
III
POWERS
AND DUTIES OF OFFICERS AND TRUSTEES
Section 3.1 Management
of the Trust; General. The business and affairs of the Trust shall be managed by, or under the direction of, the Trustees,
and they shall have all powers necessary and desirable to carry out their responsibilities, so far as such powers are not inconsistent
with the laws of the State of Delaware, the Trust Agreement or with these Bylaws.
Section 3.2 Executive
and Other Committees. The Trustees may elect from their own number an executive committee, which shall have any or all the
powers of the Trustees while the Trustees are not in session. The Trustees may also elect from their own number other committees
from time to time. The number composing such committees and the powers conferred upon the same are to be determined by vote of
a majority of the Trustees. All members of such committees shall hold such offices at the pleasure of the Trustees. The Trustees
may abolish any such committee at any time. Any committee to which the Trustees delegate any of their powers or duties shall keep
records of its meetings and shall report its actions to the Trustees. The Trustees shall have power to rescind any action of any
committee, but no such rescission shall have retroactive effect.
Section 3.3 Compensation.
Each Trustee and each committee member may receive such compensation for his or her services and reimbursement for his or her expenses
as may be fixed from time to time by resolution of the Trustees. The salaries or other compensation, if any, of the officers of
the Trust shall be fixed from time to time by resolution of the Trustees, provided that the compensation of the Chief Compliance
Officer must be approved by a majority of Trustees, including a vote of a majority of Trustees who are not “interested persons”
under the 1940 Act (“1940 Act Majority”), as required by the 1940 Act or rules thereunder.
Section 3.4 Chairman
of the Trustees. The Trustees may appoint from among their number a Chairman, who shall serve as such at the pleasure of the
Trustees. When present, the Chairman shall preside at all meetings of the Shareholders and the Trustees, and the Chairman may,
subject to the approval of the Trustees, appoint another Trustee to preside at such meetings in his or her absence. The Chairman
shall perform such other duties as the Trustees may from time to time designate. If the Trustees do not appoint a Chairman, the
CEO shall perform the duties of the Chairman.
Section 3.5 Chief Executive
Officer. The Chief Executive Officer shall have general responsibility for implementation of the policies of the Trust, as
determined by the Board of Trustees, and for the management of the business and affairs of the Trust. He or she may execute any
deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by
the Board of Trustees or by these By-laws to some other officer or agent of the Trust or shall be required by law to be otherwise
executed; and in general shall perform all duties incident to the office of chief executive officer and such other duties as may
be prescribed by the Board of Trustees from time to time.
Section 3.6 President.
The President shall perform such duties as the Chief Executive Officer and/or the Trustees may from time to time designate including
the power to employ attorneys, accountants and other advisers and agents for the Trust.
-2-
Section 3.7 Treasurer.
The Treasurer shall be the principal financial and accounting officer of the Trust. The Treasurer shall make annual reports regarding
the business and condition of the Trust, which reports shall be preserved in Trust records. The Treasurer shall perform such additional
duties as the Trustees and/or CEO may from time to time designate.
Section 3.8 Secretary.
The Secretary shall record in books kept for the purpose all votes and proceedings of the Trustees and the Shareholders at their
respective meetings. The Secretary shall have the custody of the seal of the Trust. The Secretary shall perform such additional
duties as the Trustees and/or CEO may from time to time designate.
Section 3.9 Vice President.
Any Vice President of the Trust shall perform such duties as the Trustees or the CEO may from time to time designate. At the request
or in the absence or disability of the President, the Vice President (or, if there are two or more Vice Presidents, then the most
senior of the Vice Presidents present and able to act) may perform all the duties of the President and, when so acting, shall have
all the powers of and be subject to all the restrictions upon the President.
Section 3.10 Assistant
Treasurer. Any Assistant Treasurer of the Trust shall perform such duties as the Trustees or the Treasurer may from time to
time designate, and, in the absence of the Treasurer, the Assistant Treasurer (or, if there are two or more Assistant Treasurers,
then the most senior of the Assistant Treasurers present and able to act), may perform all the duties of the Treasurer.
Section 3.11 Assistant
Secretary. Any Assistant Secretary of the Trust shall perform such duties as the Trustees or the Secretary may from time to
time designate, and, in the absence of the Secretary, the Assistant Secretary (or, if there are two or more Assistant Secretaries,
then the most senior of the Assistant Secretaries present and able to act), may perform all the duties of the Secretary.
Section 3.12 Subordinate
Officers. The Trustees from time to time may appoint such other officers or agents as they may deem advisable, each of whom
shall have such title, hold office for such period, have such authority and perform such duties as the Trustees may determine.
The Trustees from time to time may delegate to one or more officers or committees of Trustees the power to appoint any such subordinate
officers or agents and to prescribe their respective terms of office, authorities and duties.
Section 3.13 Chief
Compliance Officer. There shall be an officer of the Trust designated as the Chief Compliance Officer and appointed by vote
of a 1940 Act Majority, as required by the 1940 Act or rules thereunder. The Chief Compliance Officer shall be responsible for
administering the compliance program maintained by the Trust for complying with the federal securities laws and shall perform such
additional duties as the Trustees from time to time may designate.
Section 3.14 Surety
Bonds. The Trustees may require any officer or agent of the Trust to execute a bond (including, without limitation, any bond
required by the Investment Company Act of 1940, as amended (the “1940 Act”), and the rules and regulations of
the Securities and Exchange Commission (“Commission”)) to the Trust in such sum and with such surety or sureties
as the Trustees may determine, conditioned upon the faithful performance of his or her duties to the Trust, including responsibility
for negligence and for the accounting of any of the Trust’s property, funds or securities that may come into his or her hands.
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Section 3.15 Removal.
Any officer may be removed from office whenever in the judgment of the Trustees the best interest of the Trust will be served thereby,
by the vote of a majority of the Trustees given at any regular meeting or any special meeting of the Trustees. In addition, any
officer or agent appointed in accordance with the provisions of Section 3.11 hereof may be removed, either with or without cause,
by any officer upon whom such power of removal shall have been conferred by the Trustees.
Section 3.16 Remuneration.
The salaries or other compensation, if any, of the officers of the Trust shall be fixed from time to time by resolution of the
Trustees.
Article
IV
SHAREHOLDERS’
MEETINGS
Section 4.1 Special
Meetings. A special meeting of the Shareholders shall be called by the Secretary whenever (i) ordered by the CEO of the Trust,
(ii) ordered by the Trustees; or (iii) requested in writing by the Shareholders holding at least ten percent of the outstanding
shares entitled to vote (provided that such Shareholders prepay the costs to the Trust of preparing and mailing the notice of the
meeting). Whenever ten or more Shareholders meeting the qualifications set forth in Section 16(c) of the 1940 Act, as the same
may be amended from time to time, seek the opportunity of furnishing materials to the other Shareholders with a view to obtaining
signatures on such a request for a meeting, the Trustees shall comply with the provisions of said Section 16(c) with respect to
providing such Shareholders access to the list of the Shareholders of record of the Trust or the mailing of such materials to such
Shareholders of record, subject to any rights provided to the Trust or any Trustees provided by said Section 16(c). If the Secretary,
when so ordered or requested, refuses or neglects for more than 30 days to call such special meeting, the Trustees or the Shareholders
so requesting, may, in the name of the Secretary, call the meeting by giving notice thereof in the manner required when notice
is given by the Secretary. If the meeting is a meeting of the Shareholders of one or more Series or Classes, but not a meeting
of all Shareholders of the Trust, then only special meetings of the Shareholders of such one or more Series or Classes shall be
called and only the shareholders of such one or more Series or Classes shall be entitled to notice of and to vote at such meeting.
Section 4.2 Notices.
Except as above provided, notices of any meeting of the Shareholders shall be given by the Secretary by delivering or mailing,
postage prepaid, to each Shareholder entitled to vote at said meeting, written or printed notification of such meeting at least
15 days before the meeting, to such address as may be registered with the Trust by the Shareholder. Notice of any Shareholder meeting
need not be given to any Shareholder if a written waiver of notice, executed before or after such meeting, is filed with the record
of such meeting, or to any Shareholder who shall attend such meeting in person or by proxy. Notice of adjournment of a Shareholders’
meeting to another time or place need not be given, if such time and place are announced at the meeting or reasonable notice is
given to persons present at the meeting and the adjourned meeting is held within a reasonable time after the date set for the original
meeting.
-4-
Section 4.3 Voting;
Proxies. Subject to the provisions of the Trust Agreement, Shareholders entitled to vote may vote either in person or by proxy,
provided that either (i) an instrument authorizing such proxy to act is executed by the Shareholder in writing and dated not more
than 11 months before the meeting, unless the instrument specifically provides for a longer period; or (ii) the Shareholder authorizes
an electronic, telephonic, computerized or other alternative to execution of a written instrument authorizing the proxy to act,
which authorization is received not more than 11 months before the meeting. Proxies shall be delivered to the Secretary of the
Trust or other person responsible for recording the proceedings before being voted. A proxy with respect to Shares held in the
name of two or more persons shall be valid if executed or authorized by one of them, unless at or prior to exercise of such proxy
the Trust receives a specific written notice to the contrary from any one of them. Unless otherwise specifically limited by their
terms, proxies shall entitle the holder thereof to vote at any adjournment of a meeting. A proxy purporting to be exercised by
or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden or proving invalidity
shall rest on the challenger. At all meetings of the Shareholders, unless the voting is conducted by inspectors, all questions
relating to the qualifications of voters, the validity of proxies, and the acceptance or rejection of votes shall be decided by
the Chairman of the meeting. Except as otherwise provided herein or in the Trust Agreement, as these Bylaws or such Trust Agreement
may be amended or supplemented from time to time, all matters relating to the giving, voting or validity of proxies shall be governed
by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the
Trust were a Delaware corporation and the Shareholders were shareholders of a Delaware corporation.
Section 4.4 Place Of
Meeting. All special meetings of the Shareholders shall be held at the principal place of business of the Trust or at such
other place in the United States as the Trustees may designate.
Section 4.5 Action
Without a Meeting. Any action to be taken by Shareholders may be taken without a meeting, except where a larger vote is required
by law or by the Trust Agreement, if a majority of the Shareholders entitled to vote on the matter consent to the action in writing
and the written consents are filed with the records of meetings of Shareholders of the Trust. Such consent shall be treated for
all purposes as a vote at a meeting of the Trustees held at the principal place of business of the Trust.
Section 4.6 Quorum
and Required Vote. One-third of Shares entitled to vote in person or by proxy shall be a quorum for the transaction of business
at a meeting of Shareholders, except that where any provision of law or of the Trust Agreement permits or requires that Shareholders
of any Series shall vote as a Series (or the Shareholders of a Class shall vote as a Class), then one-third of the aggregate number
of Shares of that Series (or that Class) entitled to vote shall be necessary to constitute a quorum for the transaction of business
by that Series (or that Class). Any lesser number shall be sufficient for adjournment. Any adjourned session or sessions may be
held within a reasonable time after the date set for the original meeting, without the necessity of further notice. Except when
a larger vote is required by law or by the Trust Agreement, a majority of the Shares voted in person or by proxy shall decide any
questions and a plurality shall elect a Trustee, provided that where any provision of law or of the Trust Agreement permits or
requires that holders of any Series shall vote as a Series (or that the holders of any Class shall vote as a Class), then a majority
of the Shares present in person or by proxy of that Series (or Class) voted on the matter in person or by proxy shall decide that
matter insofar as that Series (or Class) is concerned.
-5-
Article
V
TRUSTEES’
MEETINGS
Section 5.1 Special
Meetings. Special meetings of the Trustees may be called orally or in writing by the Chairman of the Trustees or any two other
Trustees.
Section 5.2 Regular
Meetings. Regular meetings of the Trustees may be held at such places and at such times as the Trustees may from time to time
determine; each Trustee present at such determination shall be deemed a party calling the meeting and no call or notice will be
required to such Trustee.
Section 5.3 Quorum.
One-half of the Trustees shall constitute a quorum for the transaction of business and an action of a majority of the quorum shall
constitute action of the Trustees.
Section 5.4 Notice.
Except as otherwise provided, notice of any special meeting of the Trustees shall be given by the party calling the meeting to
each Trustee by telephone, telefax or telegram sent to his or her home or business address at least 24 hours in advance of the
meeting or by written notice mailed, postage prepaid, addressed to the Trustee at his or her address as registered on the books
of the Trust or, if not so registered, at his or her last known address at least 72 hours in advance of the meeting.
Section 5.5 Place Of
Meeting. All special meetings of the Trustees shall be held at the principal place of business of the Trust or such other place
as the Trustees may designate. Any meeting may adjourn to any place.
Section 5.6 Action
by Written Consent. Any action by the Trustees may be taken without a meeting if a written consent thereto is signed by a majority
of the Trustees (unless prohibited by applicable law) and filed with the records of the Trustees' meetings. Such consent shall
be treated, for all purposes, as a vote at a meeting of the Trustees held at the principal office of the Trust.
Section 5.7 Section
5.8 Participation in Meetings By Conference Telephone. Trustees may participate in a meeting of Trustees by conference telephone
or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting (unless prohibited by applicable law). Any meeting conducted by telephone shall
be deemed to take place at and from the principal office of the Trust.
Article
VI
SHARES
OF BENEFICIAL INTEREST
Section 6.1 Beneficial
Interest. The beneficial interest in the Trust shall at all times be divided into such transferable Shares of one or more separate
and distinct Series, or Classes thereof, as the Trustees shall from time to time create and establish. The number of Shares is
unlimited, and each Share of each Series or class thereof shall be without par value and shall represent an equal proportionate
interest with each other Share in the Series, none having priority or preference over another, except to the extent that such priorities
or preferences are established with respect to one or more Classes of Shares consistent with applicable law and any rule or order
of the Commission.
-6-
Section 6.2 Transfer
of Shares. The Shares of the Trust shall be transferable, so as to affect the rights of the Trust, only by transfer recorded
on the books of the Trust, in person or by attorney.
Section 6.3 Equitable
Interest Not Recognized. The Trust shall be entitled to treat the holder of record of any Share or Shares of beneficial interest
as the holder in fact thereof, and shall not be bound to recognize any equitable or other claim or interest in such Share or Shares
on the part of any other person except as may be otherwise expressly provided by law.
Section 6.4 Share Certificate.
No certificates certifying the ownership of Shares shall be issued except as the Trustees may otherwise authorize. The Trustees
may issue certificates to a Shareholder of any Series or Class for any purpose and the issuance of a certificate to one or more
Shareholders shall not require the issuance of certificates generally. In the event that the Trustees authorize the issuance of
Share certificates, such certificate shall be in the form proscribed from time to time by the Trustees and shall be signed by the
CEO, President or a Vice President and by the Treasurer, Assistant Treasurer, Secretary or Assistant Secretary. Such signatures
may be facsimiles if the certificate is signed by a transfer or shareholder services agent or by a registrar, other than a Trustee,
officer or employee of the Trust. In case any officer who has signed or whose facsimile signature has been placed on such certificate
shall have ceased to be such officer before such certificate is issued, it may be issued by the Trust with the same effect as if
he or she were such officer at the time of its issue.
In lieu of issuing certificates
for Shares, the Trustees or the transfer or shareholder services agent may either issue receipts therefor or may keep accounts
upon the books of the Trust for the record holders of such Shares, who shall in either case be deemed, for all purposes hereunder,
to be the holders of certificates for such Shares as if they had accepted such certificates and shall be held to have expressly
assented and agreed to the terms hereof.
Section 6.5 Loss of
Certificate. In the case of the alleged loss or destruction or the mutilation of a Share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees may prescribe.
Section 6.6 Discontinuance
of Issuance Of Certificates. The Trustees may at any time discontinue the issuance of Share certificates and may, by written
notice to each Shareholder, require the surrender of Share certificates to the Trust for cancellation. Such surrender and cancellation
shall not affect the ownership of Shares in the Trust.
Section 6.7 Establishment
of Record Dates. The Trustees may close the Share transfer books of the Trust for a period not exceeding 150 days preceding
the date of any meeting of Shareholders, or the date for the payment of any dividend or other distribution, or the date for the
allotment of rights, or the date when any change or conversion or exchange of Shares shall go into effect; or in lieu of closing
the stock transfer books as aforesaid, the Trustees may fix in advance a date, not exceeding 150 days preceding the date of any
meeting of Shareholders, or the date for payment of any dividend or other distribution, or the date for the allotment of rights,
or the date when any change or conversion or exchange of Shares shall go into effect, as a record date for the determination of
the Shareholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend or
other distribution, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or
exchange of Shares, and in such case such Shareholders and only such Shareholders as shall be Shareholders of record on the date
so fixed shall be entitled to such notice of, and to vote at, such meeting or to receive payment of such dividend or other distribution,
or to receive such allotment or rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any Shares
on the books of the Trust after any such record date fixed as aforesaid.
-7-
Article
VII
OWNERSHIP
OF ASSETS OF THE TRUST
Section 7.1 Ownership.
The Trustees, acting for and on behalf of the Trust, shall be deemed to hold legal and beneficial ownership of any income earned
on securities held by the Trust issued by any business entity formed, organized or existing under the laws of any jurisdiction
other than a state, commonwealth, possession or colony of the United States or the laws of the United States.
Article
VIII
INSPECTION
OF BOOKS
Section 8.1 Inspection.
The Trustees shall from time to time determine whether and to what extent, and at what times and places, and under what conditions
and regulations the accounts and books of the Trust or any of them shall be open to the inspection of the Shareholders; and no
Shareholder shall have any right to inspect any account or book or document of the Trust except as conferred by law or otherwise
by the Trustees or by resolution of the Shareholders.
Article
IX
INSURANCE
OF OFFICERS, TRUSTEES, AND EMPLOYEES
Section 9.1 Insurance.
The Trust may purchase and maintain insurance on behalf of any Covered Person or employee of the Trust, including any Covered Person
or employee of the Trust who is or was serving at the request of the Trust as a Trustee, officer or employee of a corporation,
partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such
capacity or arising out of his or her status as such, whether or not the Trustees would have the power to indemnify him against
such liability.
The Trust may not acquire
or obtain a contract for insurance that protects or purports to protect any Trustee or officer of the Trust against any liability
to the Trust or its Shareholders to which he or she would otherwise be subject by reason or willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his or her office.
-8-
Article
X
FISCAL
YEAR
Section 10.1 Fiscal
Year. The fiscal year of the Trust shall end on such date as the Trustees shall from time to time determine.
Article
XI
AMENDMENTS
Section 11.1 Amendments.
These Bylaws may be amended by the Trustees from time to time.
Article
XII
REPORTS
TO SHAREHOLDERS
Section 12.1 Reports.
The Trustees shall at least semi-annually submit to the Shareholders a written financial report of the Trust, including financial
statements which shall be certified at least annually by independent public accountants.
Article
XIII
HEADINGS
Section 13.1 Headings.
Headings are placed in these Bylaws for convenience of reference only and in case of any conflict, the text of these Bylaws rather
than the headings shall control.
Last Amended: February 15, 2019
-9-
Exhibit (j)(i)
CONSENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
We consent to the references to our firm under
the captions “Independent Registered Public Accounting Firm” in the Prospectus and “Counsel and Independent Registered
Public Accounting Firm” in the Statement of Additional Information and to the inclusion of our report, dated April 18, 2019,
on the statement of assets and liabilities of Syntax Stratified LargeCap ETF (comprising Syntax ETF Trust) as of December 31, 2018,
included in Post-Effective Amendment No. 2 to the Registration Statement (Form N-1A, No. 333- 215607) of Syntax
ETF Trust.
/s/ Ernst & Young LLP
Boston, Massachusetts
April 24, 2019
Exhibit (j)(ii)
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm
under the caption “Independent Auditors” in both the Prospectus and the Statement of Additional Information and to
the use of our report dated April 24, 2019, with respect to the financial statements of the Syntax 500 Series of Syntax Index Series,
L.P. included in the Post-Effective Amendment No. 2 to the Registration Statement (Form N-1A No. 333-215607) and related Prospectus
of Syntax ETF Trust.
/s/ Ernst & Young
Dublin, Ireland
April 24, 2019
Exhibit (q)
SYNTAX ETF TRUST
POWER OF ATTORNEY
Each of the undersigned Trustees and Officers
of Syntax ETF Trust (the “Trust”) hereby constitutes and appoints Kathleen Cuocolo and Carly Arison,
each of them with full powers of substitution, as his or her true and lawful attorney-in-fact and agent to execute in his or her
name and on his or her behalf in any and all capacities the Registration Statements on Form N-1A, and any and all amendments thereto,
and all other documents, filed by the Trust or its affiliates with the Securities and Exchange Commission (the “SEC”)
under the Investment Company Act of 1940, as amended, and (as applicable) the Securities Act of 1933, as amended, and any and all
instruments which such attorneys and agents, or any of them, deem necessary or advisable to enable the Trust or its affiliates
to comply with such Acts, the rules, regulations and requirements of the SEC, the securities, Blue Sky law and/or corporate/trust
laws of any state or other jurisdiction, the Commodities Future Trading Commission, and the regulatory authorities of any foreign
jurisdiction, including all documents necessary to ensure the Trust has insurance and fidelity bond coverage, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the SEC and such other jurisdictions, and the undersigned
hereby ratifies and confirms as his or her own act and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents has, and may exercise, all of the powers hereby conferred.
The undersigned hereby revokes any Powers of Attorney previously granted with respect to the Trust concerning the filings and actions
described herein.
IN WITNESS WHEREOF, the undersigned have hereunto
set their hands as of the 15th day of February 2019.
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Syntax
Stratified LargeCap ETF 