Defiance ETFs: FAQ Document

Leveraged Single-Stock ETFs aim to provide a multiple (e.g., 2x) of the daily performance of a particular underlying stock. This means:

• If the underlying stock increases by 1% in a day, a 2x leveraged ETF may be designed to increase by 2% (before fees and expenses).
• Conversely, if the stock decreases by 1%, the ETF may decrease by 2% (before fees and expenses).

These products typically use total return swaps or similar derivatives, such as options, with major financial institutions to obtain the target exposure. Swaps allow the fund to gain leveraged performance without directly borrowing cash or securities in a margin account.

1. Short-Term Trades: Some investors use leveraged products for short-term tactical plays or to respond to short-term technical indicators.
2. Earnings Play: Investors may utilize these ETFs around earnings releases if they anticipate a significant price move.
3. Amplified Exposure: Investors seeking to magnify returns on a specific stock can use leveraged ETFs, though this also amplifies risk.

Leveraged Single-Stock ETFs reset their exposure every trading day. This means:

• Daily Objective: The fund targets 2x (or another specified multiple) of the daily change of the underlying stock.
• Compounding Effect: Over multiple days, returns may deviate from exactly 2x the cumulative change due to compounding, especially in volatile markets.

1. Magnified Losses: Losses can be amplified to the same degree as gains.
2. Market Volatility: Larger swings in share price can occur because the ETF is more sensitive to price movements.
3. Compounding: Holding these ETFs longer than one day can result in performance that differs significantly from what an investor might expect based on just a simple multiple of the underlying stock’s long-term performance.

1. Income Distributions (Dividends): Some ETFs may distribute net investment income on a monthly, quarterly, or other schedule, depending on their investment strategy.
2. Capital Gains Distributions: These often occur annually if the fund realizes net gains from selling underlying positions.

• Ex-Date: The date on which the ETF’s share price generally drops by the amount of the distribution.
• Record Date: Shareholders who own the ETF at market close on this date are entitled to the distribution.
• Payable Date: The date on which distributions are actually paid to shareholders.

Reinvestment of Distributions

If you hold Defiance ETFs through a brokerage account, you can often elect to have your distributions automatically reinvested. Contact your broker to enroll in a dividend reinvestment plan (DRIP).

Tax Considerations

• Ordinary Income: Net investment income and short-term capital gains are reported as ordinary income on Form 1099-DIV.
• Long-Term Capital Gains: Distributed separately on Form 1099-DIV when applicable.
• Return of Capital (ROC): Some funds may distribute an ROC if total distributions exceed net investment income and capital gains for the fiscal year. ROC reduces your cost basis and may have tax implications when you sell shares.

Important: Tax treatment can vary depending on the ETF’s structure. Always consult with a tax professional.

• The fund’s advisor typically determines distributions based on option premiums collected over a specified period.
• Distributions might vary from week to week (or month to month) depending on trading activity and the premiums generated.

Key Risks of Option Strategies

1. Market Downturns: Even if a fund aims to track an index through synthetic means, significant market declines can lead to substantial losses.
2. Liquidity & Volatility: Option prices are sensitive to changes in implied volatility and market liquidity.
3. Complexity: Synthetic strategies may be more complex than holding the underlying securities, so investors should fully understand the fund’s approach before investing.

Starting May 28, 2024 (industry-wide in many markets), transactions settle in one business day rather than two. This shift also affects ex-dates, record dates, and payable dates, which may now align more closely.

• Impact on Dividends:
• Ex-Date & Record Date: These can sometimes occur on the same day under T+1.

• Broker Communication: Confirm with your broker how they handle settlement timing for distributions.

When distributions are paid out, the fund’s total assets decrease by the amount paid to shareholders. Consequently, the NAV is reduced by the distribution amount. However, this reduction is purely mechanical, and investors should consider total return—which accounts for both price appreciation and any distributions received—to measure performance accurately.

Tracking the Underlying Index or Stock

Leveraged, synthetic, or option-based strategies may produce short-term tracking errors due to:

• Fees and Expenses
• Swap Financing Costs
• Compounding Effects in Leveraged ETFs
• Option Premiums and Volatility

• Stock Splits: If the underlying stock (or a key position within the ETF) undergoes a split, the ETF’s reference value and holdings may be adjusted accordingly, but your total investment value should remain consistent on the split date.
• ETF Reverse Splits: If Defiance undertakes a reverse split of its ETF shares, your total investment value remains the same, but the number of shares you hold will change proportionally.

Defiance ETFs are designed as limited liability structures; your maximum loss is generally the capital you have invested. Leveraged products do not obligate shareholders to meet margin calls or add additional capital to avoid liquidation in the ETF structure.

• Management Fee: Many leveraged or synthetic-based ETFs charge an expense ratio, actual fees may vary.
• Additional Costs: Swap financing costs, transaction fees, and other expenses may apply.

• Sophisticated Investors: Investors who understand daily rebalancing, option strategies, or leveraged exposures.
• Short-Term Traders: Those looking to capitalize on short-term market movements.
• Risk-Tolerant Investors: Willing to accept high volatility and the possibility of amplified losses.

Key Points to Remember

1. Understand the Strategy: Know how the ETF achieves its investment objective, especially if leverage or options are involved.
2. Monitor Frequently: Due to daily reset and potential volatility, frequent monitoring is advisable.
3. Consult Professionals: Talk with financial and tax advisors to ensure the product aligns with your objectives and risk tolerance.

• Defiance ETFs Website: Access fund-specific pages for prospectuses, fact sheets, and performance charts. www.defianceetfs.com
• Prospectus & Summary Prospectus: Comprehensive details on objectives, risks, charges, and expenses.
• Distribution Schedules & Announcements: Updated regularly with ex-dates, record dates, and payable dates.

1. Sign Up for Alerts: Subscribe to email newsletters or alerts on the Defiance ETFs website.
2. Brokerage Notifications: Many brokers offer watchlist alerts or corporate action notifications.

3. Contact Defiance Support: For specific queries, reach out via phone or email (info@definaceetfs.com).