STATEMENT OF ADDITIONAL
INFORMATION
June 24, 2013
This Statement of Additional Information (SAI) is not a prospectus. It should be read in conjunction with the current Prospectus (Prospectus) for the WisdomTree Japan Hedged
SmallCap Equity Fund (the Fund), a separate series of WisdomTree Trust (the Trust), as may be revised from time to time.
The current Prospectus for the Fund is dated June 24, 2013. Capitalized terms used herein that are not defined have the same meaning as in the Prospectus, unless otherwise noted. The Funds audited
financial statements for the most recent fiscal year (when available) are incorporated in this SAI by reference to the Funds most recent Annual Report to Shareholders (File No. 811-21864). When available, you may obtain a copy of the
Funds Annual Report at no charge by request to the Fund at the address or phone number noted below.
THE SECURITIES AND EXCHANGE
COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS SAI. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
A copy of the Prospectus for the Fund may be obtained, without charge, by calling 1-866-909-9473, visiting www.wisdomtree.com, or writing to WisdomTree Trust, c/o ALPS Distributors, Inc., 1290 Broadway,
Suite 1100, Denver, Colorado 80203.
1
TABLE OF CONTENTS
2
GENERAL DESCRIPTION OF THE TRUST AND THE FUND
The Trust was organized as a Delaware statutory trust on December 15, 2005 and is authorized to issue multiple series or portfolios. The Trust is an
open-end management investment company, registered under the Investment Company Act of 1940, as amended (the 1940 Act). The offering of the Trusts shares is registered under the Securities Act of 1933, as amended (the
Securities Act).
The Fund described in this SAI seeks to track the price and yield performance, before fees and expenses, of
the WisdomTree Japan Hedged SmallCap Equity Index (the Index). The Index is created using proprietary methodology developed by WisdomTree Investments, Inc. (WisdomTree Investments). WisdomTree Investments is the parent
company of WisdomTree Asset Management, Inc. (WisdomTree Asset Management or the Adviser), the investment adviser to the Fund. Mellon Capital Management Corporation (Mellon Capital or the Sub-Adviser)
is the investment sub-adviser to the Fund. The Adviser and the Sub-Adviser may be referred to together as the Advisers. ALPS Distributors, Inc. is the distributor (the Distributor) of the shares of the Fund.
The Fund issues and redeems shares at net asset value per share (NAV) only in large blocks of shares, typically 50,000 shares or more
(Creation Units or Creation Unit Aggregations). Currently, Creation Units generally consist of 100,000 shares, though this may change from time to time. Creation Units are not expected to consist of less than 50,000 shares.
These transactions are usually in exchange for a basket of securities and an amount of cash. As a practical matter, only institutions or large investors purchase or redeem Creation Units. Except when aggregated in Creation Units, shares of the Fund
are not redeemable securities.
Shares of the Fund are listed on a national securities exchange, such as NASDAQ Stock Market
(NASDAQ) (the Listing Exchange), and trade throughout the day on the Listing Exchange and other secondary markets at market prices that may differ from NAV. As in the case of other publicly traded securities, brokers
commissions on transactions will be based on negotiated commission rates at customary levels.
The Trust reserves the right to adjust the
prices of shares in the future to maintain convenient trading ranges for investors. Any adjustments would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of the applicable Fund.
WisdomTree is a registered mark of WisdomTree Investments and has been licensed for use by the Trust. WisdomTree Investments has patent
applications pending on the methodology and operation of its Index and the Fund.
INVESTMENT
STRATEGIES AND RISKS
The Funds investment objective, principal investment strategies and associated risks are described in the
Funds Prospectus. The sections below supplement these principal investment strategies and risks and describe the Funds additional investment policies and the different types of investments that may be made by the Fund as a part of its
non-principal investment strategies. With respect to the Funds investments, unless otherwise noted, if a percentage limitation on investment is adhered to at the time of investment or contract, a subsequent increase or decrease as a result of
market movement or redemption will not result in a violation of such investment limitation. The Fund is new and therefore portfolio turnover information is not yet available.
All U.S. money market securities acquired by the Fund will be rated in the upper two short-term ratings by at least two Nationally Recognized Statistical Rating Organizations (NRSROs) or, if
unrated, deemed to be of equivalent quality. A First Tier security is (i) a rated security that has received a short-term rating from the NRSROs in the highest short-term rating category for debt obligations (within which there may be
sub-categories or gradations indicating relative standing); (ii) an unrated security that is of comparable quality to a security, as determined by the Funds board of directors; (iii) a security issued by a registered investment
company that is a money market fund; or (iv) a security issued by the U.S. government or any of its agencies or instrumentalities. A Second Tier security is a rated security that has received a short-term rating other than a first tier rating
from an NRSRO for debt obligations (within which there may be sub-categories or gradations indicating relative standing) or is an unrated security that is of comparable quality. The Fund intends to limit its overall exposure to Second Tier money
market securities to 5% of total assets. Any security originally issued as a long-term obligation (more than 397 days from maturity at issuance) will be rated A or higher (or the equivalent) at the time of purchase by at least two NRSROs or, if
unrated, deemed to be of equivalent quality.
The Fund intends to qualify each year for treatment as a regulated investment company (a
RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code), so that it will not be subject to federal income tax on income and gains that are timely distributed to Fund shareholders. The Fund will
invest its assets, and otherwise conduct its operations, in a manner that is intended to satisfy the qualifying income, diversification and distribution requirements necessary to establish and maintain RIC qualification under Subchapter M.
3
The Fund is considered non-diversified, as such term is used in the 1940 Act.
The Funds investment strategy, known as indexing, may eliminate some of the risks of active portfolio management, such as poor security
selection. In addition, indexing may also help increase after-tax investment performance by keeping portfolio turnover low in comparison to more actively managed investment strategies.
GENERAL RISKS
An investment in the Fund should be made with an understanding that the value of the Funds portfolio securities may fluctuate in accordance with changes in the financial condition of an issuer or
counterparty, changes in specific economic or political conditions that affect a particular security or issuer and changes in general economic or political conditions. An investor in the Fund could lose money over short or long periods of time.
An investment in the Fund should also be made with an understanding of the risks inherent in an investment in equity securities, including
the risk that the financial condition of issuers may become impaired or that the general condition of the stock market may deteriorate (either of which may cause a decrease in the value of the Funds portfolio securities and therefore a
decrease in the value of shares of the Fund). Common stocks are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence and perceptions 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 or 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, generally have inferior rights to receive payments from the issuer in comparison with the rights of creditors or holders of debt obligations or preferred stocks. Further, unlike debt securities, which typically have a stated principal amount
payable at maturity (whose value, however, is 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.
An investment in the Fund should be made with the understanding that the Fund attempts to minimize or hedge against changes in the value of the U.S. dollar against the Japanese yen.
Although all of the securities in the Index are listed on a Japanese stock exchange, there can be no guarantee that a liquid market for such
securities will be maintained. 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 Funds shares will be adversely affected if trading markets for the Funds portfolio securities are limited or absent, or if bid/ask spreads
are wide.
Events in the financial sector have resulted, and may continue to result, in an unusually high degree of volatility in the
financial markets, both domestic and foreign. Domestic and foreign fixed income and equity markets experienced extreme volatility and turmoil starting in late 2008 and volatility has continued to be experienced in the markets. Issuers that have
exposure to the real estate, mortgage and credit markets have been particularly affected, and well-known financial institutions experienced significant liquidity and other problems. Some of these institutions declared bankruptcy or defaulted on
their debt. It is uncertain whether or for how long these conditions will continue. These events and possible continuing market turbulence may have an adverse effect on Fund performance.
LACK OF DIVERSIFICATION.
The Fund is considered to be non-diversified. A non-diversified classification means that the Fund is not limited by the 1940 Act with regard to the
percentage of its total assets that may be invested in the securities of a single issuer. As a result, the Fund may invest more of its total assets in the securities of a single issuer or a smaller number of issuers than if it were classified as a
diversified fund. Therefore, the Fund may be more exposed to the risks associated with and developments affecting an individual issuer or a small number of issuers than a fund that invests more widely, which may have a greater impact on the
Funds volatility and performance.
A discussion of some of the other risks associated with an investment in the Fund is contained in the
Funds Prospectus.
4
SPECIFIC INVESTMENT STRATEGIES
A description of certain investment strategies and types of investments used by the Fund is set forth below.
CURRENCY TRANSACTIONS.
The Fund may enter into foreign currency forward and foreign currency futures contracts to facilitate local securities
settlements or to protect against currency exposure in connection with distributions to shareholders. The Fund invests in various types of currency contracts to hedge against changes in the value of the U.S. dollar against the Japanese yen.
Forward Foreign Currency Contracts.
A forward foreign currency exchange contract (forward contract)
involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are
principally traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. Forward contracts are contracts between parties in which one party agrees to make a payment to the other
party (the counterparty) based on the market value or level of a specified currency. In return, the counterparty agrees to make payment to the first party based on the return of a different specified currency. A forward contract generally has no
margin deposit requirement, and no commissions are charged at any stage for trades. These contracts typically are settled by physical delivery of the underlying currency or currencies in the amount of the full contract value.
A non-deliverable forward contract is a forward contract where there is no physical settlement of two currencies at maturity.
Non-deliverable forward contracts will usually be done on a net basis, with the Fund receiving or paying only the net amount of the two payments. The net amount of the excess, if any, of the Funds obligations over its entitlements with respect
to each non-deliverable forward contract is accrued on a daily basis and an amount of cash or highly liquid securities having an aggregate value at least equal to the accrued excess is maintained in an account at the Funds custodian bank. The
risk of loss with respect to non-deliverable forward contracts generally is limited to the net amount of payments that the Fund is contractually obligated to make or receive.
Foreign Currency Futures Contracts.
A foreign currency futures contract is a contract involving an obligation to deliver or acquire the specified amount of a specific currency, at a specified price
and at a specified future time. Futures contracts may be settled on a net cash payment basis rather than by the sale and delivery of the underlying currency.
Currency exchange transactions involve a significant degree of risk and the markets in which currency exchange transactions are effected are highly volatile, highly specialized and highly technical.
Significant changes, including changes in liquidity and prices, can occur in such markets within very short periods of time, often within minutes. Currency exchange trading risks include, but are not limited to, exchange rate risk, maturity gap,
interest rate risk, and potential interference by foreign governments through regulation of local exchange markets, foreign investment or particular transactions in foreign currency. If the Fund utilizes foreign currency transactions at an
inappropriate time, such transactions may not serve their intended purpose of improving the correlation of the Funds return with the performance of its underlying Index and may lower the Funds return. The Fund could experience losses if
the value of any currency forwards and futures positions is poorly correlated with its other investments or if it could not close out its positions because of an illiquid market. Such contracts are subject to the risk that the counterparty will
default on its obligations. In addition, the Fund will incur transaction costs, including trading commissions, in connection with certain foreign currency transactions.
DEPOSITARY RECEIPTS.
To the extent the Fund invests in stocks of foreign corporations, the Funds investment in such stocks may be in the form of Depositary Receipts or other similar
securities convertible into securities of foreign issuers. Depositary Receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. American Depositary Receipts (ADRs) are
receipts typically issued by an American bank or trust company that evidence ownership of underlying securities issued by a foreign corporation. European Depositary Receipts (EDRs) are receipts issued in Europe that evidence a similar
ownership arrangement. Global Depositary Receipts (GDRs) are receipts issued throughout the world that evidence a similar arrangement. Non-Voting Depository Receipts (NVDRs) are receipts issued in Thailand that evidence a
similar arrangement. Generally, ADRs, in registered form, are designed for use in the U.S. securities markets, and EDRs, in bearer form, are designed for use in European securities markets. GDRs are tradable both in the United States and in Europe
and are designed for use throughout the world. NVDRs are tradable on the Stock Exchange of Thailand.
The Fund will not invest in any unlisted
Depositary Receipts or any Depositary Receipt that WisdomTree Asset Management or the Sub-Adviser deems to be illiquid or for which pricing information is not readily available. In addition, all Depositary Receipts generally must be sponsored;
however, the Fund may invest in unsponsored Depositary Receipts under certain limited circumstances. The issuers of unsponsored Depositary Receipts are not obligated to disclose material information in the United States, and, therefore, there may be
less information available regarding such issuers and there may not be a correlation between such information and the market value of the Depositary Receipts. The use of Depositary Receipts may increase tracking error relative to an underlying
Index.
DERIVATIVES.
The Fund may use derivative instruments as part of its investment strategies. Generally, derivatives are financial
contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate or index, and may relate to bonds, interest rates, currencies, commodities, and related indexes. Examples of derivative instruments include
forward contracts, currency and interest rate swaps, currency options, futures contracts, options on futures contracts and swap agreements. The Funds use of derivative instruments will be underpinned by investments in short-term, high-quality
instruments, such as U.S. money market securities.
5
With respect to certain kinds of derivative transactions that involve obligations to make future payments to
third parties, including, but not limited to, futures contracts, forward contracts, swap contracts, the purchase of securities on a when-issued or delayed delivery basis, or reverse repurchase agreements, under applicable federal securities laws,
rules, and interpretations thereof, the Fund must set aside liquid assets, or engage in other measures to cover open positions with respect to such transactions. For example, with respect to forward contracts and futures
contracts that are not contractually required to cash-settle, the Fund must cover its open positions by setting aside liquid assets equal to the contracts full, notional value. The Fund treats deliverable forward contracts for
currencies that are liquid as the equivalent of cash-settled contracts. As such, the Fund may set aside liquid assets in an amount equal to the Funds daily marked-to-market (net) obligation (i.e., the Funds daily net
liability if any) rather than the full notional amount under such deliverable forward contracts. Similarly, with respect to futures contracts that are contractually required to cash-settle the Fund may set aside liquid assets in an
amount equal to the Funds daily marked-to-market (net) obligation rather than the notional value. The Fund reserves the right to modify these policies in the future.
Swap Agreements
. The Fund may enter into swap agreements, including interest rate swaps and currency swaps. A typical interest rate swap involves the exchange of a floating interest rate payment
for a fixed interest payment. A typical foreign currency swap involves the exchange of cash flows based on the notional differences among two or more currencies (e.g., the U.S. dollar and the Japanese yen). Swap agreements may be used to hedge or
achieve exposure to, for example, currencies, interest rates, and money market securities without actually purchasing such currencies or securities. The Fund may use swap agreements to invest in a market without owning or taking physical custody of
the underlying securities in circumstances in which direct investment is restricted for legal reasons or is otherwise impracticable. Swap agreements will tend to shift the Funds investment exposure from one type of investment to another or
from one payment stream to another. Depending on their structure, swap agreements may increase or decrease the Funds exposure to longor short-term interest rates (in the United States or abroad), foreign currencies, corporate borrowing
rates, or other factors, and may increase or decrease the overall volatility of the Funds investments and its share price.
Futures, Options and Options on Futures Contracts
. The Fund may enter into U.S. or foreign futures contracts, options and options
on futures contracts. When the Fund purchases a futures contract, it agrees to purchase a specified underlying instrument at a specified future date. When the Fund sells a futures contract, it agrees to sell the underlying instrument at a specified
future date. The price at which the purchase and sale will take place is fixed when the Fund enters into the contract. Futures can be held until their delivery dates, or can be closed out before then if a liquid secondary market is available. To the
extent the Fund uses futures and options, it will do so only in accordance with applicable requirements of the Commodity Exchange Act (CEA) and the rules thereunder.
The Adviser has claimed, with respect to the Fund, the exclusion from the definition of commodity pool operator under the
Commodity Exchange Act (CEA) provided by Commodity Futures Trading Commission (CFTC) Regulation 4.5 and is therefore not currently subject to registration or regulation as such under the CEA with respect to the Fund. In
February 2012, the CFTC announced substantial amendments to certain exemptions, and to the conditions for reliance on those exemptions, from registration as a commodity pool operator. Under amendments to the exemption provided under CFTC Regulation
4.5, if the Fund uses futures, options on futures or swaps other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums on these positions (after taking into account unrealized profits and unrealized
losses on any such positions and excluding the amount by which options that are in-the-money at the time of purchase are in-the-money) may not exceed 5% of the Funds net asset value, or alternatively, the aggregate net
notional value of those positions may not exceed 100% of the Funds net asset value (after taking into account unrealized profits and unrealized losses on any such positions). The CFTC amendments to Regulation 4.5 took effect on December 31,
2012, and the Fund intends to comply with amended Regulation 4.5s requirements such that the Adviser will not be required to register as a commodity pool operator with the CFTC with respect to the Fund. The Fund reserves the right to employ
futures, options on futures and swaps to the extent allowed by CFTC regulations in effect from time to time and in accordance with the Funds policies. If, however, these limitations were to make it difficult for the Fund to achieve its
investment objective in the future, the Trust may determine to operate the Fund as a regulated commodity pool pursuant to WisdomTree Asset Managements CPO registration or to reorganize or close the Fund or to materially change the Funds
investment objective and strategy. The requirements for qualification as a regulated investment company may also limit the extent to which the Fund may employ futures, options on futures or swaps.
The risk of loss in trading futures contracts or uncovered call options in some strategies (e.g., selling uncovered stock index futures
contracts) is potentially unlimited. The Fund does not plan to use futures and options contracts in this way. The risk of a futures position may still be large as traditionally measured due to the low margin deposits required. In many cases, a
relatively small price movement in a futures contract may result in immediate and substantial loss or gain to the investor relative to the size of a required margin deposit. The Fund, however, intends to utilize futures and options contracts in a
manner designed to limit its risk exposure to levels comparable to direct investment in stocks.
Utilization of futures and
options on futures by the Fund involves the risk of imperfect or even negative correlation to the underlying Index if the index underlying the futures contract differs from the Funds underlying Index. There is also the risk of loss by the Fund
of margin deposits in the event of bankruptcy of a broker with whom the Fund has an open position in the futures contract or option. The purchase of put or call options will be based upon predictions by the Fund as to anticipated trends, which
predictions could prove to be incorrect.
The potential for loss related to the purchase of an option on a futures contract is
limited to the premium paid for the option plus transaction costs. Because the value of the option is fixed at the point of sale, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however,
the value of the option changes daily and that change would be reflected in the NAV of the Fund. The potential for loss related to writing options may be unlimited.
Although the Fund intends to enter into futures contracts only if there is an active market for such contracts, there is no assurance that an active market will exist for the contracts at any particular
time.
6
EQUITY SECURITIES.
Equity securities, such as the common stocks of an issuer, are subject to stock
market fluctuations and therefore may experience volatile changes in value as market conditions, consumer sentiment or the financial condition of the issuers change. A decrease in value of the equity securities in the Funds portfolio may also
cause the value of the Funds shares to decline.
EXCHANGE-TRADED NOTES.
The Fund may invest in exchange-traded notes
(ETNs). ETNs generally are senior, unsecured, unsubordinated debt securities issued by a sponsor, such as an investment bank. ETNs are traded on exchanges and the returns are linked to the performance of market indexes. In addition to
trading ETNs on exchanges, investors may redeem ETNs directly with the issuer on a periodic basis, typically in a minimum amount of 50,000 units, or hold the ETNs until maturity. The value of an ETN may be influenced by time to maturity, level of
supply and demand for the ETN, volatility and lack of liquidity in the underlying market, changes in the applicable interest rates, and economic, legal, political or geographic events that affect the referenced market. Because ETNs are debt
securities, they are subject to credit risk. If the issuer has financial difficulties or goes bankrupt, the Fund may not receive the return it was promised. If a rating agency lowers an issuers credit rating, the value of the ETN may decline
and a lower credit rating reflects a greater risk that the issuer will default on its obligation. There may be restrictions on the Funds right to redeem its investment in an ETN. There are no periodic interest payments for ETNs, and principal
is not protected. The Funds decision to sell its ETN holdings may be limited by the availability of a secondary market.
ILLIQUID
SECURITIES.
The Fund may invest up to an aggregate amount of 15% of its net assets in illiquid securities. Illiquid securities include securities subject to contractual or other restrictions on resale and other instruments that lack readily
available markets. The inability of the Fund to dispose of illiquid or not readily marketable investments readily or at a reasonable price could impair the Funds ability to raise cash for redemptions or other purposes. The liquidity of
securities purchased by the Fund which are eligible for resale pursuant to Rule 144A, except for certain 144A bonds, will be monitored by the Fund on an ongoing basis. In the event that such a security is deemed to be no longer liquid, the
Funds holdings will be reviewed to determine what action, if any, is required to ensure that the retention of such security does not result in the Fund having more than 15% of its net assets invested in illiquid securities.
INVESTMENT COMPANY SECURITIES.
The Fund may invest in the securities of other investment companies. The 1940 Act generally prohibits a fund from
acquiring more than 3% of the outstanding voting shares of an investment company and limits such investments to no more than 5% of the funds total assets in any single investment company and no more than 10% in any combination of two or more
investment companies. The Fund may purchase or otherwise invest in shares of affiliated exchange-traded funds (ETFs) and affiliated money market funds.
MONEY MARKET INSTRUMENTS.
The Fund may invest a portion of its assets in high-quality money market instruments on an ongoing basis to provide liquidity or for other reasons. The instruments in
which the Fund may invest include: (i) short-term obligations issued by the U.S. Government; (ii) negotiable certificates of deposit (CDs), fixed time deposits and bankers acceptances of U.S. and foreign banks and similar
institutions; (iii) commercial paper rated at the date of purchase Prime-1 by Moodys or A-1+ or A-1 by Standard & Poors (S&P) or, if unrated, of comparable quality as
determined by the Fund; and (iv) repurchase agreements. CDs are short-term negotiable obligations of commercial banks. Time deposits are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest
rates. Bankers acceptances are time drafts drawn on commercial banks by borrowers, usually in connection with international transactions.
NON-U.S. SECURITIES.
The Fund invests primarily in non-U.S. equity securities. Investments in non-U.S. equity securities involve certain risks
that may not be present in investments in U.S. securities. For example, non-U.S. securities may be subject to currency risks or to foreign government taxes. There may be less information publicly available about a non-U.S. issuer than about a U.S.
issuer, and a foreign issuer may or may not be subject to uniform accounting, auditing and financial reporting standards and practices comparable to those in the U.S. Other risks of investing in such securities include political or economic
instability in the country involved, the difficulty of predicting international trade patterns and the possibility of imposition of exchange controls. The prices of such securities may be more volatile than those of domestic securities. With respect
to certain foreign countries, there is a possibility of expropriation of assets or nationalization, imposition of withholding taxes on dividend or interest payments, difficulty in obtaining and enforcing judgments against foreign entities or
diplomatic developments which could affect investment in these countries. Losses and other expenses may be incurred in converting between various currencies in connection with purchases and sales of foreign securities.
Non-U.S. stock markets may not be as developed or efficient as, and may be more volatile than, those in the U.S. While the volume of shares traded on
non-U.S. stock markets generally has been growing, such markets usually have substantially less volume than U.S. markets. Therefore, the Funds investment in non-U.S. equity securities may be less liquid and subject to more rapid and erratic
price movements than comparable securities listed for trading on U.S. exchanges. Non-U.S. equity securities may trade at price/earnings multiples higher than comparable U.S. securities and such levels may not be sustainable. There may be less
government supervision and regulation of foreign stock exchanges, brokers, banks and listed companies abroad than in the U.S. Moreover, settlement practices for transactions in foreign markets may differ from those in U.S. markets. Such differences
may include delays beyond periods customary in the U.S. and practices, such as delivery of securities prior to receipt of payment, that increase the likelihood of a failed settlement, which can result in losses to the Fund. The value of non-U.S.
investments and the investment income derived from them may also be affected unfavorably by changes in currency exchange control regulations. Foreign brokerage commissions, custodial
7
expenses and other fees are also generally higher than for securities traded in the U.S. This may cause the Fund to incur higher portfolio transaction costs than domestic equity funds.
Fluctuations in exchange rates may also affect the earning power and asset value of the foreign entity issuing a security, even one denominated in U.S. dollars. Dividend and interest payments may be repatriated based on the exchange rate at the time
of disbursement, and restrictions on capital flows may be imposed.
Set forth below is a brief description of some of the conditions and
risks in the market in which the Fund may invest.
Investments in Japan.
The Fund invests primarily in companies
organized in Japan. The Japanese economy is characterized by government intervention and protectionism, an unstable financial services sector, and relatively high unemployment. Economic growth is heavily dependent on international trade, government
support and consistent government policy. Slowdowns in the economies of key trading partners such as the United States, China and countries in Southeast Asia could have a negative impact on the Japanese economy as a whole. These and other factors
could have a negative impact on the Funds performance.
REAL ESTATE INVESTMENT TRUSTS.
The Fund may invest in the securities of
real estate investment trusts (REITs) to the extent allowed by law. Risks associated with investments in securities of REITs include decline in the value of real estate, risks related to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, variations in rental income, changes in neighborhood values, the appeal of properties to tenants,
and increases in interest rates. In addition, equity REITs may be affected by changes in the values of the underlying property owned by the trusts, while mortgage REITs may be affected by the quality of credit extended. REITs are dependent upon
management skills, may not be diversified and are subject to the risks of financing projects. REITs are also subject to heavy cash-flow dependency, defaults by borrowers, self-liquidation and the possibility of failing to qualify for the favorable
U.S. federal income tax treatment available to REITs under the Code and to maintain exemption from the 1940 Act. If an issuer of debt securities collateralized by real estate defaults, it is conceivable that the REITs could end up holding the
underlying real estate.
REPURCHASE AGREEMENTS.
The Fund may enter into repurchase agreements with counterparties that are deemed
to present acceptable credit risks. A repurchase agreement is a transaction in which the Fund purchases securities or other obligations from a bank or securities dealer (or its affiliate) and simultaneously commits to resell them to a counterparty
at an agreed-upon date or upon demand and at a price reflecting a market rate of interest unrelated to the coupon rate or maturity of the purchased obligations. The Fund maintains custody of the underlying obligations prior to their repurchase,
either through its regular custodian or through a special triparty custodian or sub-custodian that maintains separate accounts for both the Fund and its counterparty. Thus, the obligation of the counterparty to pay the repurchase price
on the date agreed to or upon demand is, in effect, secured by such obligations.
Repurchase agreements carry certain risks not associated
with direct investments in securities, including a possible decline in the market value of the underlying obligations. If their value becomes less than the repurchase price, plus any agreed-upon additional amount, the counterparty must provide
additional collateral so that at all times the collateral is at least equal to the repurchase price plus any agreed-upon additional amount. The difference between the total amount to be received upon repurchase of the obligations and the price that
was paid by the Fund upon acquisition is accrued as interest and included in its net investment income. Repurchase agreements involving obligations other than U.S. Government securities (such as commercial paper and corporate bonds) may be subject
to special risks and may not have the benefit of certain protections in the event of the counterpartys insolvency. If the seller or guarantor becomes insolvent, the Fund may suffer delays, costs and possible losses in connection with the
disposition of collateral.
REVERSE REPURCHASE AGREEMENTS.
The Fund may enter into reverse repurchase agreements, which involve the
sale of securities held by the Fund subject to its agreement to repurchase the securities at an agreed-upon date or upon demand and at a price reflecting a market rate of interest. Reverse repurchase agreements are subject to the Funds
limitation on borrowings and may be entered into only with banks or securities dealers or their affiliates. While a reverse repurchase agreement is outstanding, the Fund will maintain the segregation, either on its records or with the Trusts
custodian, of cash or other liquid securities, marked-to-market daily, in an amount at least equal to its obligations under the reverse repurchase agreement.
Reverse repurchase agreements involve the risk that the buyer of the securities sold by the Fund might be unable to deliver them when that Fund seeks to repurchase. If the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, the buyer or trustee or receiver may receive an extension of time to determine whether to enforce the Funds obligation to repurchase the securities, and the Funds
use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision.
SECURITIES LENDING.
The
Fund may lend portfolio securities to certain creditworthy borrowers, including the Funds securities lending agent. Loans of portfolio securities provide the Fund with the opportunity to earn additional income on the Funds portfolio
securities. All securities loans will be made pursuant to agreements requiring the loans to be continuously secured by collateral in cash, or money market instruments, or money market funds at least equal at all times to the market value of the
loaned securities. The borrower pays to the Fund an amount equal to any dividends or interest received on loaned securities. The Fund retains all or a portion of the interest received on investment of cash collateral or receives a fee from the
borrower. Lending portfolio securities involves risks of delay in recovery of the loaned securities or in some cases loss of rights in the collateral should the borrower fail financially. Furthermore, because of the risks of delay in recovery, the
Fund may lose the opportunity to sell the securities at a desirable price. The Fund will generally not have the right to vote securities while they are being loaned.
8
TRACKING STOCKS.
The Fund may invest in tracking stocks. A tracking stock is a separate class of
common stock whose value is linked to a specific business unit or operating division within a larger company and which is designed to track the performance of such business unit or division. The tracking stock may pay dividends to
shareholders independent of the parent company. The parent company, rather than the business unit or division, generally is the issuer of tracking stock. However, holders of the tracking stock may not have the same rights as holders of the
companys common stock.
FUTURE DEVELOPMENTS.
The Trusts Board of Trustees (the Board) may, in the future,
authorize the Fund to invest in securities contracts and investments other than those listed in this SAI and in the Funds Prospectus, provided they are consistent with the Funds investment objective and do not violate any investment
restrictions or policies.
PROXY VOTING POLICY
The Trust has adopted as its proxy voting policies for the Fund the proxy voting guidelines of the Sub-Adviser. The Trust has delegated to the
Sub-Adviser the authority and responsibility for voting proxies on the portfolio securities held by the Fund. The remainder of this section discusses the Funds proxy voting guidelines and the Sub-Advisers role in implementing such
guidelines.
The Sub-Adviser, through its participation on The Bank of New York Mellon (BNY Mellon) Corporations Proxy
Policy Committee (PPC), has adopted a proxy voting policy, related procedures, and voting guidelines which are applied to those client accounts over which it has been delegated the authority to vote proxies. In voting proxies, the
Sub-Adviser seeks to act solely in the best financial and economic interest of the applicable client. The Sub-Adviser will carefully review proposals that would limit shareholder control or could affect the value of a clients investment. It
will generally oppose proposals designed to insulate an issuers management unnecessarily from the wishes of a majority of shareholders. It will generally support proposals designed to provide management with short-term insulation from outside
influences so as to enable management to negotiate effectively and otherwise achieve long-term goals. On questions of social responsibility where economic performance does not appear to be an issue, the Sub-Adviser will attempt to ensure that
management reasonably responds to the social issues. Responsiveness will be measured by managements efforts to address the proposal including, where appropriate, assessment of the implications of the proposal to the ongoing operations of the
company. The PPC will pay particular attention to repeat issues where management has failed in its commitment in the intervening period to take action on issues. The Sub-Adviser recognizes its duty to vote proxies in the best interests of its
clients. The Sub-Adviser seeks to avoid material conflicts of interest through its participation in the PPC, which applies detailed, predetermined proxy voting guidelines in an objective and consistent manner across client accounts, based on
internal and external research and recommendations provided by a third-party vendor, and without consideration of any client relationship factors. Further, the Sub-Adviser and its affiliates engage a third party as an independent fiduciary to vote
all proxies for BNY Mellon securities and affiliated mutual fund securities.
Proxy voting proposals are reviewed, categorized, analyzed and
voted in accordance with the Sub-Advisers voting guidelines. These guidelines are reviewed periodically and updated as necessary to reflect new issues and any changes in policies on specific issues. Items that can be categorized under these
voting guidelines will be voted in accordance with any applicable guidelines or referred to the PPC, if the applicable guidelines so require. Proposals that cannot be categorized under these voting guidelines will be referred to the PPC for
discussion and vote. Additionally, the PPC may review any proposal where it has identified a particular company, industry or issue for special scrutiny. With regard to voting proxies of foreign companies, the Sub-Adviser may weigh the cost of
voting, and potential inability to sell the securities (which may occur during the voting process), against the benefit of voting the proxies to determine whether or not to vote.
In evaluating proposals regarding incentive plans and restricted stock plans, the PPC typically employs a shareholder value transfer model. This model seeks to assess the amount of shareholder equity
flowing out of the company to executives as options are exercised. After determining the cost of the plan, the PPC evaluates whether the cost is reasonable based on a number of factors, including industry classification and historical performance
information. The PPC generally votes against proposals that permit the repricing or replacement of stock options without shareholder approval.
A complete copy of the Sub-Advisers proxy voting policy may be obtained by calling 1-866-909-9473 or by writing to: WisdomTree Trust, c/o ALPS
Distributors, Inc., 1290 Broadway, Suite 1100, Denver, Colorado 80203.
The Trust is required to disclose annually the Funds
complete proxy voting record on Form N-PX covering the period from July 1 of one year through June 30 of the next and to file Form N-PX with the SEC no later than August 31 of each year. The Funds Form N-PX, when filed, may be
obtained at no charge upon request by calling 1-866-909-9473 or by visiting the SECs website at www.sec.gov.
9
PORTFOLIO HOLDINGS DISCLOSURE POLICIES AND PROCEDURES
The Trust has adopted a Portfolio Holdings Policy (the Policy) designed to govern the disclosure of Fund portfolio holdings
and the use of material non-public information about Fund holdings. The Policy applies to all officers, employees, and agents of the Fund, including the Advisers. The Policy is designed to ensure that the disclosure of information about the
Funds portfolio holdings is consistent with applicable legal requirements and otherwise in the best interest of the Fund.
As an
exchange-traded fund, information about the Funds portfolio holdings is made available on a daily basis in accordance with the provisions of any Order of the SEC applicable to the Fund, regulations of the Funds Listing Exchange and other
applicable SEC regulations, orders and no-action relief. Such information typically reflects all or a portion of the Funds anticipated portfolio holdings as of the next Business Day. A Business Day is any day on which the
Funds Listing Exchange is open for business. As of the date of this SAI, the Listing Exchange observes the following holidays: New Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. This information is used in connection with the creation and redemption process and is disseminated on a daily basis through the facilities of the Listing Exchange, the National
Securities Clearing Corporation (NSCC) and/or third-party service providers.
The Fund may disclose on its website at the start of
each Business Day the identities and quantities of the securities and other assets held by the Fund that will form the basis of the Funds calculation of its NAV on that Business Day. The portfolio holdings so disclosed will be based on
information as of the close of business on the prior Business Day and/or trades that have been completed prior to the opening of business on that Business Day and that are expected to settle on that Business Day.
Daily access to the Funds portfolio holdings with no lag time is permitted to personnel of the Advisers, the Distributor and the Funds
administrator (Administrator), custodian and accountant and other agents or service providers of the Trust who have need of such information in connection with the ordinary course of their respective duties to the Fund. The Funds
Chief Compliance Officer (CCO) may authorize disclosure of portfolio holdings.
The Fund may disclose its complete portfolio
holdings or a portion of its portfolio holdings online at www.wisdomtree.com. Online disclosure of such holdings is publicly available at no charge.
The Fund will disclose its complete portfolio holdings schedule in public filings with the SEC on a quarterly basis, based on the Funds fiscal year, within sixty (60) days of the end of the
quarter, and will provide that information to shareholders, as required by federal securities laws and regulations thereunder.
No person is
authorized to disclose the Funds portfolio holdings or other investment positions except in accordance with the Policy. The Board reviews the implementation of the Policy on a periodic basis.
INDEX DESCRIPTION
A description of the Funds underlying Index is provided in the Prospectus under Principal Investment Strategies of the Fund with certain additional details provided below. Additional
information about the Index, including the components and weightings of the Index, as well as the rules that govern inclusion and weighting in the Index, is available at www.wisdomtree.com.
WisdomTree Japan Hedged SmallCap Equity Index
Number of Components:
approximately
655
Annual Index Rebalance.
The Index is rebalanced or reconstituted on an annual basis. New securities
are added to the Index only during the annual rebalance. The annual rebalance of the Index takes place in June of each year.
10
During the annual rebalance, securities are screened to determine whether they comply with WisdomTrees
proprietary index methodology and are eligible to be included in an index. The date of the determination is sometimes referred to as the Index measurement date or the Screening Point. Based on this screening, securities that
meet index requirements are added to the index, and securities that do not meet such requirements are dropped from the applicable index.
Index Maintenance.
Index maintenance occurs throughout the year and includes monitoring and implementing the adjustments for company additions and
deletions, stock splits, corporate restructurings and other corporate actions. Corporate actions are generally implemented after the close of trading on the day prior to the ex-date of such corporate actions. To the extent reasonably practicable,
such changes will be announced at least two days prior to their implementation.
Index Availability:
The Index is calculated
and disseminated throughout each day the NYSE is open for trading.
Changes to the Index Methodology.
The Index is governed by a
published, rules-based methodology. Changes to the methodology will be publicly disclosed at www.wisdomtree.com/etfs/index-notices.aspx prior to implementation. Sixty days notice will be given prior to the implementation of any such change.
Index Calculation Agent.
In order to minimize any potential for conflicts caused by the fact that WisdomTree Investments and its
affiliates act as Index provider and investment adviser to the Fund, WisdomTree Investments has retained an unaffiliated third party to calculate the Index (the Calculation Agent). The Calculation Agent, using the rules-based
methodology, will calculate, maintain and disseminate the Index on a daily basis. WisdomTree Investments will monitor the results produced by the Calculation Agent to help ensure that the Index is being calculated in accordance with the rules-based
methodology. In addition, WisdomTree Investments and WisdomTree Asset Management have established policies and procedures designed to prevent non-public information about pending changes to the Index from being used or disseminated in an improper
manner. Furthermore, WisdomTree Investments and WisdomTree Asset Management have established policies and procedures designed to prevent improper use and dissemination of non-public information about the Funds portfolio strategies and to
prevent the Funds portfolio managers from having any influence on the construction of the Index methodology.
INVESTMENT LIMITATIONS
The following fundamental investment policies and limitations supplement those set forth in the Funds
Prospectus. Unless otherwise noted, whenever a fundamental investment policy or limitation states a maximum percentage of the Funds assets that may be invested in any security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and as a result of the Funds acquisition of such security or other asset. Accordingly, other than with respect to the Funds limitations on borrowings, any
subsequent change in values, net assets, or other circumstances will not be considered when determining whether the investment complies with the Funds investment policies and limitations.
The Funds fundamental investment policies cannot be changed without the approval of the holders of a majority of the Funds outstanding voting
securities as defined under the 1940 Act. The Fund, however, may change the non-fundamental investment policies described below, its investment objective, and its underlying Index without a shareholder vote provided that it obtains Board approval
and notifies its shareholders with at least sixty (60) days prior written notice of any such change.
Fundamental Policies.
The following investment policies and limitations are fundamental and may NOT be changed without shareholder approval.
11
The Fund, as a fundamental investment policy, may not:
Senior Securities
Issue senior securities, except as permitted under the 1940 Act.
Borrowing
Borrow money, except as permitted under the 1940 Act.
Underwriting
Act as an underwriter of another issuers securities, except to the extent that the Fund may be considered an underwriter within the meaning of the Securities Act in the disposition of portfolio
securities.
Concentration
Purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities) if, as a result, more than 25% of the Funds
total assets would be invested in the securities of companies whose principal business activities are in the same industry, except that the Fund will invest more than 25% of its total assets in securities of the same industry to approximately the
same extent that the Funds underlying Index concentrates in the securities of a particular industry or group of industries.
Real Estate
Purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments (but this shall not prevent the Fund from investing in securities or other instruments backed by real estate, real estate investment trusts or securities of companies engaged in the real estate
business).
Commodities
Purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed by physical commodities).
Loans
Lend any security or make any other loan except as permitted under the 1940 Act.
This means that no more than 33
1
/
3
% of its total assets would be lent to other parties. This limitation does not apply to purchases of debt securities or to
repurchase agreements, or to acquisitions of loans, loan participations or other forms of debt instruments, permissible under the Funds investment policies.
Non-Fundamental Policies.
The following investment policy is not fundamental and may be changed without shareholder approval.
The Fund has adopted a non-fundamental investment policy in accordance with Rule 35d-1 under the 1940 Act to invest, under normal
circumstances, at least 80% of the value of its net assets, plus the amount of any borrowings for investment purposes, in the types of securities suggested by the Funds name, including investments that are tied economically to the particular
country or geographic region suggested by the Funds name. If, subsequent to an investment, the 80% requirement is no longer met, the Funds future investments will be made in a manner that will bring the Fund into compliance with this
policy.
CONTINUOUS OFFERING
The method by which Creation Unit Aggregations of shares are created and traded may raise certain issues under applicable securities laws. Because new Creation Unit Aggregations of shares 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 requirement 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 Unit Aggregations after placing an order with
the Funds Distributor, breaks them down into constituent shares, and sells such shares directly to customers, or if it chooses to couple the creation of a supply of new shares with an active selling effort involving solicitation of secondary
market demand for shares. A determination of whether one is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular
case, and the examples mentioned above should not be considered a complete description of all the activities that could lead to a categorization as an underwriter.
Broker-dealer firms should also note that dealers who are not underwriters but are effecting transactions in shares, whether or not participating in the distribution of shares, generally are
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
12
Act. Firms that incur a prospectus delivery obligation with respect to shares of the Fund are reminded that, pursuant to Rule 153 under the Securities Act, a prospectus delivery obligation under
Section 5(b)(2) of the Securities Act owed to an exchange member in connection with the sale on the Listing Exchange is satisfied by the fact that the prospectus is available at the Listing Exchange upon request. The prospectus delivery
mechanism provided in Rule 153 is only available with respect to transactions on an exchange.
MANAGEMENT OF THE TRUST
Board Responsibilities.
The Board is responsible for overseeing the management and affairs of the Fund and the Trust. The Board has considered and approved contracts, as described herein, under
which certain companies provide essential management and administrative services to the Trust. Like most ETFs, the day-to-day business of the Trust, including the day-to-day management of risk, is performed by third-party service providers, such as
the Advisers, Distributor and Administrator. The Board is responsible for overseeing the Trusts service providers and, thus, has oversight responsibility with respect to the risk management performed by those service providers. Risk management
seeks to identify and eliminate or mitigate the potential effects of risks, i.e., events or circumstances that could have material adverse effects on the business, operations, shareholder services, investment performance or reputation of the Trust
or the Fund. Under the overall supervision of the Board and the Audit Committee (discussed in more detail below), the service providers to the Fund employ a variety of processes, procedures and controls to identify risks relevant to the operations
of the Trust and the Fund to lessen the probability of their occurrence and/or to mitigate the effects of such events or circumstances if they do occur. Each service provider is responsible for one or more discrete aspects of the Trusts
business (e.g., the Advisers are responsible for the day-to-day management of the Funds portfolio investments) and, consequently, for managing the risks associated with that activity.
The Boards role in risk management oversight begins before the inception of the Fund, at which time the Funds Adviser presents the Board with information concerning the investment objectives,
strategies and risks of the Fund. Additionally, the Funds Adviser and Sub-Adviser provide the Board with an overview of, among other things, its investment philosophy, brokerage practices and compliance infrastructure. Thereafter, the Board
oversees the risk management of the Funds operations, in part, by requesting periodic reports from and otherwise communicating with various personnel of the Fund and its service providers, including the Trusts CCO and the Funds
independent registered public accountants. The Board and, with respect to identified risks that relate to its scope of expertise, 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
receives information about those services at its regular meetings. In addition, on at least an annual basis, in connection with its consideration of whether to renew any Advisory Agreements and Sub-Advisory Agreements with the Adviser and
Sub-Adviser, respectively, the Board meets with the Adviser and Sub-Adviser to review such services. Among other things, the Board regularly considers the Advisers and Sub-Advisers adherence to the Funds investment restrictions and
compliance with various Fund policies and procedures and with applicable securities regulations. The Board also reviews information about the Funds performance and investments.
The Trusts CCO meets regularly with the Board to review and discuss compliance and other issues. At least annually, the Trusts CCO provides the Board with a report reviewing the adequacy and
effectiveness of the Trusts policies and procedures and those of its service providers, including the Advisers. The report addresses the operation of the policies and procedures of the Trust and each service provider since the date of the last
report; material changes to the policies and procedures since the date of the last report; any recommendations for material changes to the policies and procedures; and material compliance matters since the date of the last report.
The Board receives reports from the Trusts service providers regarding operational risks, portfolio valuation and other matters. Annually, an
independent registered public accounting firm reviews with the Audit Committee its audit of the Trusts financial statements, focusing on major areas of risk encountered by the Trust and noting any significant deficiencies or material
weaknesses in the Trusts internal controls.
The Board recognizes that not all risks that may affect the Fund can be identified, that it
may not be practical or cost-effective to eliminate or mitigate certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to achieve the Funds goals, and that the processes, procedures and controls
employed to address certain risks may be limited in their effectiveness. Moreover, despite the periodic reports the Board receives and the Boards discussions with the service providers to the Fund, it may not be made aware of all of the
relevant information of a particular risk. Most of the Trusts investment management and business affairs are carried out by or through the Funds 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 Trusts and each others in the setting of priorities, the resources available or the effectiveness of
relevant controls. As a result of the foregoing and other factors, the Boards risk management oversight is subject to substantial limitations.
Members of the Board and Officers of the Trust.
Set forth below are the names, birth years, positions with the Trust, term of office, number of portfolios overseen, and the principal occupations
and other directorships for a minimum of the last five years of each of the persons currently serving as members of the Board and as Executive Officers of the Trust. Also included below is the term of
13
office for each of the Executive Officers of the Trust. The members of the Board serve as Trustees for the life of the Trust or until retirement, removal, or their office is terminated pursuant
to the Trusts Declaration of Trust. The address of each Trustee and Officer is c/o WisdomTree Asset Management, Inc., 380 Madison Avenue, 21st Floor, New York, New York 10017.
The Chairman of the Board, Victor Ugolyn, is not an interested person of the Fund as that term is defined in the 1940 Act. The Board is composed of a super-majority (75 percent) of Trustees who are not
interested persons of the Fund (i.e., Independent Trustees). There is an Audit Committee and Governance and Nominating Committee of the Board, each of which is chaired by an Independent Trustee and comprised solely of Independent
Trustees. The Committee chair for each is responsible for running the Committee meeting, formulating agendas for those meetings, and coordinating with management to serve as a liaison between the Independent Trustees and management on matters within
the scope of the responsibilities of the Committee as set forth in its Board-approved charter. The Fund has determined that this leadership structure is appropriate given the specific characteristics and circumstances of the Fund. The Fund made this
determination in consideration of, among other things, the fact that the Independent Trustees of the Fund constitute a super-majority of the Board, the assets under management of the Fund, the number of Funds overseen by the Board, the total number
of Trustees on the Board, and the fact that an Independent Trustee serves as Chair of the Board.
14
|
|
|
|
|
|
|
|
|
Name, Address
and Year of Birth of
Trustee/Officer
|
|
Position(s) Held with
the 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/
Officer+
|
|
Other
Directorships
Held by Trustee
During Past 5 Years
|
Trustees Who Are Interested Persons of the Trust
|
|
|
|
|
|
Jonathan Steinberg
(1964)
|
|
Trustee, 2005-present; President, 2005-present
|
|
President, WisdomTree Trust since 2005; President, WisdomTree Investments, Inc. and WisdomTree Asset Management, Inc.; Chief Executive Officer, WisdomTree Investments, Inc. and
WisdomTree Asset Management, Inc.
|
|
50
|
|
Director,
WisdomTree
Investments, Inc. and WisdomTree Asset Management, Inc.
|
|
Trustees Who Are Not Interested Persons of the
Trust
|
|
|
|
|
|
Joel Goldberg
(1945)*
|
|
Trustee, 2012-present
|
|
Attorney, Partner at Stroock & Stroock & Lavan LLP, 2010 to present; Attorney, Partner at Willkie Farr & Gallagher LLP, 2006 to 2010.
|
|
50
|
|
None
|
|
|
|
|
|
Toni Massaro
(1955)**
|
|
Trustee, 2006-present
|
|
Dean Emerita at the University of Arizona James E. Rogers College of Law (Rogers College of Law) since 2009 (distinguished Emerita in July 2009); Dean of the Rogers
College of Law from 1999 to 2009; Regents Professor since 2006; Milton O. Riepe Chair in Constitutional Law since 1997; Professor at the Rogers College of Law since 1990.
|
|
50
|
|
None
|
|
|
|
|
|
Victor Ugolyn
(1947)
|
|
Trustee, 2006-present; Chairman of the Board of Trustees, 2006-present
|
|
Private Investor, 2005 to present; President and Chief Executive Officer of William D. Witter, Inc. from 2005 to 2006; Consultant to AXA Enterprise in 2004; Chairman, President and
Chief Executive Officer of Enterprise Capital Management (subsidiary of The MONY Group, Inc.) and Enterprise Group of Funds, Chairman of MONY Securities Corporation, and Chairman of the Fund Board of Enterprise Group of Funds from 1991 to
2004.
|
|
50
|
|
Member of the Board of Directors of New York Society of Security Analysts; Member of the Board of Governors of Naismith Memorial Basketball Hall of Fame.
|
|
Officers of the Trust
|
|
|
|
|
|
Jonathan Steinberg***
(1964)
|
|
President, 2005-
present; Trustee, 2005-present
|
|
President, WisdomTree Trust since 2005; President, WisdomTree Investments, Inc. and WisdomTree Asset Management, Inc.; Chief Executive Officer, WisdomTree Investments, Inc. and
WisdomTree Asset Management, Inc.
|
|
50
|
|
|
|
|
|
|
|
David Castano***
(1971)
|
|
Treasurer, 2013-present
|
|
Director of Fund Accounting & Administration, WisdomTree Asset Management, Inc. since 2011; Vice President of Legg Mason & Co. and served as Treasurer from 2010 to 2011 and
Controller from 2006 to 2010 of certain mutual funds associated with Legg Mason & Co.; Assistant Treasurer of Lord Abbett mutual funds from 2004 to 2006.
|
|
50
|
|
|
|
|
|
|
|
Ryan Louvar***
(1972)
|
|
Secretary and Chief Legal Officer, 2013 present
|
|
General Counsel, WisdomTree Asset Management, Inc. since 2013; Vice President and Senior Managing Counsel, State Street, 2005 to 2013.
|
|
50
|
|
|
|
|
|
|
|
Sarah English***
(1977)
|
|
Assistant Secretary, 2013-present
|
|
Counsel, WisdomTree Asset Management, Inc. since 2010; Attorney, NYFIX, Inc. 2006 to 2009.
|
|
50
|
|
|
|
|
|
|
|
Terry Jane Feld***
(1960)
|
|
Chief Compliance Officer, 2012-present
|
|
Chief Compliance Officer, WisdomTree Asset Management, Inc. since 2012; Senior Compliance Officer, WisdomTree Asset Management, Inc. since 2011; Senior Compliance Officer,
TIAA-CREF, 2007 to 2010; Vice President/NASD-SEC Compliance, Mutual of America Life Insurance Co., 2004 to 2007.
|
|
50
|
|
|
*
|
Chair of the Governance and Nominating Committee.
|
15
**
|
Chair of the Audit Committee.
|
***
|
Elected by and serves at the pleasure of the Board.
|
Audit Committee.
Each Independent Trustee, except Joel Goldberg, is a member of the Trusts Audit Committee (the Audit Committee). The principal responsibilities of the Audit Committee are the appointment, compensation and oversight of the
Trusts independent registered public accountants, including the resolution of disagreements regarding financial reporting between Trust management and such independent registered public accountants. The Audit Committees responsibilities
include, without limitation, to (i) oversee the accounting and financial reporting processes of the Trust and its internal control over financial reporting and, as the Committee deems appropriate, to inquire into the internal control over
financial reporting of certain third-party service providers; (ii) oversee the quality and integrity of the Funds financial statements and the independent audits thereof; (iii) oversee, or, as appropriate, assist Board oversight of,
the Trusts compliance with legal and regulatory requirements that relate to the Trusts accounting and financial reporting, internal control over financial reporting and independent audits; (iv) approve prior to appointment the
engagement of the Trusts independent registered public accountants and, in connection therewith, to review and evaluate the qualifications, independence and performance of the Trusts independent registered public accountants; and
(v) act as a liaison between the Trusts independent registered public accountants and the full Board. The Board of the Trust has adopted a written charter for the Audit Committee. The Independent Trustees independent legal counsel
assists the Audit Committee in connection with these duties. During the fiscal year ended March 31, 2013, the Audit Committee held seven meetings.
Governance and Nominating Committee.
Each Independent Trustee is a member of the Trusts Governance and Nominating Committee. The principal responsibilities of the Governance and Nominating
Committee are to (i) oversee Fund governance matters and (ii) identify individuals qualified to serve as Independent Trustees of the Trust and to recommend its nominees for consideration by the full Board. While the Governance and
Nominating Committee is solely responsible for the selection and nomination of the Trusts Independent Trustees, the Governance and Nominating Committee may consider nominations for the office of Trustee made by Trust stockholders as it deems
appropriate. The Governance and Nominating Committee considers nominees recommended by shareholders if such nominees are submitted in accordance with Rule 14a-8 of the Securities Exchange Act of 1934 (the 1934 Act), in conjunction with a
shareholder meeting to consider the election of Trustees. Trust stockholders who wish to recommend a nominee should send nominations to the Secretary of the Trust that include biographical information and set forth the qualifications of the proposed
nominee. During the fiscal year ended March 31, 2013, the Governance and Nominating Committee held three meetings.
Individual
Trustee Qualifications.
The Trust 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 Trust and the Fund provided by management, to identify and request
other information he or she may deem relevant to the performance of the Trustees 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 Funds shareholders. The Trust 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.
The Trust has concluded that Mr. Steinberg should serve as Trustee of the Fund because of the experience he
has gained as President, Chief Executive Officer and director of WisdomTree Investments, his knowledge of and experience in the financial services industry, and the experience he has gained serving as Trustee of the Trust since 2005.
The Trust has concluded that Mr. Goldberg should serve as Trustee of the Fund because of the experience he has gained as a member of the staff of
the SEC, including serving as Director of the SECs Division of Investment Management, as well as his experience as legal counsel for many mutual funds, investment advisers, and independent directors.
The Trust has concluded that Ms. Massaro should serve as Trustee of the Fund because of the experience she has gained as a law professor, dean and
advisor at various universities, and the experience she has gained serving as Trustee of the Trust since 2006.
The Trust has concluded that
Mr. Ugolyn should serve as Trustee of the Fund because of the experience he gained as chief executive officer of a firm specializing in financial services, his experience in and knowledge of the financial services industry, his service as
chairman for another mutual fund family, and the experience he has gained serving as Trustee of the Trust since 2006.
Fund Shares Owned by
Board Members.
The following table shows the dollar amount range of each Trustees beneficial ownership of shares of the Fund and each other series of the Trust as of the end of the most recently completed calendar year. Dollar
amount ranges disclosed are established by the SEC. Beneficial ownership is determined in accordance with Rule 16a-1(a)(2) under the 1934 Act. The Trustees and officers of the Trust collectively own less than 1% of the outstanding shares
of the Trust.
16
|
|
|
|
|
|
|
|
|
Name of Trustee
|
|
Name of Fund
|
|
Dollar Range of
Equity
Securities
in the Funds*
|
|
|
Aggregate Dollar Range of
Equity Securities in All Registered
Investment
Companies Overseen
by Trustee in Family of
Investment Companies**
|
Interested Trustee
|
Jonathan L. Steinberg
|
|
WisdomTree Japan Hedged SmallCap Equity Fund
|
|
|
None
|
|
|
Over $100,000
|
|
Independent Trustees
|
Joel H. Goldberg***
|
|
WisdomTree Japan Hedged SmallCap Equity Fund
|
|
|
None
|
|
|
None
|
Toni M. Massaro
|
|
WisdomTree Japan Hedged SmallCap Equity Fund
|
|
|
None
|
|
|
Over $100,000
|
Victor Ugolyn
|
|
WisdomTree Japan Hedged SmallCap Equity Fund
|
|
|
None
|
|
|
$50,001-$100,000
|
*
|
Values based on Trustees ownership as of date of this SAI.
|
**
|
These values are based on the Trustees ownership as of December 31, 2012.
|
***
|
Joel Goldberg was appointed to the Board on October 5, 2012.
|
Board Compensation.
The following table sets forth the compensation paid by the Trust to each Trustee for the fiscal year ended March 31, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Interested Trustee
|
|
Aggregate
Compensation
from the Trust
|
|
|
Pension or
Retirement
Benefits
Accrued as
Part
of
Company
Expenses
|
|
|
Estimated Annual
Benefits upon
Retirement
|
|
|
Total Compensation
from the Funds and
Fund Complex*
|
|
Jonathan Steinberg
|
|
$
|
0
|
|
|
|
None
|
|
|
|
None
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Independent Trustee
|
|
Aggregate
Compensation
from the Trust
|
|
|
Pension or
Retirement
Benefits
Accrued as
Part of
Company
Expenses
|
|
|
Estimated Annual
Benefits upon
Retirement
|
|
|
Total Compensation
from the Funds and
Fund Complex*
|
|
Gregory Barton**
|
|
$
|
80,240
|
|
|
|
None
|
|
|
|
None
|
|
|
$
|
80,240
|
|
Joel Goldberg***
|
|
$
|
81,888
|
|
|
|
None
|
|
|
|
None
|
|
|
$
|
81,888
|
|
Toni Massaro
|
|
$
|
161,700
|
|
|
|
None
|
|
|
|
None
|
|
|
$
|
161,700
|
|
Victor Ugolyn
|
|
$
|
220,500
|
|
|
|
None
|
|
|
|
None
|
|
|
$
|
220,500
|
|
*
|
The Trust is the only trust in the Fund Complex.
|
**
|
Gregory Barton resigned from the Board on October 5, 2012.
|
***
|
Joel Goldberg was appointed to the Board on October 5, 2012.
|
Control Persons and Principal Holders of Securities.
Because the Fund is new there were no beneficial owners as of the date of this SAI.
Investment Adviser.
WisdomTree Asset Management serves as investment adviser to the Fund pursuant to an investment advisory agreement
between the Trust and WisdomTree Asset Management (the Investment Advisory Agreement). WisdomTree Asset Management is a Delaware corporation registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the
Advisers Act), and has offices located at 380 Madison Avenue, 21st Floor, New York, New York 10017. As of May 31, 2013, WisdomTree Asset Management had assets under management totaling approximately $30 billion.
Under the Investment Advisory Agreement, WisdomTree Asset Management has overall responsibility for the general management and administration of the
Trust. WisdomTree Asset Management provides an investment program for the Fund. The Adviser also arranges for sub-advisory, transfer agency, custody, fund administration, securities lending, and all other non-distribution-related services necessary
for the Fund to operate. The Fund pays WisdomTree Asset Management a fee equal to 0.58% of the Funds average daily net assets.
Under the Investment Advisory Agreement, WisdomTree Asset Management has agreed to pay all expenses of the Fund, except for: (i) brokerage expenses
and other fees, charges, taxes, levies or expenses (such as stamp taxes) incurred in connection with the execution of portfolio transactions or in connection with creation and redemption transactions (including without limitation any fees, charges,
taxes, levies or expenses related to the purchase or sale of an amount of any currency, or the patriation or repatriation of any security or other asset, related to the execution of portfolio transactions or any creation or redemption transactions);
(ii) legal fees or expenses in connection with any arbitration, litigation or pending or threatened arbitration or litigation, including any settlements in
17
connection therewith; (iii) compensation and expenses of each Independent Trustee; (iv) compensation and expenses of counsel to the Independent Trustees; (v) compensation and
expenses of the Trusts Chief Compliance Officer (CCO); (vi) extraordinary expenses (in each case as determined by a majority of the Independent Trustees); (vii) distribution fees and expenses paid by the Trust under any
distribution plan adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the 1940 Act); (viii) interest and taxes of any kind or nature (including, but not limited to, income, excise, transfer and withholding
taxes); (ix) fees and expenses related to the provision of securities lending services; and (x) the advisory fee payable to WisdomTree Asset Management. The internal expenses of pooled investment vehicles in which the Fund may invest
(acquired fund fees and expenses) are not expenses of the Trust and are not paid by WisdomTree Asset Management. Pursuant to a separate contractual arrangement, WisdomTree Asset Management arranges for the provision of CCO services with respect to
the Fund, and is liable and responsible for, and administers, payments to the CCO, the Independent Trustees and counsel to the Independent Trustees. WisdomTree Asset Management receives a fee of up to 0.0044% of the Funds average daily net
assets for providing such services and paying such expenses. WisdomTree Asset Management provides CCO services to the Trust.
The Adviser,
from its own resources, including profits from advisory fees received from the Fund, provided such fees are legitimate and not excessive, may make payments to broker-dealers and other financial institutions for their expenses in connection with the
distribution of Fund shares, and otherwise currently pays all distribution costs for Fund shares.
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 (i) the Board of Trustees of the Trust or (ii) the 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 vote of a majority of the Trustees of the Trust who are not interested persons (as defined in the 1940 Act) of the Fund, by a vote cast in
person at a meeting called for the purpose of voting on such approval. If the shareholders of the Fund fail to approve the Investment Advisory Agreement, WisdomTree Asset Management may continue to serve in the manner and to the extent permitted by
the 1940 Act and rules and regulations thereunder.
The Investment Advisory Agreement with respect to the Fund is terminable without any
penalty, by vote of the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund, or by WisdomTree Asset Management, in each case on not less than thirty
(30) days nor more than sixty (60) days prior written notice to the other party; provided that a shorter notice period shall be permitted for the Fund in the event its shares are no longer listed on a national securities
exchange. The Investment Advisory Agreement will terminate automatically and immediately in the event of its assignment (as defined in the 1940 Act).
Sub-Adviser.
The sub-adviser to the Fund is Mellon Capital Management Corporation (Mellon Capital or the Sub-Adviser). Mellon Capital, a registered investment
adviser, with its principal office located at 50 Fremont Street, San Francisco, California 94105, serves as Sub-Adviser for and is responsible for the day-to-day management of the Fund. Mellon Capital is a leading innovator in the investment
industry and manages global quantitative-based investment strategies for institutional and private investors. As of May 31, 2013, the Sub-Adviser managed approximately $318 billion (including $6,477 million in overlay). Mellon Capital is a
wholly-owned indirect subsidiary of The Bank of New York Mellon, a publicly traded financial holding company. Mellon Capital chooses the Funds portfolio investments and places orders to buy and sell the Funds portfolio investments.
WisdomTree Asset Management pays Mellon Capital for providing sub-advisory services to the Fund.
The Sub-Adviser believes that it may
perform sub-advisory and related services for the Trust without violating applicable banking laws or regulations. However, the legal requirements and interpretations about the permissible activities of banks and their affiliates may change in the
future. These changes could prevent the Sub-Adviser from continuing to perform services for the Trust. If this happens, the Board would consider selecting other qualified firms. Any new investment sub-advisory agreement would be subject to
shareholder approval.
The Sub-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 (i) the Board of Trustees of the Trust or (ii) the 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
is also approved by a vote of a majority of the Trustees of the Trust who are not interested persons (as defined in the 1940 Act) of the Fund, by a vote cast in person at a meeting called for the purpose of voting on such approval. The Sub-Advisory
Agreement with respect to the Fund is terminable without any penalty, by vote of the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund, or by WisdomTree Asset
Management, in each case on not less than thirty (30) days nor more than sixty (60) days prior written notice to the Sub-Adviser; provided that a shorter notice period shall be permitted for the Fund in the event its shares are
no longer listed on a national securities exchange. The Sub-Advisory Agreement will terminate automatically and immediately in the event of its assignment (as defined in the 1940 Act).
Portfolio Managers.
The Fund is managed by the Sub-Advisers Equity Index Strategies portfolio management team. The individual members
of the team responsible for the day-to-day management of the Funds portfolio are (Karen Q. Wong, Thomas J. Durante, and Richard A. Brown.)
Including the WisdomTree ETFs, as of May 31, 2013, the Sub-Advisers Index Fund Management team managed 88 registered investment companies with approximately $68 billion in assets; 97 pooled
investment vehicles with approximately $75 billion in assets and 73 other accounts with approximately $99 billion in assets.
18
Portfolio Manager Fund Ownership.
As of the date of this SAI, none of the portfolio managers
owned shares of the Fund.
Portfolio Manager Compensation.
The primary objectives of the Sub-Advisers compensation plans
are to:
|
|
|
Motivate and reward superior investment and business performance
|
|
|
|
Motivate and reward continued growth and profitability
|
|
|
|
Attract and retain high-performing individuals critical to the on-going success of the Sub-Adviser
|
|
|
|
Create an ownership mentality for all plan participants
|
Cash compensation is comprised primarily of a market-based base salary and variable incentives (cash and deferred). Base salary is determined by the employees experience and performance in the role,
taking into account the ongoing compensation benchmark analyses. Base salary is generally a fixed amount that may change as a result of an annual review, upon assumption of new duties, or when a market adjustment of the position occurs. Funding for
the Sub-Advisers Annual and Long Term Incentive Plan is through a pre-determined fixed percentage of overall Sub-Adviser profitability. Therefore, all bonus awards are based initially on the Sub-Advisers financial performance. Annual
incentive opportunities are pre-established for each individual, expressed as a percentage of base salary (target awards). These targets are derived based on a review of competitive market data for each position annually.
Annual awards are determined by applying multiples to this target award. Awards are 100% discretionary. Factors considered in awards include individual
performance, team performance, investment performance of the associated portfolio(s) (including both short and long term returns) and qualitative behavioral factors. Other factors considered in determining the award are the asset size and revenue
growth/retention of the products managed (if applicable). Awards are paid partially in cash with the balance deferred through the Long Term Incentive Plan.
Participants in the Long Term Incentive Plan have a high level of accountability and a large impact on the success of the business due to the positions scope and overall responsibility. This plan
provides for an annual award, payable in cash after a three-year cliff vesting period as well as a grant of BNY Mellon Restricted Stock for senior level roles. The Sub-Advisers portfolio managers responsible for managing mutual funds are paid
by the Sub-Adviser and not by the mutual funds.
The same methodology described above is used to determine portfolio manager compensation with
respect to the management of mutual funds and other accounts. Mutual fund portfolio managers are also eligible for the standard retirement benefits and health and welfare benefits available to all Sub-Adviser employees. Certain portfolio managers
may be eligible for additional retirement benefits under several supplemental retirement plans that the Sub-Adviser provides to restore dollar-for-dollar the benefits of management employees that had been cut back solely as a result of certain
limits due to the tax laws. These plans are structured to provide the same retirement benefits as the standard retirement benefits. In addition, mutual fund portfolio managers whose compensation exceeds certain limits may elect to defer a portion of
their salary and/or bonus under the BNY Mellon Corporation Deferred Compensation Plan for Employees.
Description of Material Conflicts
of Interest.
Because the Sub-Advisers portfolio managers manage multiple portfolios for multiple clients, the potential for conflicts of interest exists. Each portfolio manager generally manages portfolios having substantially the same
investment style as the Fund. However, the portfolios managed by a portfolio manager may not have portfolio compositions identical to those of the Fund due, for example, to specific investment limitations or guidelines present in some portfolios or
accounts, but not others. The portfolio managers 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. A portfolio manager may place transactions on behalf of other accounts that are directly or indirectly contrary to investment decisions made on behalf of the Fund, or make investment decisions that are similar to those made for the Fund,
both of which have the potential to adversely impact the Fund depending on market conditions. For example, a portfolio manager may purchase a security in one portfolio while appropriately selling that same security in another portfolio. In addition,
some of these portfolios have fee structures that are or have the potential to be higher than the advisory fees paid by the Fund, which can cause potential conflicts in the allocation of investment opportunities between the Fund and the other
accounts. However, the compensation structure for portfolio managers does not generally provide incentive to favor one account over another because that part of a managers 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 managers bonus and there is no formula that is applied to weight the factors listed (see Compensation of Portfolio Managers and
Other Accounts Managed). The Sub-Adviser has a fiduciary duty to manage all client accounts in a fair and equitable manner. To accomplish this, the Sub-Adviser has adopted various policies and procedures (including, but not limited to,
policies relating to trading operations, best execution, trade order aggregation and allocation, short sales, cross-trading, code of conduct, personal securities trading and purchases of securities from affiliate underwriters). These procedures are
intended to help employees identify and mitigate potential side by side conflicts of interest. The Sub-Adviser has also developed a conflicts matrix listing potential side by side conflicts and compliance policies and procedures reasonably designed
to mitigate such potential conflicts of interest.
Codes of Ethics.
The Trust, the Advisers and the Distributor have each
adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, where applicable. Each Code of Ethics permits personnel subject to that Code of Ethics to invest in securities for their personal investment
accounts, subject to certain limitations, including securities that may be purchased or held by the Fund. Each Code of Ethics is on public file with, and is available from, the SEC.
19
Administrator, Custodian, Transfer Agent and Securities Lending Agent.
BNY Mellon serves as
administrator, custodian, transfer agent and securities lending agent for the Fund. BNY Mellons principal address is One Wall Street, New York, New York 10286. Under the Fund Administration and Accounting Agreement with the Trust, BNY Mellon
provides necessary administrative, legal, tax, accounting services and financial reporting for the maintenance and operations of the Trust and the Fund. In addition, BNY Mellon makes available the office space, equipment, personnel and facilities
required to provide such services. Under the custody agreement with the Trust, BNY Mellon maintains in separate accounts cash, securities and other assets of the Trust and the Fund, keeps all necessary accounts and records, and provides other
services. BNY Mellon is required, upon the order of the Trust, to deliver securities held by BNY Mellon and to make payments for securities purchased by the Trust for the Fund. Also, under a Delegation Agreement, BNY Mellon is authorized to appoint
certain foreign custodians or foreign custody managers for Fund investments outside the United States. Pursuant to a Transfer Agency and Service Agreement with the Trust, BNY Mellon acts as transfer agent for the Funds authorized and issued
shares of beneficial interest, and as dividend disbursing agent of the Trust. As compensation for the foregoing services, BNY Mellon receives certain out-of-pocket costs, transaction fees and asset-based fees which are accrued daily and paid monthly
by the Trust from the Trusts custody account with BNY Mellon. BNY Mellon serves as the Funds securities lending agent. As compensation for providing such services, BNY Mellon receives a portion of the income earned by the Funds on
collateral investments made in connection with the lending program. The Fund is new and the Adviser had not paid BNY Mellon any fees for services to the Fund as of the fiscal year ended March 31, 2013.
Distributor.
ALPS Distributors, Inc. serves as Distributor for the Trust and its principal address is 1290 Broadway, Suite 1100, Denver,
Colorado 80203. The Distributor has entered into a Distribution Agreement with the Trust pursuant to which it distributes shares of the Fund. The Distribution Agreement will continue for two years from its effective date and is renewable annually.
Shares are continuously offered for sale by the Fund through the Distributor only in Creation Unit Aggregations, as described in the applicable Prospectus and below in the Creation and Redemption of Creation Unit Aggregations section. Shares in
less than Creation Unit Aggregations are not distributed by the Distributor. The Distributor will deliver the applicable Prospectus and, upon request, this SAI to persons purchasing Creation Unit Aggregations 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 1934 Act and a member of the Financial Industry Regulatory Authority (FINRA). The Distributor is not affiliated with
WisdomTree Investments, WisdomTree Asset Management, or any stock exchange.
The Distribution Agreement for the Fund will provide that it may
be terminated at any time, without the payment of any penalty, on at least sixty (60) days prior written notice to the other party (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 Fund. The Distribution Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act).
The Distributor may also enter into agreements with securities dealers (Soliciting Dealers) who will solicit purchases of Creation Unit
Aggregations of shares. Such Soliciting Dealers may also be Authorized Participants (as defined below) or DTC Participants (as defined below).
Intermediary Compensation.
WisdomTree Asset Management or its affiliates, out of their own resources and not out of Fund assets (i.e.,
without additional cost to the Fund or its shareholders), may pay certain broker dealers, banks and other financial intermediaries (Intermediaries) for certain activities related to the Fund, including participation in activities that
are designed to make Intermediaries more knowledgeable about exchange traded products, including the Fund, or for other activities, such as marketing and educational training or support. These arrangements are not financed by the Fund and, thus, do
not result in increased Fund expenses. They are not reflected in the fees and expenses listed in the fees and expenses sections of the Funds Prospectus and they do not change the price paid by investors for the purchase of the Funds
shares or the amount received by a shareholder as proceeds from the redemption of Fund shares.
Such compensation may be paid to
Intermediaries that provide services to the Fund, including marketing and education support (such as through conferences, webinars and printed communications). WisdomTree Asset Management periodically assesses the advisability of continuing to make
these payments. Payments to an Intermediary may be significant to the Intermediary, and amounts that Intermediaries pay to your adviser, broker or other investment professional, if any, may also be significant to such adviser, broker or investment
professional. Because an Intermediary may make decisions about what investment options it will make available or recommend, and what services to provide in connection with various products, based on payments it receives or is eligible to receive,
such payments create conflicts of interest between the Intermediary and its clients. For example, these financial incentives may cause the Intermediary to recommend the Fund over other investments. The same conflict of interest exists with respect
to your financial adviser, broker or investment professionals if he or she receives similar payments from his or her Intermediary firm.
Intermediary information is current only as of the date of this SAI. Please contact your adviser, broker or other investment professional for more
information regarding any payments his or her Intermediary firm may receive. Any payments made by WisdomTree Asset Management or its affiliates to an Intermediary may create the incentive for an Intermediary to encourage customers to buy shares of
WisdomTree Funds.
20
If you have any additional questions, please call 1-866-909-9473.
BROKERAGE TRANSACTIONS
The Sub-Adviser assumes general supervision over placing orders on behalf of the Fund for the purchase and sale of portfolio securities. In selecting the brokers or dealers for any transaction in
portfolio securities, the Sub-Advisers policy is to make such selection based on factors deemed relevant, including but not limited to, the breadth of the market in the security; the price of the security; the reasonableness of the commission
or mark-up or mark-down, if any; execution capability; settlement capability; back office efficiency; and the financial condition of the broker or dealer, both for the specific transaction and on a continuing basis. The overall reasonableness of
brokerage commissions paid is evaluated by the Sub-Adviser based upon its knowledge of available information as to the general level of commissions paid by other institutional investors for comparable services. Brokers may also be selected because
of their ability to handle special or difficult executions, such as may be involved in large block trades, less liquid securities, broad distributions, or other circumstances. The Sub-Adviser does not consider the provision or value of research,
products or services a broker or dealer may provide, if any, as a factor in the selection of a broker or dealer or the determination of the reasonableness of commissions paid in connection with portfolio transactions. The Trust has adopted policies
and procedures that prohibit the consideration of sales of the Funds shares as a factor in the selection of a broker or a dealer to execute its portfolio transactions. To the extent creation or redemption transactions are conducted on a cash
or cash in lieu basis, the Fund may contemporaneously transact with broker-dealers for the purchase or sale of portfolio securities in connection with such transactions (see Creation and Redemption of Creation Unit
Aggregations herein). Such orders may be placed with an Authorized Participant in its capacity as broker-dealer or with an affiliated broker-dealer of such Authorized Participant. In such cases, the Fund will require such broker-dealer to
achieve execution at a price that is at least as favorable to the Fund as the value of such securities used to calculate the Funds NAV. The broker-dealer will be required to reimburse the Fund for, among other things, any difference between
the price (including applicable brokerage commissions, taxes and transaction costs) at which such securities were bought or sold and the value of such securities used to calculate the Funds NAV. This amount will vary depending on the
quality of the execution and may be capped at amounts determined by WisdomTree Asset Management in its sole discretion.
Brokerage
Commissions.
The Fund is new and had not paid any brokerage commissions as of the fiscal year ended March 31, 2013.
Affiliated
Brokers.
The Fund is new and had not paid any commissions to any affiliated brokers as of the fiscal year ended March 31, 2013.
Regular Broker-Dealers.
The Fund is new and did not acquire securities of its regular brokers or dealers (as defined in the 1940 Act) or of their
parents during the fiscal year ended March 31, 2013.
Portfolio Turnover.
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. The overall reasonableness of brokerage commissions is evaluated by the Adviser based upon its knowledge of available information as to the
general level of commissions paid by the other institutional investors for comparable services.
The Fund is new and therefore did not have a
portfolio turnover rate for the fiscal year ended March 31, 2013.
ADDITIONAL INFORMATION
CONCERNING THE TRUST
Shares.
The Trust was established as a Delaware statutory trust on December 15, 2005, and
consists of multiple series of funds (Funds). The Fund issues shares of beneficial interest, with $0.001 par value. The Board may establish additional Funds. The Trust is registered with the SEC as an open-end management investment
company.
Each share issued by the Fund has a pro rata interest in the assets of the Fund. 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 Funds vote together as a single class except that if the matter being voted on affects only a particular Fund or 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 (regardless of the Fund) have non-cumulative voting rights for the Board. Under Delaware law,
Trustees of the Trust may be removed by vote of the shareholders.
21
Following the creation of the initial Creation Unit Aggregation(s) of shares of the Fund and immediately
prior to the commencement of trading in such Funds shares, a holder of shares may be a control person of the Fund, as defined in the 1940 Act. The Fund cannot accurately predict the length of time for which one or more shareholders
may remain a control person or persons of the Fund.
Shareholders may make inquiries by writing to the Trust, c/o ALPS Distributors, Inc.,
1290 Broadway, Suite 1100, Denver, Colorado 80203.
Absent an applicable exemption or other relief from the SEC or its staff, beneficial
owners of more than 5% of the shares of the Fund may be subject to the reporting provisions of Section 13 of the 1934 Act and the SECs rules promulgated thereunder. In addition, absent an applicable exemption or other relief from the SEC
staff, officers and Trustees of the Fund and beneficial owners of 10% of the shares of the Fund (Insiders) may be subject to the insider reporting, short-swing profit and short-sale provisions of Section 16 of the 1934 Act and the
SECs rules promulgated thereunder. Beneficial owners and Insiders should consult with their own legal counsel concerning their obligations under Sections 13 and 16 of the 1934 Act.
Termination of the Trust or the Fund.
The Trust or the Fund may be terminated by a majority vote of the Board of Trustees or the affirmative vote of a super-majority of the holders of the
Trust or the Fund entitled to vote on termination. Although the shares are not automatically redeemable upon the occurrence of any specific event, the Trusts organizational documents provide that the Board will have the unrestricted power to
alter the number of shares in a Creation Unit Aggregation. In the event of a termination of the Trust or the Fund, the Board, in its sole discretion, could determine to permit the shares to be redeemable in aggregations smaller than Creation Unit
Aggregations or to be individually redeemable. In such circumstances, the Trust may make redemptions in-kind, for cash, or for a combination of cash and securities.
Role of the Depositary Trust Company (DTC).
DTC acts as Securities Depository for the shares of the Trust. Shares of the Fund are represented by securities registered in the name
of DTC or its nominee and deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold securities of its
participants (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 which (and/or their
representatives) own DTC. More specifically, DTC is owned by a number of DTC Participants and by the NYSE, the AMEX and FINRA. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (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. No Beneficial Owner shall have the right to receive a certificate representing such shares.
Conveyance of all notices, statements and other communications to Beneficial Owners is effected as follows. Pursuant to the Depositary Agreement between
the Trust and DTC, DTC is required to make available to the Trust upon request and for a fee to be charged to the Trust a listing of the shares of the Fund held by each DTC Participant. The Trust shall inquire of each such DTC Participant as to the
number of Beneficial Owners holding shares, directly or indirectly, through such DTC Participant. The Trust shall provide each such DTC Participant with copies of such notice, statement or other communication, in such form and 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 a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.
Share distributions shall be made to DTC or its nominee, Cede & Co., as the registered holder of all shares of the Trust. DTC or its nominee, upon receipt of any such distributions, shall
immediately credit 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.
22
The Trust has no responsibility or liability for any aspect of the records relating to or notices to
Beneficial Owners, or payments made on account of beneficial ownership interests in such shares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests, or for any other aspect of the relationship
between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants. DTC may decide to discontinue its service with respect to shares of the
Trust at any time by giving reasonable notice to the Trust and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Trust shall take action to find a replacement for DTC to perform its functions
at a comparable cost.
CREATION AND REDEMPTION OF CREATION UNIT AGGREGATIONS
Creation.
The Trust issues and sells shares of the Fund only in Creation Unit Aggregations on a continuous basis through the Distributor,
without a sales load, at the NAV next determined after receipt, on any Business Day, of an order in proper form.
Fund Deposit.
The consideration for purchase of Creation Unit Aggregations of the Fund generally consists of (i) the in-kind deposit of a designated portfolio of equity securities closely approximating the holdings of the Fund (including any portion
of such securities for which cash may be substituted) (the Deposit Securities) and (ii) an amount of cash denominated in U.S. dollars computed as described below (the Cash Component). The Deposit Securities generally
consist of a representative sample of the equity securities in the Funds Underlying Index. Together, the Deposit Securities and the Cash Component constitute the Fund Deposit, which represents the minimum initial and subsequent
investment amount for a Creation Unit Aggregation of the Fund.
The Cash Component is sometimes also referred to as the Balancing
Amount. The Cash Component is an amount equal to the difference between the NAV of the shares (per Creation Unit Aggregation) and the value of Deposit Securities. If the Cash Component is a positive number, the Authorized Participant will
deliver the Cash Component. If the Cash Component is a negative number, the Authorized Participant will receive the Cash Component. The Cash Component does not include any stamp duty tax or other similar fees and expenses payable upon transfer of
beneficial ownership of the Deposit Securities. These are the sole responsibility of the Authorized Participant.
The Fund, through the
National Securities Clearing Corporation (NSCC), makes available on each Business Day, prior to the opening of business on the Listing Exchange (currently 9:30 a.m., Eastern time), the list of the names and the required number of shares
and other instruments that constitute the Deposit Securities to be included in the current Fund Deposit (based on information at the end of the previous Business Day) for the Fund. Such Deposit Securities are applicable, subject to any adjustments,
as described below, in order to effect creations of Creation Unit Aggregations of the Fund until such time as the next-announced composition of the Deposit Securities is made available.
The identity and number of shares of the Deposit Securities required for a Fund Deposit for the Fund changes from time to time based on changes to the Funds Underlying Index and other factors.
In addition, the Trust reserves the right to permit or require the substitution of an amount of cash (i.e., a cash in lieu
amount) to be added to the Cash Component at its discretion (typically 102%-110% of the value of any missing Deposit Security). For example, cash may be substituted to replace any Deposit Security that may not be available in sufficient quantity for
delivery or that may not be eligible for transfer through the systems of DTC. The Trust also reserves the right to permit or require a cash in lieu amount where the delivery of the Deposit Security by the Authorized Participant (as
described below) would be restricted under the securities laws or where the delivery of the Deposit Security to the Authorized Participant would result in the disposition of the Deposit Security by the Authorized Participant becoming restricted
under the securities laws, or in other situations deemed appropriate by the Trust. While the Fund does not expect to issue and redeem Creation Unit Aggregations solely for cash in an amount based on the NAV per Creation Unit Aggregation, it reserves
the right to use this approach.
Procedures for Creation of Creation Unit Aggregations.
To be eligible to place orders with the
Distributor and to create a Creation Unit Aggregation of the Fund, an entity must be a DTC Participant. Such entity must have executed an agreement with the Distributor with respect to creations and redemptions of Creation Unit Aggregations
(Participant Agreement). A DTC Participant that has entered a Participation Agreement is referred to as an Authorized Participant. Investors should contact the Distributor for the names of Authorized Participants that have
signed a Participant Agreement. All shares of the Fund, however created, will be entered on the records of DTC in the name of Cede & Co. for the account of a DTC Participant.
All orders to create shares must be placed for one or more Creation Unit Aggregations. All orders to create Creation Unit Aggregations of the Fund must be received by the Distributor no later than the
closing time of the regular trading session on the Listing Exchange (Closing Time) (ordinarily 4:00 p.m., Eastern time) on the date such orders are placed in order to receive that days NAV. All orders must be received in proper
form. The date on which an order to create Creation Unit Aggregations is placed is referred to as the Transmittal Date. Orders must be transmitted by an Authorized Participant by telephone or other transmission method acceptable to the
Distributor pursuant to procedures set forth in the Participant Agreement, as described below, which procedures may change from time to time without notice at the discretion of the Trust. Economic or market disruptions or changes, or telephone or
other communication failure, may impede the ability to reach the Distributor or an Authorized Participant.
23
All orders to create Creation Unit Aggregations through an Authorized Participant shall be placed with an
Authorized Participant, in the form required by such Authorized Participant. In addition, the 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, in that case, orders to create Creation Unit Aggregations of the Fund have to be placed by each
investors 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.
Those placing
orders for Creation Unit Aggregations of International Equity ETFs (including the Fund) should ascertain the applicable deadline for cash transfers by contacting the operations department of the broker or depositary institution making the transfer
of the Cash Component. This deadline is likely to be significantly earlier than the closing time of the regular trading session on the Listing Exchange. Investors should be aware that the Authorized Participant may require orders for Creation Units
placed with it to be in the form required by the individual Authorized Participant, which form may not be the same as the form of purchase order specified by the Trust that the Authorized Participant must deliver to the Distributor.
Placement of Creation Orders.
Fund Deposits in connection with the International Equity ETFs (including the Fund) use a different process.
For each International Fund, BNY Mellon shall cause the sub-custodians of the Fund to maintain an account into which the Authorized Participant shall deliver the securities included in the designated Fund Deposit (or the cash value of all or part of
such securities, in the case of a permitted or required cash purchase or cash in lieu amount), with any appropriate adjustments as advised by the Trust. Deposit Securities must be delivered to an account maintained at the applicable
local sub-custodian(s). Except as described herein, orders to purchase Creation Unit Aggregations must be received by the Distributor from an Authorized Participant on its own or another investors behalf by the closing time of the regular
trading session on the applicable Listing Exchange on the relevant Business Day. However, when a relevant local market is closed due to local market holidays, the local market settlement process will not commence until the end of the local holiday
period. Settlement must occur by 2:00 p.m., Eastern time, on the contractual settlement date. The Authorized Participant must also make available no later than 2:00 p.m., Eastern time, on the contractual settlement date, by means satisfactory to the
Trust, immediately available or same-day funds estimated by the Trust to be sufficient to pay the Cash Component next determined after acceptance of the purchase order, together with the applicable purchase transaction fee. Any excess funds will be
returned following settlement of the issue of the Creation Unit Aggregation.
To the extent contemplated by the applicable Participant
Agreement, Creation Unit Aggregations of International Equity ETFs may be issued to such Authorized Participant notwithstanding the fact that the corresponding Fund Deposits have not been received in part or in whole, in reliance on the undertaking
of the Authorized Participant to deliver the missing Deposit Securities as soon as possible. Such undertaking shall be secured by such Authorized Participants delivery and maintenance of collateral consisting of cash in the form of U.S.
dollars in immediately available funds having a value (marked-to-market daily) at least equal to 110% of the value of the missing Deposit Securities, which amount may change from time to time in WisdomTree Asset Managements sole discretion.
Such cash collateral must be delivered no later than 2:00 p.m., Eastern time, on the contractual settlement date. The Participant Agreement will permit the Fund to buy the missing Deposit Securities at any time and will subject the Authorized
Participant to liability for any shortfall between the cost to the Trust of purchasing such securities and the value of the collateral.
Cash Purchases.
When, in the sole discretion of the Trust, cash purchases of Creation Unit Aggregations of shares are available or
specified for the Fund, such purchases shall be effected in essentially the same manner as in-kind purchases thereof. In the case of a cash purchase, the Authorized Participant must pay the cash equivalent of the Deposit Securities it would
otherwise be required to provide through an in-kind purchase, plus the same Cash Component required to be paid by an in-kind purchaser. In addition, to offset brokerage and other costs associated with using cash to purchase the requisite Deposit
Securities, the Authorized Participant must pay the Transaction Fees required by the Fund. If the Authorized Participant acts as a broker for the Fund in connection with the purchase of Deposit Securities, the Authorized Participant will also be
required to pay certain brokerage commissions, taxes, and transaction and market impact costs as discussed under the heading Brokerage Transactions herein.
Acceptance of Orders for Creation Unit Aggregations.
The Trust reserves the absolute right to reject or revoke acceptance of a creation order transmitted to it by the Distributor with
respect to the Fund. Orders may be rejected and acceptance may be revoked if, for example: (i) the order is not in proper form; (ii) the investor(s), upon obtaining the shares ordered, would own 80% or more of the currently outstanding
shares of the Fund; (iii) the Deposit Securities delivered are not the same as those disseminated through the facilities of the NSCC for that date by the Fund as described above; (iv) acceptance of the Deposit Securities would have certain
adverse tax consequences to the Fund; (v) acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (vi) acceptance of the Fund Deposit would otherwise, in the discretion of the Trust or WisdomTree Asset Management,
have an adverse effect on the Trust or the rights of beneficial owners; or (vii) in the event that circumstances outside the control of the Trust, BNY Mellon, the Distributor or WisdomTree Asset Management make it for all practical purposes
impossible to process creation
24
orders. Examples of such circumstances include acts of God; 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, WisdomTree Asset Management, the Distributor, DTC, NSCC, BNY Mellon or a
sub-custodian or any other participant in the creation process and similar extraordinary events. The Distributor shall notify a prospective creator of a Creation Unit and/or the Authorized Participant acting on behalf of the creator of a Creation
Unit Aggregation of its rejection of the order of such person. The Trust, BNY Mellon, a sub-custodian and the Distributor are under no duty, however, to give notification of any defects or irregularities in the delivery of Fund Deposits nor shall
any of them incur any liability for the failure to give any such notification.
All questions as to the number of shares of each security in
the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust, and the Trusts determination shall be final and binding.
Creation/Redemption Transaction Fee.
The Fund imposes a Transaction Fee on investors purchasing or redeeming Creation Units.
The purpose of the Transaction Fee is to protect the existing shareholders of the Fund from the dilutive costs associated with the purchase and redemption of Creation Units. Where the Fund permits cash creations (or redemptions) or cash in lieu of
depositing one or more Deposit Securities, the purchaser (or redeemer) may be assessed a higher Transaction Fee to offset the transaction cost to the Fund of buying (or selling) those particular Deposit Securities. Transaction Fees for the Fund will
differ from Transaction Fees for other WisdomTree Funds, depending on the transaction expenses related to the Funds portfolio securities, and will be limited to amounts that have been determined by WisdomTree Asset Management to be
appropriate. The maximum Transaction Fee, as set forth in the table below for the Fund, may be charged in cases where the Fund permits cash or cash in lieu of Deposit Securities. Investors purchasing or redeeming through the DTC process generally
will pay a higher Transaction Fee than will investors doing so through the NSCC process. Also, investors who use the services of a broker or other such intermediary may be charged a fee for such services, in addition to the Transaction Fee imposed
by the Fund.
The following table sets forth the standard and maximum creation and redemption Transaction Fee for the Fund. These fees may be
changed by the Trust.
|
|
|
|
|
|
|
|
|
Fund
|
|
Standard
Creation/Redemption
Transaction Fee
|
|
|
Maximum
Creation/Redemption
Transaction Fee
|
|
WisdomTree Japan Hedged SmallCap Equity Fund
|
|
$
|
5,000
|
|
|
$
|
20,000
|
|
Placement of Redemption Orders.
Orders to redeem Creation Unit Aggregations of International Equity
ETFs (including the Fund) must be delivered through an Authorized Participant that has executed a Participant Agreement. Investors other than Authorized Participants are responsible for making arrangements for a redemption request to be made through
an Authorized Participant. Except as described herein, an order to redeem Creation Unit Aggregations of International Equity ETFs is deemed received by the Trust on the Transmittal Date if: (i) such order is received by BNY Mellon (in its
capacity as Transfer Agent) not later than the Closing Time on the Transmittal Date; (ii) such order is accompanied or followed by the requisite number of shares of the Fund specified in such order, which delivery must be made through DTC to
BNY Mellon no later than 10:00 a.m., Eastern time, on the next Business Day following the Transmittal Date; and (iii) all other procedures set forth in the Participant Agreement are properly followed. Deliveries of Fund Securities to redeeming
investors generally will be made within three Business Days. Due to the schedule of holidays in certain countries, however, the delivery of in-kind redemption proceeds for International Equity ETFs may take longer than three Business Days after the
day on which the redemption request is received in proper form. In such cases, the local market settlement procedures will not commence until the end of the local holiday periods. See below for a list of the local holidays in the foreign countries
relevant to the International Equity ETFs. Such procedures may change from time to time without notice at the discretion of the Trust. Authorized Participants must have appropriate custodial or sub-custodial accounts in the applicable non-U.S.
market(s) in which the Fund operates for delivery and receipt of non-U.S. securities and non-U.S. currency. Due to the schedule of holidays in certain countries, the delivery of redemption proceeds for certain Funds may take longer than three
Business Days after the day on which the redemption request is received in proper form. In such cases, the local market settlement procedures will not commence until the end of the local holiday periods.
In connection with taking delivery of shares of Fund Securities upon redemption of shares of International Equity ETFs, a redeeming Beneficial Owner, or
Authorized Participant acting on behalf of such Beneficial Owner, must maintain appropriate security arrangements with a qualified broker-dealer, bank or other custody provider in each jurisdiction in which any of the Fund Securities are customarily
traded, to which account such Fund Securities will be delivered.
If the requisite number of shares of the Fund is not delivered on the
Transmittal Date as described above, the Fund may reject or revoke acceptance of the redemption request because the Authorized Participant has not satisfied all of the settlement requirements.
The current procedures for collateralization of missing shares require, among other things, that any cash collateral shall be in the form of U.S. dollars
in immediately available funds and shall be held by BNY Mellon and marked-to-market daily, and that the fees of BNY Mellon and any sub-custodians in respect of the delivery, maintenance and redelivery of the cash collateral shall be payable by the
Authorized Participant. The Authorized Participants agreement will permit the Trust, on behalf of the Fund, to purchase the
25
missing shares or acquire the Deposit Securities and the Cash Component underlying such shares at any time and will subject the Authorized Participant to liability for any shortfall between the
cost to the Trust of purchasing such shares, Deposit Securities or Cash Component and the value of the collateral.
The calculation of the
value of the Fund Securities and the Cash Redemption Amount to be delivered upon redemption will be made by BNY Mellon according to the procedures set forth under Determination of NAV 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 BNY Mellon by a DTC Participant not later than the Closing Time on the Transmittal Date, and the requisite number of shares of the Fund are delivered to
BNY Mellon prior to the DTC cut-off time, then the value of the Fund Securities and the Cash Redemption Amount to be delivered will be determined by BNY Mellon on such Transmittal Date. If, however, a redemption order is submitted to BNY Mellon by a
DTC Participant not later than the Closing Time on the Transmittal Date but either (i) the requisite number of shares of the Fund are not delivered by the DTC cut-off-time on such Transmittal Date, or (ii) the redemption order is not
submitted in proper form, then the redemption order will not be deemed received as of the Transmittal Date. In such case, the value of the Fund Securities and the Cash Redemption Amount to be delivered will be computed on the Business Day that such
order is deemed received by the Trust on which the shares of the Fund are delivered through DTC to BNY Mellon by the DTC cut-off-time on such Business Day pursuant to a properly submitted redemption order.
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 Fund Securities but does not differ in NAV.
Redemptions of shares for Fund Securities 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 Unit Aggregations for cash to the extent that the Trust could not lawfully deliver specific Fund
Securities upon redemptions or could not do so without first registering the Fund Securities 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 Fund Securities applicable to the redemption of a Creation Unit Aggregation may be paid an equivalent amount of cash. The Authorized Participant may request the redeeming Beneficial Owner of the shares to complete an order form or to
enter into agreements with respect to such matters as compensating cash payment.
Because the portfolio securities of an International Fund
may trade on the relevant exchange(s) on days that the Listing Exchange for the International Fund is closed or that are otherwise not Business Days for such International Fund, stockholders may not be able to redeem their shares of such
International Fund, or to purchase and sell shares of such International Fund on the Listing Exchange for the International Fund, on days when the NAV of such International Fund could be significantly affected by events in the relevant foreign
markets.
Cash Redemptions.
The Fund may pay out the proceeds of redemptions of Creation Unit Aggregations solely in cash or
through any combination of cash or securities. 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 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 Trusts brokerage
and other transaction costs associated with the disposition of Fund Securities). Proceeds will be paid to the Authorized Participant redeeming shares on behalf of the redeeming investor as soon as practicable after the date of redemption. If the
Authorized Participant acts as a broker for the Fund in connection with the sale of Fund Securities, the Authorized Participant will also be required to pay certain brokerage commissions, taxes, and transaction and market impact costs as discussed
under the heading Brokerage Transactions herein.
In-Kind Redemptions
.
The ability of the Trust to
effect in-kind creations and redemptions is subject, among other things, to the condition that, within the time period from the date of the order to the date of delivery of the securities, there are no days that are holidays in the applicable
foreign market. For every occurrence of one or more intervening holidays in the applicable foreign market that are not holidays observed in the U.S. equity market, the redemption settlement cycle may be extended by the number of such intervening
holidays. In addition to holidays, other unforeseeable closings in a foreign market due to emergencies may also prevent the Trust from delivering securities within the normal settlement period. The Fund will not suspend or postpone redemption beyond
seven days, except as permitted under Section 22(e) of the 1940 Act. Section 22(e) provides that 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
New York Stock Exchange (NYSE) is closed (other than customary weekend and holiday closings); (2) for any period during which trading on the NYSE is suspended or restricted; (3) for any period during which an emergency exists as a result
of which disposal of the shares of the Funds portfolio securities or determination of its net asset value is not reasonably practicable; or (4) in such other circumstance as is permitted by the SEC.
26
REGULAR HOLIDAYS
The Fund generally intends to effect deliveries of Creation Unit Aggregations and portfolio securities on a basis of T+3. The Fund may effect deliveries
of Creation Unit Aggregations and portfolio securities on a basis other than T+3 in order to accommodate local holiday schedules, to account for different treatment among foreign and U.S. markets of dividend record dates and ex-dividend dates, or
under certain other circumstances. The ability of the Trust to effect in-kind creations and redemptions within three Business Days of receipt of an order in good form is subject, among other things, to the condition that, within the time period from
the date of the order to the date of delivery of the securities, there are no days that are holidays in the applicable foreign market. For every occurrence of one or more intervening holidays in the applicable foreign market that are not holidays
observed in the U.S. equity market, the redemption settlement cycle will be extended by the number of such intervening holidays. In addition to holidays, other unforeseeable closings in a foreign market due to emergencies may also prevent the Trust
from delivering securities within the normal settlement period.
The securities delivery cycles currently practicable for transferring
portfolio securities to redeeming investors, coupled with foreign market holiday schedules, will require a delivery process longer than seven calendar days for some Funds, in certain circumstances. The holidays applicable to the Fund during such
periods are listed below, as are instances where more than seven days will be needed to deliver redemption proceeds. Although certain holidays may occur on different dates in subsequent years, the number of days required to deliver redemption
proceeds in any given year is not expected to exceed the maximum number of days listed below for the Fund. The proclamation of new holidays, the treatment by market participants of certain days as informal holidays (e.g., days on which
no or limited securities transactions occur, as a result of substantially shortened trading hours), the elimination of existing holidays, or changes in local securities delivery practices could affect the accuracy of information set forth herein.
27
Listed below are the dates in calendar year 2013 in which the regular holidays in non-U.S. markets may
impact Fund settlement. This list is based on information available to the Fund. The list may not be accurate or complete and is subject to change:
|
|
|
|
|
|
|
|
|
|
|
Argentina
|
|
Australia
|
|
Austria
|
|
Belgium
|
|
Brazil
|
|
Chile
|
June 20-21
|
|
January 1, 28
|
|
January 1
|
|
January 1
|
|
January 1, 25
|
|
January 1
|
July 9
|
|
March 29
|
|
March 29
|
|
March 29
|
|
February 11-13
|
|
March 29
|
August 19
|
|
April 1, 25
|
|
April 1
|
|
April 1
|
|
March 29
|
|
May 1, 21
|
October 14
|
|
June 10
|
|
May 1
|
|
May 1
|
|
May 1, 30
|
|
July 16
|
November 6, 25
|
|
December 25-26
|
|
December 25-26
|
|
December 25-26
|
|
July 9
|
|
August 15
|
December 25
|
|
|
|
|
|
|
|
November 15, 20
|
|
September 18-20
|
|
|
|
|
|
|
|
|
December 24-25, 31
|
|
October 31
|
|
|
|
|
|
|
|
|
|
|
November 1
|
|
|
|
|
|
|
|
|
|
|
December 25, 31
|
|
|
|
|
|
|
China
|
|
Denmark
|
|
Czech Republic
|
|
Egypt
|
|
Finland
|
|
France
|
January 1-3
|
|
January 1
|
|
January 1
|
|
January 1, 7, 24
|
|
January 1
|
|
January 1
|
February 11-15
|
|
March 28-29
|
|
April 1
|
|
April 25
|
|
March 28-29
|
|
March 29
|
April 1, 4-5, 29-30
|
|
April 1, 26
|
|
May 1, 8
|
|
May 1, 5-6
|
|
April 1
|
|
April 1
|
May 1
|
|
May 9-10, 20
|
|
July 5
|
|
July 1, 23
|
|
May 1, 9
|
|
May 1
|
June 10-12
|
|
June 5
|
|
October 28
|
|
August 8
|
|
June 21
|
|
December 25-26
|
September 19-20
|
|
December 24-26, 31
|
|
December 24-26
|
|
October 6, 14-16
|
|
December 6, 24-26, 31
|
|
|
October 1-4, 7
|
|
|
|
|
|
November 5
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
Greece
|
|
Hong Kong
|
|
Hungary
|
|
India
|
|
Indonesia
|
January 1
|
|
January 1
|
|
January 1
|
|
January 1
|
|
January 25
|
|
January 1, 24
|
March 29
|
|
March 18, 25, 29
|
|
February 11-13
|
|
March 15
|
|
February 19
|
|
March 12, 29
|
April 1
|
|
April 1
|
|
March 29
|
|
April 1
|
|
March 27, 29
|
|
May 9
|
May 1
|
|
May 1, 3, 6
|
|
April 1, 4
|
|
May 1, 20
|
|
April 1, 11, 19, 24
|
|
June 6
|
December 25-26
|
|
June 24
|
|
May 1, 17
|
|
August 19-20
|
|
May 1
|
|
August 5-9
|
|
|
August 15
|
|
June 12
|
|
October 23
|
|
August 9, 15
|
|
October 14-15
|
|
|
October 28
|
|
July 1
|
|
November 1
|
|
September 9, 30
|
|
November 5
|
|
|
December 24-26
|
|
September 20
|
|
December 24-27
|
|
October 2, 16
|
|
December 25-26, 31
|
|
|
|
|
October 1, 14
|
|
|
|
November 4, 14
|
|
|
|
|
|
|
December 25-26
|
|
|
|
December 25
|
|
|
|
|
|
|
|
|
Ireland
|
|
Israel
|
|
Italy
|
|
Japan
|
|
Malaysia
|
|
Mexico
|
January 1
|
|
January 22
|
|
January 1
|
|
January 1-3, 14
|
|
January 1, 24, 28
|
|
January 1
|
March 29
|
|
February 24
|
|
March 29
|
|
February 11
|
|
February 1, 11-12
|
|
February 4
|
April 1
|
|
March 25-26, 31
|
|
April 1
|
|
March 20
|
|
May 1, 24
|
|
March 18, 28-29
|
May 6, 27
|
|
April 1, 15-16
|
|
May 1
|
|
April 29
|
|
August 8-9
|
|
May 1
|
August 26
|
|
May 14-15
|
|
December 25-26
|
|
May 3, 6
|
|
September 16
|
|
September 16
|
December 25-26
|
|
July 16
|
|
|
|
July 15
|
|
October 15
|
|
November 18
|
|
|
September 4-6, 13, 18-19, 25-26
|
|
|
|
September 16, 23
|
|
November 5
|
|
December 12, 25
|
|
|
|
|
|
|
October 14
|
|
December 25
|
|
|
|
|
|
|
|
|
November 4
|
|
|
|
|
|
|
|
|
|
|
December 23, 31
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Netherlands
|
|
New Zealand
|
|
Peru
|
|
Philippines
|
|
Portugal
|
|
Russia
|
January 1
|
|
January 1-2
|
|
January 1
|
|
January 1
|
|
January 1
|
|
January 1-4, 7-8
|
March 29
|
|
February 6
|
|
March 28-29
|
|
March 28-29
|
|
March 29
|
|
February 22*
|
April 1
|
|
March 29
|
|
May 1
|
|
April 9
|
|
April 1
|
|
March 7*-8
|
May 1
|
|
April 1, 25
|
|
July 29
|
|
May 1
|
|
May 1
|
|
April 30*
|
December 25-26
|
|
June 3
|
|
August 30
|
|
June 12
|
|
December 25-26
|
|
May 1-3, 8*-10
|
|
|
October 28
|
|
October 8
|
|
August 21, 26
|
|
|
|
June 11*-12
|
|
|
December 25-26
|
|
November 1
|
|
November 1
|
|
|
|
November 4
|
|
|
|
|
December 25
|
|
December 24-25, 30-31
|
|
|
|
|
|
|
|
|
|
|
Singapore
|
|
South Africa
|
|
South Korea
|
|
Spain
|
|
Sweden
|
|
Switzerland
|
January 1
|
|
January 1
|
|
January 1
|
|
January 1, 7
|
|
January 1
|
|
January 1-2
|
February 11-12
|
|
March 21, 29
|
|
February 11
|
|
March 18, 28-29
|
|
March 28-29
|
|
March 29
|
March 29
|
|
April 1
|
|
March 1
|
|
April 1
|
|
April 1
|
|
April 1
|
May 1, 24
|
|
May 1
|
|
May 1, 17
|
|
May 1
|
|
May 1, 8-9
|
|
May 1, 9, 20
|
August 8-9
|
|
June 17
|
|
June 6
|
|
August 15
|
|
June 6, 21
|
|
August 1
|
October 15
|
|
August 9
|
|
August 15
|
|
November 1
|
|
November 1
|
|
December 24-26, 31
|
November 4
|
|
September 24
|
|
September 18-20
|
|
December 6, 25-26
|
|
December 24-26, 31
|
|
|
December 25
|
|
December 16, 25-26
|
|
October 3, 9
|
|
|
|
|
|
|
|
|
|
|
December 25, 31
|
|
|
|
|
|
|
|
|
|
|
|
|
Taiwan
|
|
Thailand
|
|
Turkey
|
|
United Kingdom
|
|
Bahrain
|
|
Canada
|
January 1
|
|
January 1
|
|
January 1
|
|
January 1
|
|
January 1, 24
|
|
January 1
|
February 11-15, 28
|
|
February 25
|
|
April 23
|
|
March 29
|
|
May 1
|
|
February 18
|
April 4-5
|
|
April 8, 15*-16
|
|
May 1
|
|
April 1
|
|
August 7-8
|
|
March 29
|
May 1
|
|
May 1, 6, 24*
|
|
August 7-9, 30
|
|
May 6, 27
|
|
October 14-16
|
|
May 20
|
June 12
|
|
July 1, 22
|
|
October 14-18, 28-29
|
|
August 26
|
|
November 4, 12-13
|
|
July 1
|
September 19-20
|
|
August 12
|
|
|
|
December 25-26
|
|
December 16-17
|
|
August 5
|
October 10
|
|
October 23
|
|
|
|
|
|
|
|
September 2
|
|
|
December 5*, 10, 31
|
|
|
|
|
|
|
|
October 14
|
|
|
|
|
|
|
|
|
|
|
December 25-26
|
|
|
|
|
|
|
Jordan
|
|
Kuwait
|
|
Lebanon
|
|
Mauritius
|
|
Morocco
|
|
Norway
|
January 1, 10, 20, 23
|
|
January 1, 24
|
|
January 1, 24
|
|
January 1-2
|
|
January 1, 11, 24-25
|
|
January 1
|
May 1
|
|
February 24-26
|
|
February 9, 14
|
|
February 1
|
|
May 1
|
|
March 28-29
|
August 7-8
|
|
June 4
|
|
March 25, 29
|
|
March 12
|
|
July 30
|
|
April 1
|
October 14-17
|
|
August 7-8
|
|
May 1, 3
|
|
April 11
|
|
August 14, 20-21
|
|
May 1, 9 ,17, 20
|
November 4
|
|
October 14-17
|
|
August 8-9, 15
|
|
May 1
|
|
November 6, 18
|
|
December 24-26, 31
|
December 25
|
|
November 4
|
|
October 15-16
|
|
August 9
|
|
|
|
|
|
|
|
|
November 4, 13, 22
|
|
September 10
|
|
|
|
|
|
|
|
|
December 25
|
|
November 1
|
|
|
|
|
|
|
|
|
|
|
December 25
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Oman
|
|
Poland
|
|
Qatar
|
|
U.A.E
|
|
|
|
|
January 1, 24
|
|
January 1
|
|
January 1
|
|
January 1, 24
|
|
|
|
|
June 6
|
|
March 29
|
|
February 12
|
|
June 6
|
|
|
|
|
July 23
|
|
April 1
|
|
March 3
|
|
August 14-15
|
|
|
|
|
August 8, 11-12
|
|
May 1, 3, 30
|
|
August 8, 11-12
|
|
October 14-17
|
|
|
|
|
October 15-17
|
|
August 15
|
|
October 15-17
|
|
November 5
|
|
|
|
|
November 4, 18-19
|
|
November 1, 11
|
|
December 18
|
|
December 2-3
|
|
|
|
|
|
|
December 24-26
|
|
|
|
|
|
|
|
|
TAXES
The following discussion of certain U.S. federal income tax consequences of investing in the Fund is based on the Code, U.S.
Treasury regulations, and other applicable authority, all as in effect as of the date of the filing of this SAI. These authorities are subject to change by legislative or administrative action, possibly with retroactive effect. The following
discussion is only a summary of some of the important U.S. federal income tax considerations generally applicable to investments in the Fund. There may be other tax considerations applicable to particular shareholders. Shareholders should consult
their own tax advisors regarding their particular situation and the possible application of foreign, state, and local tax laws.
Qualification as a Regulated Investment Company (RIC)
.
The Fund intends to elect to be treated, and to qualify each year, as a RIC
under Subchapter M of the Code. In order to qualify for the special tax treatment accorded RICs and their shareholders, the Fund must, among other things:
(a) derive at least 90% of its gross income each year from (i) dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock or securities
or foreign currencies, or 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 (ii) net income derived from
interests in qualified publicly traded partnerships (as defined below);
(b) diversify its holdings so that, at the
end of each quarter of its taxable year, (i) at least 50% of the market value of the Funds total assets consists of cash and cash items, U.S. government securities, securities of other RICs and other securities, with investments in such
other securities limited with respect to any one issuer to an amount not greater than 5% of the value of the Funds total assets and not greater than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of the Funds total assets is invested in (1) the securities (other than those of the U.S. government or other RICs) of any one issuer or two or more issuers that are controlled by the Fund and that are engaged in the same,
similar or related trades or businesses or (2) the securities of one or more qualified publicly traded partnerships; and
(c) distribute with respect to each taxable year an amount at least equal to the sum of 90% of its investment company taxable income (as
that term is defined in the Code without regard to the deduction for dividends paid generally taxable ordinary income and the excess, if any, of net short-term capital gains over net long-term capital losses) and 90% of its net tax-exempt
interest income.
In general, for purposes of the 90% of gross income requirement described in (a) above, income derived from a
partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership that would be qualifying income if realized directly by the Fund. However, 100% of the net income derived from an
interest in a qualified publicly traded partnership (generally, a partnership (i) interests in which are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof,
and (ii) that derives less than 90% of its income from the qualifying income described in (a)(i) of the prior paragraph) will be treated as qualifying income. In addition, although in general the passive loss rules of the Code do not apply to
RICs, such rules do apply to a RIC with respect to items attributable to an interest in a qualified publicly traded partnership.
The U.S.
Treasury Department has authority to issue regulations that would exclude foreign currency gains from the 90% test described in (a) above if such gains are not directly related to a funds business of investing in stock or securities.
Accordingly, regulations may be issued in the future that could treat some or all of the Funds non-U.S. currency gains as non-qualifying income, thereby potentially jeopardizing the Funds status as a RIC for all years to which the
regulations are applicable.
Taxation of the Fund.
If the Fund qualifies for treatment as a RIC, the Fund will not be subject to
federal income tax on income and gains that are distributed in a timely manner to its shareholders in the form of dividends.
30
If, for any taxable year, the Fund were to fail to qualify as a RIC or were to fail to meet the distribution
requirement, it would be taxed in the same manner as an ordinary corporation and distributions to its shareholders would not be deductible by the Fund in computing its taxable income. In addition, the Funds distributions, to the extent derived
from the Funds current and accumulated earnings and profits, including any distributions of net long-term capital gains, would be taxable to shareholders as ordinary dividend income for federal income tax purposes. However, such dividends
would be eligible, subject to any generally applicable limitations, (i) to be treated as qualified dividend income in the case of shareholders taxed as individuals and (ii) for the dividends-received deduction in the case of corporate
shareholders. Moreover, the Fund would be required to pay out its earnings and profits accumulated in that year in order to qualify for treatment as a RIC in a subsequent year. Under certain circumstances, the Fund may be able to cure a failure to
qualify as a RIC, but in order to do so the Fund may incur significant Fund-level taxes and may be forced to dispose of certain assets. If the Fund failed to qualify as a RIC for a period greater than two taxable years, the Fund would generally be
required to recognize any net built-in gains with respect to certain of its assets upon a disposition of such assets within ten years of qualifying as a RIC in a subsequent year.
The Fund intends to distribute at least annually substantially all of its investment company taxable income and net capital gains. Investment company taxable income that is retained by the Fund will be
subject to tax at regular corporate rates. If the Fund retains any net capital gain, that gain will be subject to tax at corporate rates, but the Fund may designate the retained amount as undistributed capital gains in a notice to its shareholders
who (i) will be required to include in income for federal income tax purposes, as long-term capital gain, their shares of such undistributed amount, (ii) will be deemed to have paid their proportionate shares of the tax paid by the Fund on
such undistributed amount against their federal income tax liabilities, if any, and (iii) will be entitled to claim refunds on a properly filed U.S. tax return to the extent the credit exceeds such liabilities. For federal income tax purposes,
the tax basis of shares owned by a shareholder of the Fund will be increased by an amount equal to the difference between the amount of undistributed capital gains included in the shareholders gross income and the tax deemed paid by the
shareholder.
If the Fund fails to distribute in a calendar year an amount at least equal to the sum of 98% of its ordinary income for such
year and 98.2% of its capital gain net income for the one-year period ending October 31 of such year, plus any retained amount from the prior year, the Fund will be subject to a non-deductible 4% excise tax on the undistributed amount. For
these purposes, the Fund will be treated as having distributed any amount on which it has been subject to corporate income tax in the taxable year ending within the calendar year. The Fund intends to declare and pay dividends and distributions in
the amounts and at the times necessary to avoid the application of the 4% excise tax, although there can be no assurance that it will be able to do so.
The Fund may elect to treat part or all of any qualified late year loss as if it had been incurred in the succeeding taxable year in determining the Funds taxable income, net capital
gain, net short-term capital gain, and earning and profits. A qualified late year loss generally includes net capital loss, net long-term capital loss, or net short-term capital loss incurred after October 31 of the current taxable
year, and certain other late-year losses.
If the Fund has a net capital loss (that is, capital losses in excess of capital
gains) for a taxable year beginning after December 22, 2010, the excess of the Funds net short-term capital losses over its net long-term capital gains is treated as a short-term capital loss arising on the first day of the Funds
next taxable year, and the excess (if any) of the Funds net long-term capital losses over its net short-term capital gains is treated as a long-term capital loss arising on the first day of the Funds next taxable year.
Fund Distributions.
Distributions are generally taxable whether shareholders receive them in cash or reinvest them in additional shares.
Moreover, distributions on the Funds shares are generally subject to federal income tax as described herein to the extent they do not exceed the Funds realized income and gains, even though such distributions may economically represent a
return of a particular shareholders investment. Investors may therefore wish to avoid purchasing shares at a time when the Funds NAV reflects gains that are either unrealized, or realized but not distributed. Realized income and gains
must generally be distributed even when the Funds NAV also reflects unrealized losses.
Dividends and other distributions by the
Fund are generally treated under the Code as received by the shareholders at the time the dividend or distribution is made. However, if any dividend or distribution is declared by the Fund in October, November or December of any calendar year and
payable to its shareholders of record on a specified date in such a month but is actually paid during the following January, such dividend or distribution will be deemed to have been received by each shareholder on December 31 of the year in
which the dividend was declared.
Distributions by the Fund of investment income are generally taxable as ordinary income. Taxes on
distributions of capital gains are determined by how long the Fund owned the investments that generated those gains, rather than how long a shareholder has owned his or her Fund shares. Sales of assets held by the Fund for more than one year
generally result in long-term capital gains and losses, and sales of assets held by the Fund for one year or less generally result in short-term capital gains and losses. Distributions from the Funds net capital gain (the excess of the
Funds net long-term capital gain over its net short-term capital loss) that are properly reported by the Fund as capital gain dividends (Capital Gain Dividends) will be taxable as long-term capital gains. For individuals, long-term
capital gains are subject to tax at reduced maximum tax rates. Distributions of gains from the sale of investments that the Fund owned for one year or less will be taxable as ordinary income.
31
For noncorporate shareholders, distributions of investment income reported by the Fund as derived from
qualified dividend income will be taxed at the rates applicable to long-term capital gain, provided holding period and other requirements are met at both the shareholder and Fund level. In order for some portion of the dividends received
by the Fund shareholder to be qualified dividend income, the Fund making the distribution must meet holding period and other requirements with respect to some portion of the dividend-paying stocks in its portfolio and the shareholder
must meet holding period and other requirements with respect to the Funds shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any
share of stock held for fewer than 61 days during the 121-day period beginning on the date that is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days
during the 181-day period beginning 90 days before the ex-dividend date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in
substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from
a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation that is readily tradable on an established
securities market in the United States) or (b) treated as a passive foreign investment company.
If the aggregate qualified dividend
income received by the Fund during any taxable year represents 95% or more of its gross income (excluding net long-term capital gain over net short-term capital loss), then 100% of the Funds dividends (other than Capital Gain Dividends) will
be eligible to be reported as qualified dividend income.
To the extent that the Fund makes a distribution of income received by the Fund in
lieu of dividends (a substitute payment) with respect to securities on loan pursuant to a securities lending transaction, such income will not constitute qualified dividend income.
Since the Fund will invest primarily in investments other than stock of U.S. corporations, the Fund does not expect a substantial portion of its
dividends will qualify for the dividends-received deduction available to corporate shareholders.
Dividends and distributions from the
Fund and capital gain on the sale of Fund shares will generally be taken into account in determining a shareholders net investment income for purposes of the Medicare contribution tax applicable to certain individuals, estates and
trusts.
If the Fund makes distributions in excess of the Funds current and accumulated earnings and profits in any taxable year, the
excess distribution to each shareholder will be treated as a return of capital to the extent of the shareholders tax basis in its shares, and, after the shareholders basis has been reduced to zero, as capital gain, assuming the
shareholder holds his or her shares as capital assets. A return of capital is not taxable, but reduces a shareholders tax basis in its shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition by the shareholder
of its shares.
Sale or Exchange of Shares.
A sale or exchange of shares in the Fund may give rise to a gain or loss. In
general, any gain or loss realized upon a taxable disposition of shares will be treated as long-term capital gain or loss if the shares have been held for more than 12 months. Otherwise, the gain or loss on the taxable disposition of shares will be
treated as short-term capital gain or loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, to the extent of any long-term capital gain distributions
received (or deemed received) by the shareholder with respect to the shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other substantially identical shares of the Fund are purchased within 30
days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
32
Backup Withholding.
The Fund (or a financial intermediary, such as a broker, through which a
shareholder holds Fund shares) generally is required to withhold and to remit to the U.S. Treasury a percentage of the taxable distributions and sale or redemption proceeds paid to any shareholder who fails to properly furnish a correct taxpayer
identification number, who has under-reported dividend or interest income, or who fails to certify that he, she or it is not subject to such withholding.
Federal Tax Treatment of Certain Fund Investments.
Transactions of the Fund in options, futures contracts, hedging transactions, forward contracts, swap agreements, straddles and foreign
currencies may be subject to various special and complex tax rules, including mark-to-market, constructive sale, straddle, wash sale and short sale rules. These rules could affect whether gains and losses recognized by the Fund are treated as
ordinary income or capital gain, accelerate the recognition of income to the Fund and/or defer the Funds ability to recognize losses. These rules may in turn affect the amount, timing or character of the income distributed to shareholders by
the Fund.
The Fund is required, for federal income tax purposes, to mark to market and recognize as income for each taxable year its net
unrealized gains and losses as of the end of such year on certain regulated futures contracts, foreign currency contracts and options that qualify as Section 1256 contracts in addition to the gains and losses actually realized with respect to
such contracts during the year. Except as described below under Certain Foreign Currency Tax Issues, gain or loss from Section 1256 contracts that are required to be marked to market annually will generally be 60% long-term and 40%
short-term capital gain or loss. Application of this rule may alter the timing and character of distributions to shareholders.
Some debt
obligations that may be acquired by the Fund may be treated as having original issue discount (OID). Generally, the Fund will be required to include OID in taxable income over the term of the debt security, even though payment of the OID
is not received until a later time, usually when the debt security matures. If the Fund holds such debt instruments, it may be required to pay out as distributions each year an amount that is greater than the total amount of cash interest the Fund
actually received. Such distributions may be made from the cash assets of the Fund or by liquidation of portfolio securities, if necessary.
The Fund may invest in inflation-linked debt securities. Any increase in the principal amount of an inflation-linked debt security will be OID, which is taxable as ordinary income and is required to be
distributed, even though the Fund will not receive the principal, including any increase thereto, until maturity. If the Fund invests in securities that have OID, it may be required to liquidate other investments, including at times when it is not
advantageous to do so, in order to satisfy its distribution requirements and to eliminate any possible taxation at the Fund level. Moreover, the Fund may realize gains or losses from such liquidations. In the event the Fund realizes net gains from
such transactions, its shareholders may receive larger distributions than they would have in the absence of such transactions.
Certain
Foreign Currency Tax Issues.
The Funds gain or loss on foreign currency denominated debt securities and on certain other financial instruments, such as forward currency contracts and currency swaps, that is attributable to fluctuations
in exchange rates occurring between the date of acquisition and the date of settlement or disposition of such securities or instruments generally will be treated under Section 988 of the Code as ordinary income or loss. The Fund may elect out
of the application of Section 988 of the Code with respect to the tax treatment of each of its foreign currency forward contracts to the extent that (i) such contract is a capital asset in the hands of the Fund and is not part of a
straddle transaction and (ii) the Fund makes an election by the close of the day the contract is entered into to treat the gain or loss attributable to such contract as capital gain or loss.
The Funds forward contracts may qualify as so-called Section 1256 contracts if the underlying currencies are currencies for which
there are futures contracts that are traded on and subject to the rules of a qualified board or exchange. However, a forward currency contract that is a Section 1256 contract would, absent an election out of Section 988 of the Code as
described in the preceding paragraph, be subject to Section 988. Accordingly, although such a forward currency contract would be marked to market annually like other Section 1256 contracts, the resulting gain or loss would be ordinary. If
the Fund were to elect out of Section 988 with respect to forward currency contracts that qualify as Section 1256 contracts, the tax treatment generally applicable to Section 1256 contracts would apply to those forward currency
contracts: that is, the contracts would be marked to market annually and gains and losses with respect to the contracts would be treated as long-term capital gains or losses to the extent of 60% thereof and short-term capital gains or losses to the
extent of 40% thereof. If the Fund were to elect out of Section 988 with respect to any of its forward currency contracts that do not qualify as Section 1256 contracts, such contracts will not be marked to market annually and the Fund will
recognize short-term or long-term capital gain or loss depending on the Funds holding period therein. The Fund may elect out of Section 988 with respect to some, all or none of its forward currency contracts.
Finally, regulated futures contracts and non-equity options that qualify as Section 1256 contracts and are entered into by the Fund with respect to
foreign currencies or foreign currency denominated debt instruments will be subject to the tax treatment generally applicable to Section 1256 contracts unless the Fund elects to have Section 988 apply to determine the character of gains
and losses from all such regulated futures contracts and non-equity options held or later acquired by the Fund.
Funds Holding Foreign
Investments.
Income received by the Fund from sources within foreign countries (including, for example, dividends or interest on stock or securities of non-U.S. issuers) may be subject to withholding and other taxes imposed by such
countries. Tax treaties between such countries and the U.S. may reduce or eliminate such taxes. If more than 50% of the value of the
33
Funds assets at the close of any taxable year consists of stock or securities of foreign corporations, which for this purpose may include obligations of foreign governmental issuers, the
Fund may elect, for U.S. federal income tax purposes, to treat any foreign income or withholding taxes paid by the Fund as paid by its shareholders. For any year that the Fund is eligible for and makes such an election, each shareholder of the Fund
will be required to include in income an amount equal to his or her allocable share of qualified foreign income taxes paid by the Fund, and shareholders will be entitled, subject to certain holding period requirements and other limitations, to
credit their portions of these amounts against their U.S. federal income tax due, if any, or to deduct their portions from their U.S. taxable income, if any. No deductions for foreign taxes paid by the Fund may be claimed, however, by non-corporate
shareholders who do not itemize deductions. Foreign taxes paid by the Fund will reduce the return from the Funds investments.
If the
Fund holds shares in a passive foreign investment company (PFIC), it may be subject to U.S. federal income tax on a portion of any excess distribution or gain from the disposition of such shares even if such
income is distributed as a taxable dividend by the Fund to its shareholders. Additional charges in the nature of interest may be imposed on the Fund in respect of deferred taxes arising from such distributions or gains.
The Fund may be eligible to treat a PFIC as a qualified electing fund under the Code in which case, in lieu of the foregoing requirements,
such Fund will be required to include in income each year a portion of the ordinary earnings and net capital gains of the qualified electing fund, even if not distributed to the Fund, and such amounts will be subject to the 90% and excise tax
distribution requirements described above. In order to make this election, the Fund would be required to obtain certain annual information from the PFICs in which it invests, which may be difficult or impossible to obtain. Alternatively, the Fund
may make a mark-to-market election that will result in such Fund being treated as if it had sold and repurchased its PFIC stock at the end of each year. In such case, the Fund would report any gains resulting from such deemed sales as ordinary
income and would deduct any losses resulting from such deemed sales as ordinary losses to the extent of previously recognized gains. The election must be made separately for each PFIC owned by the Fund and, once made, is effective for all subsequent
taxable years, unless revoked with the consent of the Internal Revenue Service (the IRS). By making the election, the Fund could potentially ameliorate the adverse tax consequences with respect to its ownership of shares in a PFIC, but
in any particular year may be required to recognize income in excess of the distributions it receives from PFICs and its proceeds from dispositions of PFIC stock. The Fund may have to distribute this excess income to satisfy the 90% distribution
requirement and to avoid imposition of the 4% excise tax. In order to distribute this income and avoid a tax at the Fund level, the Fund might be required to liquidate portfolio securities that it might otherwise have continued to hold, potentially
resulting in additional taxable gain or loss.
Foreign Currency Transactions
.
Under the Code, gains or losses
attributable to fluctuations in exchange rates which occur between the time the Fund accrues income or other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such income
or receivables or pays such expenses or liabilities generally are treated as ordinary income or loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of certain other instruments, gains or losses
attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security or contract and the date of disposition are also treated as ordinary gain or loss. The gains and losses may increase or decrease the
amount of the Funds income to be distributed to its shareholders as ordinary income.
Additional Tax Information Concerning
REITs.
The Fund is not prohibited from investing in entities treated as REITs for U.S. federal income tax purposes. The Funds investments in REIT equity securities, if any, may at times result in the Funds receipt of cash in
excess of the REITs earnings; if the Fund distributes these amounts, these distributions could constitute a return of capital to Fund shareholders for federal income tax purposes. Dividends received by the Fund from a REIT generally will not
constitute qualified dividend income.
The Fund may invest in REITs that hold residual interests in real estate mortgage investment conduits
(REMICs) or which are, or have certain wholly-owned subsidiaries that are, taxable mortgage pools (TMPs). Under certain Treasury guidance, a portion of the Funds income from a REIT that is attributable to
the REITs residual interest in a REMIC or equity interests in a TMP (referred to in the Code as an excess inclusion) will be subject to federal income tax in all events. This guidance provides that excess inclusion income of a RIC,
such as the Fund, must generally be allocated to shareholders of the RIC in proportion to the dividends received by such shareholders, with the same consequences as if the shareholders held the related REMIC residual interest or TMP interests
directly. In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) will constitute unrelated business taxable income
to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax on unrelated business income, thereby potentially requiring such an entity, which otherwise
might not be required to file a tax return, to file a tax return and pay tax on such income (see Taxes Tax-Exempt Shareholders below), and (iii) in the case of a foreign shareholder, will not qualify for any reduction in U.S.
federal withholding tax. The Fund does not intend to invest a substantial portion of its assets in REITs which generate excess inclusion income.
Tax-Exempt Shareholders.
Under current law, income of a RIC that would be treated as unrelated business taxable income (UBTI) if earned directly by a tax-exempt entity generally
will not be attributed as UBTI to a tax-exempt entity that is a shareholder in the RIC. Notwithstanding this blocking effect, a tax-exempt shareholder could realize UBTI by virtue of its investment in the Fund if shares in the Fund
constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of Code Section 514(b).
34
Non-U.S. Shareholders.
In general, dividends other than Capital Gain Dividends paid by the
Fund to a shareholder that is not a U.S. person within the meaning of the Code (a foreign person) are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even if they are
funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a foreign person directly, would not be subject to withholding.
Effective for taxable years beginning before January 1, 2014, and assuming certain certification requirements are complied with, the Fund generally
is not required to withhold any amounts (i) with respect to distributions attributable to U.S. source interest income that would be treated as portfolio interest and accordingly would not be subject to U.S. federal income tax if
earned directly by an individual foreign person, and (ii) with respect to distributions of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are reported by the Fund as
interest-related dividends and short-term capital gain dividends, respectively. Depending on the circumstances, the Fund may so report all, some or none of its potentially eligible dividends or treat such dividends, in whole
or in part, as ineligible for this exemption from withholding. Moreover, in the case of shares held through an intermediary, the intermediary may withhold even if the Fund reports such a payment.
A beneficial holder of shares who is a non-U.S. person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a U.S. income
tax deduction for losses) realized on a sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States
or (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or the receipt of the Capital Gain Dividend and certain other conditions
are met.
Ordinary dividends, redemption payments and certain capital gain dividends paid after December 31, 2013 to a non-U.S.
shareholder that fails to make certain required certifications, or that is a foreign financial institution as defined in Section 1471 of the Code and that does not meet the requirements imposed on foreign financial institutions by
Section 1471, are generally subject to withholding tax at a 30% rate. Under current IRS guidance, withholding on such payments will begin at different times depending on the type of payment, the type of payee, and whether the shareholders
account is opened before or after January 1, 2014. Withholding with respect to ordinary dividends is currently scheduled to begin on January 1, 2014 for accounts opened on or after that date and on certain later dates for accounts opened
before January 1, 2014. Withholding on redemption payments and certain Capital Gain Dividends is currently scheduled to begin on January 1, 2017. The extent, if any, to which such withholding tax may be reduced or eliminated by an
applicable tax treaty is unclear. A non-U.S. shareholder may be exempt from the withholding described in this paragraph under an intergovernmental agreement between the U.S. and a foreign government, provided that the shareholder and the applicable
foreign government comply with the terms of such agreement.
In order for a non-U.S. person to qualify for an exemption from backup
withholding, the foreign investor must comply with special certification and filing requirements. Foreign investors in the Fund should consult their tax advisors in this regard. Backup withholding is not an additional tax. Any amounts withheld may
be credited against the shareholders U.S. federal income tax liability, provided the appropriate information is furnished to the IRS.
A
beneficial holder of shares who is a non-U.S. person may be subject to the U.S. federal estate tax in addition to the federal income tax consequences referred to above. If a shareholder is eligible for the benefits of a tax treaty, any effectively
connected income or gain will generally be subject to U.S. federal income tax on a net basis only if it is also attributable to a permanent establishment maintained by the shareholder in the United States.
Creation and Redemption of Creation Unit Aggregations.
An Authorized Participant having the U.S. dollar as its functional currency for U.S.
federal tax purposes that exchanges securities or non-U.S. currency for Creation Unit Aggregations generally will recognize a gain or loss equal to the difference between (i) the sum of the market value of the Creation Unit Aggregations at the
time of the exchange and any cash received by the Authorized Participant in the exchange, and (ii) the sum of the exchangers aggregate basis in the securities or non-U.S. currency surrendered and any cash paid for such Creation Unit
Aggregations. All or a portion of any gain or loss recognized by an Authorized Participant exchanging a currency other than its functional currency for Creation Units may be treated as ordinary income or loss. A person who redeems Creation Unit
Aggregations for securities or non-U.S. currency will generally recognize a gain or loss equal to the difference between the exchangers basis in the Creation Unit Aggregations and the sum of the aggregate U.S. dollar market value of the
securities or non-U.S. currency plus the amount of any cash received for such Creation Unit Aggregations. The IRS, however, may assert that a loss that is realized by an Authorized Participant upon an exchange of securities or non-U.S. currency for
Creation Unit Aggregations cannot be currently deducted under the rules governing wash sales. Gain or loss recognized by an Authorized Participant upon an issuance of Creation Unit Aggregations in exchange for non-U.S. currency will
generally be treated as ordinary income or loss. Gain or loss recognized by an Authorized Participant upon an issuance of Creation Unit Aggregations in exchange for securities, or upon a redemption of Creation Unit Aggregations, may be capital or
ordinary gain or loss depending on the circumstances. All or some portion of any capital gain or loss realized upon the issuance of Creation Unit Aggregations in exchange for securities will generally be treated as long-term capital gain or loss if
securities
35
exchanged for such Creation Unit Aggregations have been held for more than one year. Any capital gain or loss realized upon the redemption of Creation Unit Aggregations will generally be treated
as long-term capital gain or loss if the Creation Unit Aggregations have been held for more than one year. Otherwise, such gains or losses are treated as short-term capital gains or losses.
A person subject to U.S. federal income tax who receives non-U.S. currency upon a redemption of Creation Unit Aggregations and does not immediately convert the non-U.S. currency into U.S. dollars may,
upon a later conversion of the non-U.S. currency into U.S. dollars, or upon the use of the non-U.S. currency to pay expenses or acquire assets, recognize as ordinary gains or losses any gains or losses resulting from fluctuations in the value of the
non-U.S. currency relative to the U.S. dollar since the date of the redemption.
Persons exchanging securities or non-U.S. currency for
Creation Unit Aggregations should consult their own tax advisors with respect to the tax treatment of any creation or redemption transaction. If you purchase or redeem Creation Unit Aggregations, you will be sent a confirmation statement showing how
many shares you purchased or redeemed and at what price.
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 the Fund and if, pursuant to Section 351 of the Code,
the Fund would have a basis in the 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.
Certain Reporting Regulations.
Under U.S. Treasury regulations, if a shareholder recognizes a loss of $2 million
or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this
reporting requirement, but under current guidance, shareholders of a RIC are not excepted. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayers treatment of the loss is
proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
General Considerations.
The federal income tax discussion set forth above is for general information only. Prospective investors should consult their tax advisors regarding the specific
federal income tax consequences of purchasing, holding and disposing of shares of the Fund, as well as the effect of state, local and foreign tax law and any proposed tax law changes.
DETERMINATION OF NAV
The NAV of the Funds shares is calculated each day the national securities exchanges are open for trading as of the close of regular trading on the Listing Exchange, generally 4:00 p.m. New York
time (the NAV Calculation Time). NAV per share is calculated by dividing the Funds net assets by the number of Fund shares outstanding.
In calculating the Funds NAV, Fund investments generally are valued using market valuations. Short-term debt securities with remaining maturities of sixty (60) days or less generally are valued
on the basis of amortized cost, which approximates fair value. U.S. fixed income assets may be valued as of the announced closing time for such securities on any day that the Securities Industry and Financial Markets Association announces an early
closing time. The values of any assets or liabilities of the Fund that are denominated in a currency other than the U.S. dollar are converted into U.S. dollars using an exchange rate deemed appropriate by the Fund.
In certain instances, such as when reliable market valuations are not readily available or are not deemed to reflect current market values, the
Funds investments will be valued in accordance with the Funds pricing policy and procedures. Securities that may be valued using fair value pricing may include, but are not limited to, securities for which there are no
current market quotations or whose issuer is in default or bankruptcy, securities subject to corporate actions (such as mergers or reorganizations), securities subject to non-U.S. investment limits or currency controls, and securities affected by
significant events. An example of a significant event is an event occurring after the close of the market in which a security trades but before the Funds next NAV Calculation Time that may materially affect the value of the
Funds investment (e.g., government action, natural disaster, or significant market fluctuation). Price movements in U.S. markets that are deemed to affect the value of foreign securities, or reflect changes to the value of such securities,
also may cause securities to be fair valued.
When fair-value pricing is employed, the prices of securities used by the Fund to
calculate its NAV may differ from quoted or published prices for the same securities.
Fund shares are purchased or sold on a national
securities exchange at market prices, which may be higher or lower than NAV. No secondary sales will be made to brokers or dealers at a concession by the Distributor or by the Fund. Purchases and sales of shares in the secondary market, which will
not involve the Fund, will be subject to customary brokerage commissions and charges. Transactions in Fund shares will be priced at NAV only if you purchase or redeem shares directly from the Fund in Creation Units.
36
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to pay out dividends, if any, on a quarterly basis but in any event no less frequently than annually. Nonetheless, the Fund might not
make a dividend payment every quarter. The Fund intends to distribute its net realized capital gains, if any, to investors annually. The Fund may occasionally be required to make supplemental distributions at some other time during the year.
Distributions in cash may be reinvested automatically in additional whole shares only if the broker through whom you purchased shares makes such option available. Your broker is responsible for distributing the income and capital gain distributions
to you.
The Trust reserves the right to declare special distributions if, in its reasonable discretion, such action is necessary or advisable
to preserve the status of the Fund as a RIC or to avoid imposition of income or excise taxes on undistributed income.
FINANCIAL STATEMENTS
Financial Statements and Annual Reports will be available after the Fund has completed a fiscal year of
operations. When available, you may request a copy of the Trusts Annual Report at no charge by calling 866-909-9473 or through the Trusts website at www.wisdomtree.com.
MISCELLANEOUS INFORMATION
Counsel.
Bingham McCutchen LLP, with offices located at 2020 K Street, NW, Washington, DC 20006, serves as legal counsel to the Trust.
Independent Registered Public Accounting Firm.
Ernst & Young LLP, with offices located at 5 Times Square, New York, New York
10036, serves as the independent registered public accounting firm to the Trust.
37