ck0001592900-20240531
AOT
Growth and Innovation ETF
(a
series of EA Series Trust)
Ticker
Symbol: AOTG
Prospectus
September 30,
2024
Listed
on The Nasdaq Stock Market LLC
These
securities have not been approved or disapproved by the Securities and Exchange
Commission nor has the Securities and Exchange Commission passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
AOT
GROWTH AND INNOVATION ETF
INVESTMENT
OBJECTIVE
The
AOT Growth
and Innovation ETF (the “Fund”) seeks long-term capital
appreciation.
FEES AND
EXPENSES
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may also pay brokerage commissions on the purchase and sale of Shares, which are
not reflected in the table or example.
ANNUAL FUND
OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE OF THE VALUE
OF YOUR INVESTMENT)
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| Management
Fee |
0.75 |
% |
| Distribution
and/or Service (12b-1) Fees |
None |
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Other
Expenses |
0.00 |
% |
| Total
Annual Fund Operating Expenses |
0.75 |
% |
EXAMPLE
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other funds. The example
assumes that you invest $10,000 for the time periods indicated and then redeem
all of your Shares at the end of those periods. The example also assumes that
the Fund provides a return of 5% a year and that operating expenses remain the
same. You may also pay brokerage commissions on the purchase and sale of Shares,
which are not reflected in the example. Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
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| One
Year: |
Three
Years: |
Five
Years: |
Ten
Years: |
| $77 |
$240 |
$417 |
$930 |
PORTFOLIO
TURNOVER
The
Fund may pay transaction costs, including commissions when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These costs, which are not reflected in annual fund
operating expenses or in the example, affect the Fund’s performance. For the
fiscal year ended May 31, 2024, the Fund’s portfolio turnover rate was
10% of the average
value of its portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund is an actively managed exchange-traded fund (ETF) that invests in U.S.
listed equity securities that have high growth potential based on a low marginal
cost business model. AOT Invest LLC (the “Sub-Adviser”) is responsible for
security investment recommendations. The Sub-Adviser acts as a non-discretionary
sub-adviser and provides its investment recommendations to Empowered Funds, LLC
dba EA Advisers (the “Adviser”). In turn, the Adviser makes the corresponding
trades.
The
Sub-Adviser invests substantially all of the Fund’s assets in equity securities
of companies that the Sub-Adviser believes are capable of future growth due to
low marginal cost business models. The Sub-Adviser considers a company to have a
low marginal cost business model if the company can deliver a greater amount of
its goods or services without materially increasing the company’s costs. Such
cost structures, in the Sub-Adviser’s view, yield greater profits, which can
then be used to accelerate growth in existing markets and exploit growth in new
markets. For example, a software company that sells its software to customers
through the internet would have low incremental cost for each unit sold, which
yields higher profits, which can then be used to expand
sales.
The
Sub-Adviser will invest in a variety of companies and industries with low
marginal cost structures (beyond traditional low marginal cost industries, such
as technology and software). For example, an insurance company that can deploy
technology to issue more insurance policies without materially increasing its
costs will realize greater profits. Such profit can be reinvested to expand the
company’s overall market share or exploit new markets.
The
Sub-Adviser utilizes its own internal research and analysis that leverages
insights from diverse sources, including external research, to identify
companies that capitalize on low marginal cost business models.
The
Fund’s investment universe consists of publicly traded equity securities listed
in the United States, including common stocks and American Depositary Receipts
(“ADRs”), with a minimum market capitalization of $800 million. The Sub-Adviser
excludes Real Estate Investment Trust (REITs), Global Depositary Receipts
(“GDRs”) and Business Development Companies (“BDCs”).
Thereafter,
the Sub-Adviser refines the starting universe by identifying sectors that are
most suitable for low marginal cost companies (e.g., technology, media, certain
forms of financial services, etc.). Specifically, the Sub-Adviser deploys a “top
down” process using thematic research, which analyzes an overall industry’s
attractiveness for marginal cost production (examples of analysis include: cost
structure, overall market size, technological trends that can alter a sector’s
cost structure, etc.).
Next,
the Sub-Adviser assesses equity securities within the sectors identified above.
Specifically, the Sub-Adviser seeks to invest in companies that offer a low
marginal cost product or service, or otherwise benefits from advances in
technology that reduces its cost structure. Such marginal cost leaders are
generally identified as: (i) having a historical, current or future projected
revenue growth rate exceeding 20% year over year, (ii) is established as a
market leader in its respective market sector, industry or sub-industry, and
(iii) the industry or sub-industry is expected to grow year over
year.
Last,
the Sub-Adviser employs several quality screens, which consider metrics like
current profitability, stability, and recent operational improvements, to select
the top 40 to 90 stocks for inclusion in the portfolio. Fund holdings are
typically sold when a company’s valuation exceeds the Sub-Adviser’s intrinsic
value for the company or realizes a change in growth rate (real or projected).
The portfolio is generally rebalanced monthly; however, the Sub-Adviser will
take advantage of market opportunities at any time. The portfolio is weighted
based on a security’s attractiveness to the Sub-Adviser while also taking into
consideration overall market capitalization.
Certain
companies that do not meet a key screening criteria (e.g,, growth rate) but
exhibit robust metrics in other categories (e.g., valuation, marginal cost
structure, etc.) could be included in the portfolio. In addition, the
Sub-Adviser may opt to invest in low cost, broad-based domestic equity ETFs for
certain time periods if valuations are deemed to be excessively
high.
PRINCIPAL INVESTMENT
RISKS
An
investment in the Fund involves risk, including those described below.
There
is no assurance that the Fund will achieve its investment objective.
An
investor may lose money by investing in the Fund. An investment in
the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or
any government agency. More complete risk descriptions are set
forth below under the heading “Additional
Information About the Fund’s Principal Investment Risks.”
Equity
Investing Risk.
An investment in the Fund involves risks similar to those of investing in any
fund holding equity securities, such as market fluctuations, changes in interest
rates and perceived trends in stock prices. The values of equity securities
could decline generally or could underperform other investments. In addition,
securities may decline in value due to factors affecting a specific issuer,
market or securities markets
generally.
Investment
Risk.
When you sell your Shares, they could be worth less than what you paid for them.
The Fund could lose money due to short-term market movements and over longer
periods during market downturns. Securities may decline in value due to factors
affecting securities markets generally or particular asset classes or industries
represented in the markets. The value of a security may decline due to general
market conditions, economic trends or events that are not specifically related
to the issuer of the security or to factors that affect a particular industry or
group of industries. During a general downturn in the securities markets,
multiple asset classes may be negatively affected. Therefore, you may lose money
by investing in the Fund.
Growth
Stock Investment Risk.
Growth-oriented common stocks may involve larger price swings and greater
potential for loss than other types of investments. Growth stocks tend to trade
at a premium when analyzed using tradition valuation metrics such as
price-to-earnings ratio and price-to-book ratio. Due to this premium valuation,
growth stocks tend to be more susceptible to big price swings. In bull markets,
they tend to rise at a much faster pace than the overall market, and they tend
to decline at a more rapid rate in bear
markets.
Management
Risk.
The Fund is actively managed and may not meet its investment objective based on
the Adviser’s or Sub-Adviser’s success or failure to implement investment
strategies for the Fund. In addition, there is the risk that Sub-Adviser’s
investment process, techniques and analyses will not produce the desired
investment results and the Fund may lose value as a
result.
Foreign
Investment Risk.
Foreign securities can be more volatile than domestic (U.S.) securities.
Securities markets of other countries are generally smaller than U.S. securities
markets. Many foreign securities may also be less liquid than U.S. securities,
which could prevent the Fund from selling a foreign security at an advantageous
time or price.
Depositary
Receipt Risk. American
Depositary Receipts (“ADRs”) are receipts, issued by depository banks in the
United States or elsewhere, for shares of a foreign-based corporation that
entitle the holder to dividends and capital gains on the underlying security.
ADRs may be sponsored or unsponsored. In addition to the risks of investing in
foreign securities, there is no guarantee that an ADR issuer will continue to
offer a particular ADR. As a result, the Fund may have difficulty selling the
ADRs, or selling them quickly and efficiently at the prices at which they have
been valued. The issuers of unsponsored ADRs are not obligated to disclose
information that is considered material in the U.S. and voting rights with
respect to the deposited securities are not passed through. ADRs may not track
the prices of the underlying foreign securities on which they are based, and
their values may change materially at times when U.S. markets are not open for
trading.
Sector
Risk.
To the extent the Fund invests more heavily in particular sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those sectors. The Fund may invest a significant portion of
its assets in the following sectors and, therefore, the performance of the Fund
could be negatively impacted by events affecting each of these
sectors.
•Information
Technology Sector Risk.
The
Fund may invest in companies in the technology sector, and therefore the
performance of the Fund could be negatively impacted by events affecting this
sector. Market or economic factors impacting technology companies and companies
that rely heavily on technological advances could have a significant effect on
the value of the Fund’s investments. The value of stocks of technology companies
and companies that rely heavily on technology is particularly vulnerable to
rapid changes in technology product cycles, rapid product obsolescence,
government regulation and competition, both domestically and internationally,
including competition from foreign competitors with lower production costs.
Stocks of technology companies and companies that rely heavily on technology,
especially those of smaller, less-seasoned companies, tend to be more volatile
than the overall market. technology companies are heavily dependent on patent
and intellectual property rights, the loss or impairment of which may adversely
affect profitability.
•Financials
Sector Risk.
This sector, which includes banks, insurance companies, and financial service
firms, can be significantly affected by changes in interest rates, government
regulation, the rate of defaults on corporate, consumer and government debt, the
availability and cost of capital, and fallout from the housing and sub-prime
mortgage crisis. Banks, in particular, are subject to volatile interest rates,
severe price competition, and extensive government oversight and regulation,
which may limit certain economic activities available to banks, impact their
fees and overall profitability, and establish capital maintenance requirements.
In addition, banks may have concentrated portfolios of loans or investments that
make them vulnerable to economic conditions that affect that industry. Insurance
companies are subject to similar risks as banks, including adverse economic
conditions, changes in interest rates, increased competition and government
regulation, but insurance companies are more at risk from changes in tax law,
government imposed premium rate caps, and catastrophic events, such as
earthquakes, floods, hurricanes and terrorist acts. This sector has experienced
significant losses in the recent past, and the impact of higher interest rates,
more stringent capital requirements, and of recent or future regulation on any
individual financial company,
or
on the sector as a whole, cannot be predicted. In recent years, cyber attacks
and technology malfunctions and failures have become increasingly frequent in
the financial sector and have caused significant
losses.
Focused
Investing Risk.
The Fund may be susceptible to an increased risk of loss, including losses due
to adverse occurrences affecting the Fund more than the market as a whole, to
the extent that the Fund may, from time to time, concentrate its investments in
the securities of a particular issuer or issuers, sector, or asset
class.
ETF
Risks.
•Authorized
Participants, Market Makers and Liquidity Providers Concentration
Risk.
The Fund has a limited number of financial institutions that may act as
Authorized Participants (“APs”). In addition, there may be a limited number of
market makers and/or liquidity providers in the marketplace. To the extent
either of the following events occur, Shares may trade at a material discount to
NAV and possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their
functions.
•Premium-Discount
Risk.
The
Shares may trade above or below their net asset value (“NAV”). The market prices
of Shares will generally fluctuate in accordance with changes in NAV as well as
the relative supply of, and demand for, Shares on The Nasdaq Stock Market LLC
(the “Exchange”) or other securities exchanges. The trading price of Shares may
deviate significantly from NAV during periods of market volatility or limited
trading activity in Shares. In addition, you may incur the cost of the “spread,”
that is, any difference between the bid price and the ask price of the Shares.
Deviation between the Fund’s NAV and trading price poses a risk to investors
when there is market stress because costs can increase substantially during such
periods, which can lead directly to a widening of premiums or discounts to
NAV.
•Cost
of Trading Risk.
Investors
buying or selling Shares in the secondary market will pay brokerage commissions
or other charges imposed by brokers as determined by that broker. Brokerage
commissions are often a fixed amount and may be a significant proportional cost
for investors seeking to buy or sell relatively small amounts of
Shares.
•Trading
Risk.
Although
the Shares are listed on the Exchange, there can be no assurance that an active
or liquid trading market for them will develop or be maintained. In addition,
trading in Shares on the Exchange may be halted. In stressed market conditions,
the liquidity of the Fund’s Shares may begin to mirror the liquidity of its
underlying portfolio holdings, which can be significantly less liquid than the
Fund’s Shares, potentially causing the market price of the Fund’s Shares to
deviate from its NAV. Wider bid/ask spreads are a consequence of such limited
liquidity and exaggerate premium/discount spread. When buying or selling Shares
of the Fund in the secondary market, you will likely incur brokerage commission
or other charges. In addition, you may incur the cost of the “spread” also known
as the bid-ask spread, which is the difference between what investors are
willing to pay for Fund Shares (the “bid” price) and the price at which they are
willing to sell Fund Shares (the “ask” price). The bid-ask spread varies over
time based on, among other things, trading volume, market liquidity and market
volatility. Because of the costs inherent in buying or selling Fund Shares,
frequent trading may detract significantly from investment results and an
investment in Fund Shares may not be advisable for investors who anticipate
regularly making small investments due to the associated trading
costs.
Limited
Operating History. The
Fund is a recently organized management investment company with limited
operating history. As a result, prospective investors have a limited track
record on which to base their investment decision. An investment in the Fund may
therefore involve greater uncertainty than an investment in a fund with a more
established record of performance.
Geopolitical/Natural
Disaster Risks.
The Fund’s investments are subject to geopolitical and natural disaster risks,
such as war, terrorism, trade disputes, political or economic dysfunction within
some nations, public health crises and related geopolitical events, as well as
environmental disasters, epidemics and/or pandemics, which may add to
instability in world economies and volatility in markets. The impact may be
short-term or may last for extended periods.
PERFORMANCE
The following
information provides some indication of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for calendar
years ended December 31. The table shows how the Fund’s average annual returns
for one-year and since inception periods compare with those of a broad measure
of market performance. The Fund’s past performance,
before and after taxes, is not necessarily an indication of how the Fund will
perform in the future. Performance information is also available
on the Fund’s website at Updated performance information will be available at
www.aotetf.com
or by calling the Fund at (215)
882-9983.
Calendar Year Total Returns
as of December 31
The
Fund’s calendar year-to-date return as of
June 30, 2024 was
15.34%. During the
period of time shown in the bar chart, the Fund’s highest return for a
calendar quarter was 22.51% (quarter ended March 31, 2023) and the
Fund’s lowest return for a calendar
quarter was -6.12% (quarter ended September 30,
2023).
Average
Annual Total Returns
For
the Periods Ended December 31, 2023
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| AOT
Growth and Innovation ETF |
1
Year |
Since
Inception
(06/28/2022) |
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Return Before
Taxes |
54.28% |
21.97% |
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Return After
Taxes on Distributions |
54.28% |
21.97% |
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Return After
Taxes on Distributions and Sale of Fund
Shares |
32.13% |
16.94% |
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Solactive GBS
United States 1000 NTR Index (reflects no deduction for
fees, expenses, or taxes) |
26.11% |
17.28% |
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S&P
500 Total Return Index1
(reflects no deduction for
fees, expenses, or taxes) |
26.29% |
17.78% |
1
The Fund has
changed its benchmark to the Solactive GBS United States 1000 Index, which
represents the overall domestic equity market in which the Fund
invests.
After-tax returns are
calculated using the highest historical individual U.S. federal marginal income
tax rates during the period covered by the table and do not reflect the impact
of state and local taxes. Actual
after-tax returns depend on your tax situation and may differ from those shown
and are not relevant if you hold your shares through a tax- deferred
arrangement, such as a 401(k) plan or an
IRA.
INVESTMENT
ADVISER & INVESTMENT SUB-ADVISER
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| Investment
Adviser: |
Empowered
Funds, LLC dba EA Advisers (the “Adviser”) |
| Investment
Sub-Adviser: |
AOT
Invest LLC (the “Sub-Adviser”) |
PORTFOLIO
MANAGERS
John
Tinsman, Founder of the Sub-Adviser, is primarily responsible for the day-to-day
management of the Fund since 2022.
Mr.
Tinsman provides his recommendations to Messrs. Wm. Joshua Russell and Richard
Shaner, Portfolio Managers of the Adviser. Mr. Shaner has been primarily and
jointly responsible for the day-to-day management of the Fund since 2022. Mr.
Russell has been primarily and jointly responsible for the day-to-day management
of the Fund since January 2023.
SUMMARY
INFORMATION ABOUT PURCHASES, SALES, TAXES, AND FINANCIAL INTERMEDIARY
COMPENSATION
PURCHASE
AND
SALE
OF SHARES
The
Fund issues and redeems Shares on a continuous basis only in large blocks of
Shares known as “Creation Units,” and only APs (typically, broker-dealers) may
purchase or redeem Creation Units. Creation Units generally are issued and
redeemed ‘in-kind’ for securities and partially in cash. Individual Shares may
only be purchased and sold in secondary market transactions through brokers.
Once created, individual Shares generally trade in the secondary market at
market prices that change throughout the day. Market prices of Shares may be
greater or less than their NAV. Except
when aggregated in Creation Units, the Fund’s shares are not redeemable
securities.
TAX
INFORMATION
The
Fund’s distributions generally are taxable to you as ordinary income, capital
gain, or some combination of both, unless your investment is made through an
Individual Retirement Account (“IRA”) or other tax-advantaged account. However,
subsequent withdrawals from such a tax-advantaged account may be subject to U.S.
federal income tax. You should consult your own tax advisor about your specific
tax situation.
PURCHASES
THROUGH BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase Shares through a broker-dealer or other financial intermediary, the
Fund and its related companies may pay the intermediary for the sale of Shares
and related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend Shares over another investment. Ask your salesperson or visit your
financial intermediary’s website for more information.
ADDITIONAL
INFORMATION ABOUT THE FUND
How
Is the Fund Different From a Mutual Fund?
Redeemability.
Mutual fund shares may be bought from, and redeemed with, the issuing fund for
cash at NAV typically calculated once at the end of the business day. Shares of
the Fund, by contrast, cannot be purchased from or redeemed with the Fund except
by or through APs (typically, broker-dealers), and then principally for an
in-kind basket of securities (and a limited cash amount). In addition, the Fund
issues and redeems Shares on a continuous basis only in large blocks of Shares
called “Creation Units.”
Exchange
Listing.
Unlike mutual fund shares, Shares are listed for trading on the Exchange.
Investors can purchase and sell Shares on the secondary market through a broker.
Investors purchasing Shares in the secondary market through a brokerage account
or with the assistance of a broker may be subject to brokerage commissions and
charges. Secondary-market transactions do not occur at NAV, but at market prices
that change throughout the day, based on the supply of, and demand for, Shares
and on changes in the prices of the Fund’s portfolio holdings. The market price
of Shares may differ from the NAV of the Fund. The difference between market
price of Shares and the NAV of the Fund is called a premium when the market
price is above the reported NAV and called a discount when the market price is
below the reported NAV, and the difference is expected to be small most of the
time, though it may be significant, especially in times of extreme market
volatility.
Tax
Treatment.
The Fund and the Shares have been designed to be tax-efficient. Specifically,
the in-kind creation and redemption feature has been designed to protect Fund
shareholders from adverse tax consequences applicable to non-ETF registered
investment companies as a result of cash transactions in the non-ETF registered
investment company’s shares, including cash redemptions. Nevertheless, to the
extent redemptions from the Fund are paid in
cash,
the Fund may realize capital gains or losses, including in some cases short-term
capital gains, upon the sale of portfolio securities to generate the cash to
satisfy the redemption.
Transparency.
The Fund’s portfolio holdings are disclosed on its website daily after the close
of trading on the Exchange and prior to the opening of trading on the Exchange
the following day. A description of the Fund’s policies and procedures with
respect to the disclosure of the Fund’s portfolio holdings is available in the
Fund’s Statement of Additional Information (“SAI”).
Premium/Discount
Information.
Information about the premiums and discounts at which Shares have traded is
available at www.aotetf.com.
ADDITIONAL
INFORMATION ABOUT THE FUND’S INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT
STRATEGIES
The
Fund’s investment objective is a non-fundamental investment policy and may be
changed without a vote of shareholders upon prior written notice to
shareholders.
The
Fund is an actively managed ETF that invests in U.S. listed equity securities
that have high growth potential based on a low marginal cost business model. The
Sub-Adviser is responsible for security investment recommendations. The
Sub-Adviser acts as a non-discretionary sub-adviser and provides its investment
recommendations to the Adviser. In turn, the Adviser makes the corresponding
trades.
The
Sub-Adviser invests substantially all of the Fund’s assets in equity securities
of companies that the Sub-Adviser believes are capable of future growth due to
low marginal cost business models. The Sub-Adviser considers a company to have a
low marginal cost business model if the company can deliver a greater amount of
its goods or services without materially increasing the company’s costs. Such
cost structures, in the Sub-Adviser’s view, yield greater profits, which can
then be used to accelerate growth in existing markets and exploit growth in new
markets. For example, a software company that sells its software to customers
through the internet would have low incremental cost for each unit sold, which
yields higher profits, which can then be used to expand sales.
The
Sub-Adviser will invest in a variety of companies and industries with low
marginal cost structures (beyond traditional low marginal cost industries, such
as technology and software). For example, an insurance company that can deploy
technology to issue more insurance policies without materially increasing its
costs will realize greater profits. Such profit can be reinvested to expand the
company’s overall market share or exploit new markets.
The
Sub-Adviser utilizes its own internal research and analysis that leverages
insights from diverse sources, including external research, to identify
companies that capitalize on low marginal cost business models.
The
Fund’s investment universe consists of publicly traded equity securities listed
in the United States, including common stocks and ADRs, with a minimum market
capitalization of $800 million. The Sub-Adviser excludes REITs, GDRs and
BDCs.
Thereafter,
the Sub-Adviser refines the starting universe by identifying sectors that are
most suitable for low marginal cost companies (e.g., technology, media, certain
forms of financial services, etc.). Specifically, the Sub-Adviser deploys a “top
down” process using thematic research, which analyzes an overall industry’s
attractiveness for marginal cost production (examples of analysis include: cost
structure, overall market size, technological trends that can alter a sector’s
cost structure, etc.).
Next,
the Sub-Adviser assesses equity securities within the sectors identified above.
Specifically, the Sub-Adviser seeks to invest in companies that offer a low
marginal cost product or service, or otherwise benefits from advances in
technology that reduces its cost structure. Such marginal cost leaders are
generally identified as: (i) having a historical, current or future projected
revenue growth rate exceeding 20% year over year, (ii) is established as a
market leader in its respective market sector, industry or sub-industry, and
(iii) the industry or sub-industry is expected to grow year over
year.
Last,
the Sub-Adviser employs several quality screens, which consider metrics like
current profitability, stability, and recent operational improvements, to select
the top 40 to 90 stocks for inclusion in the portfolio. Fund holdings are
typically sold when a company’s valuation exceeds the Sub-Adviser’s intrinsic
value for the company or realizes a change in growth rate (real or projected).
The portfolio is generally rebalanced monthly; however, the Sub-Adviser
will
take advantage of market opportunities at any time. The portfolio is weighted
based on a security’s attractiveness to the Sub-Adviser while also taking into
consideration overall market capitalization.
Certain
companies that do not meet a key screening criteria (e.g,, growth rate) but
exhibit robust metrics in other categories (e.g., valuation, marginal cost
structure, etc.) could be included in the portfolio. In addition, the
Sub-Adviser may opt to invest in low cost, broad-based domestic equity ETFs for
certain time periods if valuations are deemed to be excessively
high.
Temporary
Defensive Positions.
From time to time, the Fund may take temporary defensive positions that are
inconsistent with its principal investment strategies in attempting to respond
to adverse market, economic, political, or other conditions. In those instances,
the Fund may hold up to 100% of its assets in cash; short-term U.S. government
securities and government agency securities; investment grade money market
instruments; money market mutual funds; investment grade fixed income
securities; repurchase agreements; commercial paper; cash equivalents; and
exchange-traded investment vehicles that principally invest in the foregoing
instruments. As a result of engaging in these temporary measures, the Fund may
not achieve its investment objective.
ADDITIONAL
INFORMATION ABOUT THE FUND’S PRINCIPAL INVESTMENT RISKS
The
following information is in addition to, and should be read along with, the
description of the Fund’s principal investment risks in the sections titled
“Fund Summary—Principal Investment Risks” above.
Equity
Investing Risk.
An investment in the Fund involves risks similar to those of investing in any
fund holding equity securities, such as market fluctuations, changes in interest
rates and perceived trends in stock prices. The values of equity securities
could decline generally or could underperform other investments. Different types
of equity securities tend to go through cycles of outperformance and
underperformance in comparison to the general securities markets. In addition,
securities may decline in value due to factors affecting a specific issuer,
market or securities markets generally. Recent turbulence in financial markets
and reduced liquidity in credit and fixed income markets may negatively affect
many issuers worldwide, which may have an adverse effect on the
Fund.
Sector
Risk.
To the extent the Fund invests more heavily in particular sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those sectors. The Fund may invest a significant portion of
its assets in the following sectors and, therefore, the performance of the Fund
could be negatively impacted by events affecting each of these
sectors.
•Information
Technology Sector Risk.
The
Fund may invest in companies in the technology sector, and therefore the
performance of the Fund could be negatively impacted by events affecting this
sector. Market or economic factors impacting technology companies and companies
that rely heavily on technological advances could have a significant effect on
the value of the Fund’s investments. The value of stocks of technology companies
and companies that rely heavily on technology is particularly vulnerable to
rapid changes in technology product cycles, rapid product obsolescence,
government regulation and competition, both domestically and internationally,
including competition from foreign competitors with lower production costs.
Stocks of technology companies and companies that rely heavily on technology,
especially those of smaller, less-seasoned companies, tend to be more volatile
than the overall market. Technology companies are heavily dependent on patent
and intellectual property rights, the loss or impairment of which may adversely
affect profitability. Additionally, companies in the technology sector may face
dramatic and often unpredictable changes in growth rates and competition for the
services of qualified personnel.
•Financials
Sector Risk. This
sector can be significantly affected by changes in interest rates, government
regulation, the rate of defaults on corporate, consumer and government debt, the
availability and cost of capital, and fallout from the housing and sub-prime
mortgage crisis. Insurance companies, in particular, may be significantly
affected by changes in interest rates, catastrophic events, price and market
competition, the imposition of premium rate caps, or other changes in government
regulation or tax law and/or rate regulation, which may have an adverse impact
on their profitability. This sector has experienced significant losses in the
recent past, and the impact of more stringent capital requirements and of recent
or future regulation on any individual financial company or on the sector as a
whole cannot be predicted. In recent years, cyber attacks and technology
malfunctions and failures have become increasingly frequent in this sector and
have caused significant losses.
Focused
Investing Risk. The
Fund may be susceptible to an increased risk of loss, including losses due to
adverse occurrences affecting the Fund more than the market as a whole, to the
extent that the Fund may, from time to time, concentrate its investments in the
securities of a particular issuer or issuers, sector, or asset
class.
ETF
Risks.
•Authorized
Participants, Market Makers and Liquidity Providers Concentration Risk.
The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become unable to
process creation and/or redemption orders and no other APs step forward to
perform these services, or (ii) market makers and/or liquidity providers exit
the business or significantly reduce their business activities and no other
entities step forward to perform their functions.
•Cost
of Trading Risk.
Investors
buying or selling Shares in the secondary market will pay brokerage commissions
or other charges imposed by brokers as determined by that broker. Brokerage
commissions are often a fixed amount and may be a significant proportional cost
for investors seeking to buy or sell relatively small amounts of Shares. In
addition, secondary market investors will also incur the cost of the difference
between the price that an investor is willing to pay for Shares (the “bid”
price) and the price at which an investor is willing to sell Shares (the “ask”
price). This difference in bid and ask prices is often referred to as the
“spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, increased market volatility may
cause increased bid/ask spreads.
•Premium-Discount
Risk.
The
Shares may trade above or below their NAV. The NAV of the Fund will generally
fluctuate with changes in the market value of the Fund’s holdings. The market
prices of Shares, however, will generally fluctuate in accordance with changes
in NAV as well as the relative supply of, and demand for, Shares on the Exchange
and other securities exchanges. The trading price of Shares may deviate
significantly from NAV during periods of market volatility or limited trading in
Shares. Deviation between the Fund’s NAV and trading price poses a risk to
investors when there is market stress because costs can increase substantially
during such periods, which can lead directly to a widening of premiums or
discounts to NAV. The Adviser cannot predict whether Shares will trade below, at
or above their NAV. Price differences may be due, in large part, to the fact
that supply and demand forces at work in the secondary trading market for Shares
will be closely related to, but not identical to, the same forces influencing
the prices of the securities held by the Fund. However, given that Shares can be
purchased and redeemed in large blocks of Shares, called Creation Units (unlike
shares of closed-end funds, which frequently trade at appreciable discounts
from, and sometimes at premiums to, their NAV), and the Fund’s portfolio
holdings are fully disclosed on a daily basis, the Adviser believes that large
discounts or premiums to the NAV of Shares should not be sustained, but that may
not be the case.
•Trading
Risk.
Although
the Shares are listed on the Exchange, there can be no assurance that an active
or liquid trading market for them will develop or be maintained. In addition,
trading in Shares on the Exchange may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
When markets are stressed, Shares could suffer erratic or unpredictable trading
activity, extraordinary volatility or wide bid/ask spreads, which could cause
some market makers and APs to reduce their market activity or “step away” from
making a market in ETF shares. This could cause the Fund’s market price to
deviate, materially, from the NAV, and reduce the effectiveness of the ETF
arbitrage process. Further, trading in Shares on the Exchange is subject to
trading halts caused by extraordinary market volatility pursuant to the “circuit
breaker” rules, which temporarily halt trading on the Exchange when a decline in
the S&P 500 Index during a single day reaches certain thresholds (e.g., 7%,
13% and 20%). There can be no assurance that the requirements of the Exchange
necessary to maintain the listing of the Fund will continue to be met or will
remain unchanged. In stressed market conditions, the liquidity of Shares may
begin to mirror the liquidity of the Fund’s underlying portfolio holdings, which
can
be
significantly less liquid than Shares, and this could lead to differences
between the market price of the Shares and the underlying value of those
Shares.
Geopolitical/Natural
Disaster Risks. Geopolitical
and other risks, including war, terrorism, trade disputes, political or economic
dysfunction within some nations, public health crises and related geopolitical
events, as well as environmental disasters such as earthquakes, fire and floods,
may add to instability in world economies and volatility in markets generally.
Changes in trade policies and international trade agreements could affect the
economies of many countries in unpredictable ways. Epidemics and/or pandemics,
such as the coronavirus (or COVID-19), may likewise result in economic
instability and market volatility. The impact may be short-term or may last for
extended periods.
The
respiratory illness COVID-19 caused by a novel coronavirus has resulted in a
global pandemic and major disruption to economies and markets around the world,
including the United States. Financial markets have experienced extreme
volatility and severe losses, and trading in many instruments has been
disrupted. Liquidity for many instruments has been greatly reduced for periods
of time. Some sectors of the economy and individual issuers have experienced
particularly large losses. These circumstances may continue for an extended
period of time, and may affect adversely the value and liquidity of the Fund’s
investments.
Growth
Stock Investment Risk. Growth-oriented
common stocks may involve larger price swings and greater potential for loss
than other types of investments. Growth stocks tend to trade at a premium when
analyzed using tradition valuation metrics such as price-to-earnings ratio and
price-to-book ratio. Due to this premium valuation, growth stocks tend to be
more susceptible to big price swings. In bull markets, they tend to rise at a
much faster pace than the overall market, and they tend to decline at a more
rapid rate in bear markets.
Investment
Risk.
When you sell your Shares, they could be worth less than what you paid for them.
The Fund could lose money due to short-term market movements and over longer
periods during market downturns. Securities may decline in value due to factors
affecting securities markets generally or particular asset classes or industries
represented in the markets. The value of a security may decline due to general
market conditions, economic trends or events that are not specifically related
to the issuer of the security or to factors that affect a particular industry or
group of industries. During a general downturn in the securities markets,
multiple asset classes may be negatively affected. Therefore, you may lose money
by investing in the Fund.
Management
Risk.
The Fund is actively managed and may not meet its investment objective based on
the Adviser’s or Sub-Adviser’s success or failure to implement investment
strategies for the Fund. The Adviser’s and Sub-Adviser’s evaluations and
assumptions regarding investments may not successfully achieve the Fund’s
investment objective given actual market trends. In addition, there is the risk
that the Sub-Adviser’s investment process, techniques and analyses will not
produce the desired investment results and the Fund may lose value as a result.
Absent unusual circumstances (e.g., the Adviser determines a different security
has higher liquidity but offers a similar investment profile as a recommended
security), the Adviser will generally follow Sub-Adviser’s investment
recommendations to buy, hold, and sell securities and financial instruments.
However, the Adviser may deviate from Sub-Adviser recommendations due to a clear
error in a particular recommendation, compliance concerns (e.g., concentration
limits), liquidity concerns, authorized participant-related concerns, or due to
regulatory requirements.
Foreign
Investment Risk.
Foreign securities can be more volatile than domestic (U.S.) securities.
Securities markets of other countries are generally smaller than U.S. securities
markets. Many foreign securities may also be less liquid than U.S. securities,
which could prevent the Fund from selling a foreign security at an advantageous
time or price.
Depositary
Receipt Risk. American
Depositary Receipts (“ADRs”) are receipts, issued by depository banks in the
United States or elsewhere, for shares of a foreign-based corporation that
entitle the holder to dividends and capital gains on the underlying security.
ADRs may be sponsored or unsponsored. In addition to the risks of investing in
foreign securities, there is no guarantee that an ADR issuer will continue to
offer a particular ADR. As a result, the Fund may have difficulty selling the
ADRs, or selling them quickly and efficiently at the prices at which they have
been valued. The issuers of unsponsored ADRs are not obligated to disclose
information that is considered material in the U.S. and voting rights with
respect to the deposited securities are not passed through. ADRs may not track
the
prices
of the underlying foreign securities on which they are based, and their values
may change materially at times when U.S. markets are not open for
trading.
Limited
Operating History. The
Fund is a recently organized management investment company with limited
operating history. As a result, prospective investors have a limited track
record on which to base their investment decision. An investment in the Fund may
therefore involve greater uncertainty than an investment in a fund with a more
established record of performance.
FUND
MANAGEMENT
Investment
Adviser
Empowered
Funds, LLC dba EA Advisers acts as the Fund’s investment adviser (the
“Adviser”). The Adviser is located at 19 East Eagle Road Havertown, PA 19083 and
is wholly-owned by Alpha Architect LLC. The Adviser is registered with the
Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of
1940 and provides investment advisory services to the Fund, other
exchange-traded funds, and other investment advisers. The Adviser was founded in
October 2013.
The
Adviser is responsible for overseeing the management and business affairs of the
Fund, and has discretion to purchase and sell securities in accordance with the
Fund’s objectives, policies and restrictions. The Adviser continuously reviews,
supervises and administers the Fund’s investment programs pursuant to the terms
of an investment advisory agreement (the “Advisory Agreement”) between the Trust
and the Adviser. The Adviser is entitled to receive the following Advisory Fee:
0.75% (annual rate as a percentage of average daily net assets). During the
fiscal year ended May 31, 2024, the aggregate advisory fee paid to the
Adviser was $221,467.
The
Adviser has contractually agreed to waive receipt of its management fees and/or
assume expenses of the Fund to the extent necessary to offset AFFE so that the
total annual operating expenses of the Fund (excluding payments under the Fund’s
Rule 12b-1 distribution and service plan (if any), brokerage expenses, taxes
(including tax-related services), interest (including borrowing costs),
litigation expense (including class action-related services) and other
non-routine or extraordinary expenses) do not exceed 0.75% of the Fund’s average
daily net assets. The fee waiver agreement will continue in effect for the life
of the Fund or until terminated sooner only by agreement of the Adviser and the
Fund’s Board of Trustees. Shareholders will benefit from the fee waiver to the
extent of any AFFE expenses. For the fiscal year ended May 31, 2024, the
Adviser waived $142 to offset the acquired fund fees and expenses incurred by
the Fund.
The
Adviser (or an affiliate of the Adviser) bears all of the Adviser’s own costs
associated with providing these advisory services and all expenses of the Fund,
except for the fee payment under the Advisory Agreement, payments under the
Fund’s Rule 12b-1 Distribution and Service Plan (the “Plan”), brokerage
expenses, acquired fund fees and expenses (including affiliated funds’ fees and
expenses), taxes (including tax-related services), interest (including borrowing
costs), litigation expenses (including class action-related services) and other
non-routine or extraordinary expenses.
The
Advisory Agreement for the Fund provides that it may be terminated at any time,
without the payment of any penalty, by the Board or, with respect to the Fund,
by a majority of the outstanding shares of the Fund, on 60 days’ written notice
to the Adviser, and by the Adviser upon 60 days’ written notice, and that it
shall be automatically terminated if it is assigned.
Investment
Sub-Adviser
The
Adviser has retained AOT Invest LLC (the “Sub-Adviser”), an investment adviser
registered with the SEC, to provide sub-advisory services for the Fund. The
Sub-Adviser is organized as a Delaware limited liability company with its
principal office located at 3541 East Kimberly Rd, Davenport, IA 52807, and was
founded in 2022, and became a registered investment adviser in 2022. The
Sub-Adviser is responsible for determining the investments for the Fund, subject
to the overall supervision and oversight of the Adviser and the
Board.
The
Sub-Adviser performs its services as a non-discretionary sub-adviser, which
means that the Sub-Adviser is not responsible for selecting brokers or placing
the Fund’s trades. Rather, the Sub-Adviser provides trade recommendations to the
Adviser and, in turn, the Adviser is responsible for selecting brokers and
placing the Fund’s trades. It is anticipated that the Adviser will generally
adhere to the Sub-Adviser’s recommendations.
For
its services, the Adviser pays the Sub-Adviser a fee, which is calculated daily
and paid monthly, at an annual rate based on the Fund’s average daily net assets
as follows: 0.38% (annual rate as a percentage of average daily net
assets).
Fund
Sponsor
The
Adviser has entered into a fund sponsorship agreement with the Sub-Adviser
pursuant to which the Sub-Adviser is also the sponsor of the Fund (“Fund
Sponsor”). Under this arrangement, the Fund Sponsor has agreed to provide
financial support to the Fund (as described below) and, in turn, the Adviser has
agreed to share with the Fund Sponsor a portion of profits, if any, generated by
the Fund’s Advisory Fee (also as described below). Every month, the Advisory
Fee, which is a unitary management fee, is calculated and paid to the
Adviser.
If
the amount of the unitary management fee exceeds the Fund’s operating expenses
and the Adviser-retained amount, the Adviser pays the net total to the Fund
Sponsor. The amount paid to the Fund Sponsor represents both the sub-advisory
fee and any remaining profits from the Advisory Fee. During months where there
are no profits or the funds are not sufficient to cover the entire sub-advisory
fee, the sub-advisory fee is automatically waived.
If
the amount of the unitary management fee is less than the Fund’s operating
expenses and the Adviser-retained amount, Fund Sponsor is obligated to reimburse
the Adviser for the shortfall.
The
Adviser-retained amount represents an agreed upon fee arrangement between the
Adviser and Fund Sponsor. This arrangement calls for the Fund Sponsor to pay the
Adviser a fee and reimburse the Adviser for certain Fund operating expenses it
paid pursuant to the Advisory Agreement.
APPROVAL
OF ADVISORY AGREEMENT & INVESTMENT SUB-ADVISORY AGREEMENTS
A
discussion regarding the basis for the Board’s approval of the Advisory
Agreement and the Sub-Advisory Agreement with respect to the Fund is available
in the Fund’s November 30, 2022 semi-annual
report.
PORTFOLIO
MANAGERS
The
portfolio managers are jointly and primarily responsible for various functions
related to portfolio management, including, but not limited to, making
recommendations (or implementing) with respect to the following: investing cash
inflows, implementing investment strategy, researching and reviewing investment
strategy, and overseeing members of the portfolio management team with more
limited responsibilities.
John
Tinsman, founder of AOT Invest LLC, has served as a portfolio manager since
2022. Prior to that, Mr. Tinsman worked as a securities market maker at a
proprietary trading firm in Chicago, Illinois from 2016-2018. Mr. Tinsman
specializes in growth-oriented investing and uses his expertise to seek out
long-term positions in high-quality companies that he believes will achieve
revenue and earnings growth rates above market and sector averages. Mr. Tinsman
also seeks out innovative companies with low or zero marginal cost products and
services, as he believes these characteristics raise the probability of a
company achieving above average growth rates and share price appreciation. Mr.
Tinsman obtained an undergraduate degree in Economics from Northwestern
University, and he studied Economics and Management as a visiting student at the
University of Oxford.
Wm.
Joshua Russell, PhD, CFA has been a Senior Portfolio Manager with the Adviser
since October 2022 and a portfolio manager of the Fund since January 2023. Prior
to this he was a Portfolio Manager at Carson Group where he was responsible for
approximately $1.7 billion in assets. He has also served in quant research roles
as VP, Sr. Research Analyst at Franklin Templeton and Senior Quantitative
Strategist at WisdomTree. Prior to entering the industry, Dr. Russell was a
PhD candidate where he conducted research on large-scale distributed systems for
the U.S. Army, the U.S. Air Force, and NASA. He earned a PhD in Electrical and
Computer Engineering, a Masters in Economics, and a Masters in Electrical and
Computer Engineering at the University of California, Santa Barbara. He earned a
Bachelor of Science in Electrical Engineering from the University of Washington
and is a CFA® Charterholder.
Richard
Shaner has been portfolio manager of the Fund since 2022. Mr. Shaner has advised
on trading and execution matters for the Adviser since January 2021, where he
supports trading operations and assists in quantitative research. Prior to Mr.
Shaner’s tenure with the Adviser, Mr. Shaner executed various trading strategies
for a private family office. Mr. Shaner has a B.Sc in Kinesiology and Applied
Physiology from the University of Colorado. He is also a CFA®
Charterholder.
Messrs.
Russell and Shaner are responsible for implementing the Fund’s investment
strategies as recommended by Mr. Tinsman.
The
Fund’s SAI provides additional information about the portfolio managers,
including other accounts each manages, their ownership in the Fund, and
compensation.
OTHER
SERVICE PROVIDERS
Quasar
Distributors, LLC (“Distributor”) serves as the distributor of Creation Units
(defined above) for the Fund on an agency basis. The Distributor does not
maintain a secondary market in Shares.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services, is
the administrator, fund accountant, and transfer agent for the Fund.
U.S.
Bank National Association is the custodian for the Fund.
Practus,
LLP, 11300 Tomahawk Creek Parkway, Suite 310, Leawood, Kansas 66211, serves as
legal counsel to the Trust.
Tait,
Weller & Baker, LLP, 50 South 16th Street, Suite 2900, Philadelphia, PA
19102, serves as the Fund’s independent registered public accounting firm. The
independent registered public accounting firm is responsible for auditing the
annual financial statements of the Fund.
THE
EXCHANGE
Shares
are not sponsored, endorsed or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated, in the determination of the timing of,
prices of, or quantities of Shares to be issued, nor in the determination or
calculation of the equation by which Shares are redeemable. The Exchange has no
obligation or liability to owners of Shares in connection with the
administration, marketing or trading of Shares. Without limiting any of the
foregoing, in no event shall the Exchange have any liability for any direct,
indirect, special, punitive, consequential or any other damages (including lost
profits) even if notified of the possibility of such damages.
BUYING
AND SELLING FUND SHARES
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem.
Creation Units are generally issued and redeemed only in-kind for securities
although a portion may be in cash.
Shares
will trade on the secondary market, however, which is where most retail
investors will buy and sell Shares. It is expected that only a limited number of
institutional investors, called Authorized Participants or “APs,” will purchase
and redeem Shares directly from the Fund. APs may acquire Shares directly from
the Fund, and APs may tender their Shares for redemption directly to the Fund,
at NAV per Share only in large blocks, or Creation Units. Purchases and
redemptions directly with the Fund must follow the Fund’s procedures, which are
described in the SAI.
Except
when aggregated in Creation Units, Shares are not redeemable with the Fund.
BUYING
AND SELLING SHARES ON THE SECONDARY MARKET
Most
investors will buy and sell Shares in secondary market transactions through
brokers and, therefore, must have a brokerage account to buy and sell Shares.
Shares can be bought or sold through your broker throughout the trading day like
shares of any publicly traded issuer. The Trust does not impose any redemption
fees or restrictions on redemptions of Shares in the secondary market. When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offered prices in the secondary market for Shares. The price at
which you buy or sell Shares (i.e.,
the market price) may be more or less than the NAV of the Shares. Unless imposed
by your broker, there is no minimum dollar amount you must invest in the Fund
and no minimum number of Shares you must buy.
Shares
of the Fund are listed on the Exchange under the following symbol:
|
|
|
|
|
| |
| Fund |
Trading
Symbol |
| AOT
Growth and Innovation ETF |
AOTG |
The
Exchange is generally open Monday through Friday and is closed for weekends and
the following holidays: New Year’s Day, Martin Luther King, Jr. Day,
Washington’s Birthday, Good Friday, Memorial Day, Juneteenth National
Independence Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day.
For
information about buying and selling Shares on the Exchange or in the secondary
markets, please contact your broker or dealer.
Book
Entry.
Shares are held in book entry form, which means that no stock certificates are
issued. The Depository Trust Company (“DTC”), or its nominee, will be the
registered owner of all outstanding Shares and is recognized as the owner of all
Shares. Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
Shares, you are not entitled to receive physical delivery of stock certificates
or to have Shares registered in your name, and you are not considered a
registered owner of Shares. Therefore, to exercise any right as an owner of
Shares, you must rely on the procedures of DTC and its participants. These
procedures are the same as those that apply to any stocks that you hold in book
entry or “street name” through your brokerage account. Your account information
will be maintained by your broker, which will provide you with account
statements, confirmations of your purchases and sales of Shares, and tax
information. Your broker also will be responsible for distributing income
dividends and capital gain distributions and for ensuring that you receive
shareholder reports and other communications from the Fund.
Share
Trading Prices.
The trading prices of Shares may differ from the Fund’s daily NAV and can be
affected by market forces of supply and demand for Shares, the prices of the
Fund’s portfolio securities, economic conditions and other factors.
The
Exchange through the facilities of the Consolidated Tape Association or another
market information provider intends to disseminate the approximate value of the
Fund’s portfolio every fifteen seconds during regular U.S. trading hours. This
approximate value should not be viewed as a “real-time” update of the NAV of the
Fund because the approximate value may not be calculated in the same manner as
the NAV, which is computed once a day. The quotations for certain investments
may not be updated during U.S. trading hours if such holdings do not trade in
the U.S., except such quotations may be updated to reflect currency
fluctuations. The Fund is not involved in, or responsible for, the calculation
or dissemination of the approximate values and makes no warranty as to the
accuracy of these values.
Continuous
Offering.
The method by which Creation Units of Shares are created and traded may raise
certain issues under applicable securities laws. Because new Creation Units of
Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. 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 requirements and liability provisions of
the Securities Act. For example, a broker-dealer firm or its client may be
deemed a statutory underwriter if it takes Creation Units after placing an order
with the Distributor, breaks them down into constituent Shares and sells the
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 characterization
as an underwriter.
Broker-dealer
firms should also note that dealers who are not “underwriters” but are effecting
transactions in Shares, whether or not participating in the distribution of
Shares, are generally required to deliver a prospectus. This is because the
prospectus delivery exemption in Section 4(a)(3) of the Securities Act is
not available in respect of such
transactions
as a result of Section 24(d) of the Investment Company Act of 1940, as
amended (the “Investment Company Act”). As a result, broker-dealer firms should
note that dealers who are not “underwriters” but are participating in a
distribution (as contrasted with engaging in ordinary secondary market
transactions) and thus dealing with the Shares that are part of an overallotment
within the meaning of Section 4(a)(3)(C) of the Securities Act, will be unable
to take advantage of the prospectus delivery exemption provided by Section
4(a)(3) of the Securities Act. For delivery of prospectuses to exchange members,
the prospectus delivery mechanism of Rule 153 under the Securities Act is only
available with respect to transactions on a national exchange.
ACTIVE
INVESTORS AND MARKET TIMING
The
Board has evaluated the risks of market timing activities by the Fund’s
shareholders. The Board noted that Shares can be purchased and redeemed directly
from the Fund only in Creation Units by APs and that the vast majority of
trading in Shares occurs on the secondary market. Because the secondary market
trades do not directly involve the Fund, it is unlikely those trades would cause
the harmful effects of market timing, including dilution, disruption of
portfolio management, increases in the Fund’s trading costs and the realization
of capital gains. With regard to the purchase or redemption of Creation Units
directly with the Fund, to the extent effected in-kind (i.e.,
for securities), the Board noted that those trades do not cause the harmful
effects (as previously noted) that may result from frequent cash trades. To the
extent trades are effected in whole or in part in cash, the Board noted that
those trades could result in dilution to the Fund and increased transaction
costs, which could negatively impact the Fund’s ability to achieve its
investment objective, although in certain circumstances (e.g.,
in conjunction with a reallocation of the Fund’s investments), such trades may
benefit Fund shareholders by increasing the tax efficiency of the Fund. The
Board also noted that direct trading by APs is critical to ensuring that Shares
trade at or close to NAV. In addition, the Fund will impose transaction fees on
purchases and redemptions of Shares to cover the custodial and other costs
incurred by the Fund in effecting trades. Given this structure, the Board
determined that it is not necessary to adopt policies and procedures to detect
and deter market timing of Shares.
DISTRIBUTION
AND SERVICE PLAN
The
Fund has adopted the Plan pursuant to Rule 12b-1 under the Investment Company
Act. Under the Plan, the Fund may be authorized to pay distribution fees of up
to 0.25% of its average daily net assets each year to the Distributor and other
firms that provide distribution and shareholder services (“Service Providers”).
As of the date of this Prospectus, the maximum amount payable under the Plan is
set at 0% until further action by the Board. In the event 12b-1 fees are
charged, over time they would increase the cost of an investment in the Fund
because they would be paid on an ongoing basis.
NET
ASSET VALUE
The
NAV of Shares is calculated each business day as of the close of regular trading
on the New York Stock Exchange (“NYSE”), generally 4:00 p.m., Eastern time.
The
Fund calculates its NAV per Share by:
•Taking
the current market value of its total assets,
•Subtracting
any liabilities, and
•Dividing
that amount by the total number of Shares owned by shareholders.
If
you buy or sell Shares on the secondary market, you will pay or receive the
market price, which may be higher or lower than NAV. Your transaction will be
priced at NAV only if you purchase or redeem your Shares in Creation Units.
Because
securities listed on foreign exchanges may trade on weekends or other days when
the Fund does not price its Shares, the NAV of the Fund, to the extent it may
hold foreign securities, may change on days when shareholders will not be able
to purchase or sell Shares. In particular, where all or a portion of the Fund’s
underlying securities trade in a market that is closed when the market in which
the Fund’s shares are listed and trading in that market is open, there may be
changes between the last quote from its closed foreign market and the value of
such security during the Fund’s domestic trading day. In addition, please note
that this in turn could lead to differences between the market price of the
Fund’s shares and the underlying value of those shares.
Equity
securities that are traded on a national securities exchange, except those
listed on the NASDAQ Global Market®
(“NASDAQ”) are valued at the last reported sale price on the exchange on which
the security is principally traded. Securities traded on NASDAQ will be valued
at the NASDAQ Official Closing Price (“NOCP”). If, on a particular day, an
exchange-traded or NASDAQ security does not trade, then the most recent quoted
bid for exchange traded or the mean between the most recent quoted bid and ask
price for NASDAQ securities will be used. Equity securities that are not traded
on a listed exchange are generally valued at the last sale price in the
over-the-counter market. If a nonexchange traded security does not trade on a
particular day, then the mean between the last quoted closing bid and asked
price will be used.
The
value of assets denominated in foreign currencies is converted into U.S. dollars
using exchange rates deemed appropriate by the Fund.
Redeemable
securities issued by open-end investment companies are valued at the investment
company’s applicable net asset value, with the exception of exchange-traded
open-end investment companies which are priced as equity securities.
If
a market price is not readily available or is deemed not to reflect market
value, the Fund will determine the price of the security held by the Fund based
on a determination of the security’s fair value pursuant to policies and
procedures approved by the Board.
To
the extent the Fund holds securities that may trade infrequently, fair valuation
may be used more frequently. Fair valuation may have the effect of reducing
stale pricing arbitrage opportunities presented by the pricing of Shares.
However, when the Fund uses fair valuation to price securities, it may value
those securities higher or lower than another fund would have priced the
security. Also, the use of fair valuation may cause the Shares’ NAV performance
to diverge from the Shares’ market price and from the performance of various
benchmarks used to compare the Fund’s performance because benchmarks generally
do not use fair valuation techniques. Because of the judgment involved in fair
valuation decisions, there can be no assurance that the value ascribed to a
particular security is accurate.
FUND
WEBSITE AND DISCLOSURE OF PORTFOLIO HOLDINGS
The
Trust maintains a website for the Fund at www.aotetf.com Among other things, the
website includes this Prospectus and the SAI, the Fund’s holdings, and the
Fund’s last annual and semi-annual reports. The website shows the Fund’s daily
NAV per share, market price, and premium or discount, each as of the prior
business day. The website also shows the extent and frequency of the Fund’s
premiums and discounts. Further, the website includes the Fund’s median bid-ask
spread over the most recent thirty calendar days.
Each
day the Fund is open for business, the Trust publicly disseminates the Fund’s
full portfolio holdings as of the close of the previous day through its website
at www.aotetf.com. A description of the Trust’s policies and procedures with
respect to the disclosure of the Fund’s portfolio holdings is available in the
Fund’s SAI.
INVESTMENTS
BY OTHER INVESTMENT COMPANIES
For
purposes of the Investment Company Act, Shares are issued by a registered
investment company and purchases of such Shares by registered investment
companies and companies relying on Section 3(c)(1) or 3(c)(7) of the Investment
Company Act are subject to the restrictions set forth in Section 12(d)(1) of the
Investment Company Act, except as permitted by Rule 6c-11, Rule 12d1-4, or an
exemptive order of the SEC.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
As
with any investment, you should consider how your investment in Shares will be
taxed. The tax information in this Prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in Shares.
Unless
your investment in Shares is made through a tax-exempt entity or tax-deferred
retirement account, such as an IRA, you need to be aware of the possible tax
consequences when:
•Your
Fund makes distributions,
•You
sell your Shares listed on the Exchange, and
•You
purchase or redeem Creation Units.
Dividends
and Distributions
Dividends
and Distributions.
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Internal Revenue Code of 1986, as
amended. As a regulated investment company, the Fund generally pays no U.S.
federal income tax on the income and gains it distributes to you. The Fund
expects to declare and to distribute its net investment income, if any, to
shareholders as dividends annually. The Fund will distribute net realized
capital gains, if any, at least annually. The Fund may distribute such income
dividends and capital gains more frequently, if necessary, in order to reduce or
eliminate U.S. federal excise or income taxes on the Fund. The amount of any
distribution will vary, and there is no guarantee the Fund will pay either an
income dividend or a capital gains distribution. Distributions may be reinvested
automatically in additional whole Shares only if the broker through whom you
purchased Shares makes such option available.
Avoid
“Buying a Dividend.”
At the time you purchase Shares of the Fund, the Fund’s NAV may reflect
undistributed income, undistributed capital gains, or net unrealized
appreciation in value of portfolio securities held by the Fund. For taxable
investors, a subsequent distribution to you of such amounts, although
constituting a return of your investment, would be taxable. Buying Shares in the
Fund just before it declares an income dividend or capital gains distribution is
sometimes known as “buying a dividend.”
Taxes
Tax
Considerations.
The Fund expects, based on its investment objective and strategies, that its
distributions, if any, will be taxable as ordinary income, capital gains, or
some combination of both. This is true whether you reinvest your distributions
in additional Shares or receive them in cash. For U.S. federal income tax
purposes, Fund distributions of short-term capital gains are taxable to you as
ordinary income. Fund distributions of long-term capital gains are taxable to
you as long-term capital gain no matter how long you have owned your Shares. A
portion of income dividends reported by the Fund may be qualified dividend
income eligible for taxation by certain shareholders at long-term capital gain
rates provided certain holding period requirements are met.
Taxes
on Sales of Shares.
A sale or exchange of Shares is a taxable event and, accordingly, a capital gain
or loss will generally be recognized. Currently, any capital gain or loss
realized upon a sale of Shares generally is treated as long-term capital gain or
loss if the Shares have been held for more than one year and as short-term
capital gain or loss if the Shares have been held for one year or less. The
ability to deduct capital losses may be limited.
Medicare
Tax.
An additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital gain distributions received from the
Fund and net gains from redemptions or other taxable dispositions of Shares) of
U.S. individuals, estates, and trusts to the extent that such person’s “modified
adjusted gross income” (in the case of an individual) or “adjusted gross income”
(in the case of an estate or trust) exceeds a threshold amount. This Medicare
tax, if applicable, is reported by you on, and paid with, your U.S. federal
income tax return.
Backup
Withholding.
By law, if you do not provide the Fund with your proper taxpayer identification
number and certain required certifications, you may be subject to backup
withholding on any distributions of income, capital gains or proceeds from the
sale of your Shares. The Fund also must backup withhold if the Internal Revenue
Service (“IRS”) instructs it to do so. When backup withholding is required, the
amount will be 24% of any distributions or proceeds paid.
State
and Local Taxes.
Fund distributions and gains from the sale or exchange of your Shares generally
are subject to applicable state and local taxes.
Taxes
on Purchase and Redemption of Creation Units.
An AP who exchanges equity securities for Creation Units generally will
recognize a gain or a loss. The gain or loss will be equal to the difference
between the market value of the Creation Units at the time of purchase and the
exchanger’s aggregate basis in the securities surrendered and the cash amount
paid. A person who exchanges Creation Units for equity securities generally will
recognize a gain or loss equal to the difference between the exchanger’s basis
in the Creation Units and the aggregate market value of the securities received
and the cash amount received. The IRS, however, may assert that a loss realized
upon an exchange of securities for Creation Units cannot be deducted currently
under the rules governing “wash sales,” or on
the
basis that there has been no significant change in economic position. Persons
exchanging securities should consult their own tax advisor with respect to
whether the wash sale rules apply and when a loss might not be
deductible.
Under
current U.S. federal tax laws, any capital gain or loss realized upon redemption
of Creation Units is generally treated as long-term capital gain or loss if the
Shares have been held for more than one year and as a short-term capital gain or
loss if the Shares have been held for one year or less.
If
the Fund redeems Creation Units in cash, it may recognize more capital gains
than it will if it redeems Creation Units in-kind.
Non-U.S.
Investors.
Non-U.S. investors may be subject to U.S. federal withholding tax at a 30% or
lower treaty rate and are subject to special U.S. federal tax certification
requirements to avoid backup withholding and claim any treaty benefits. An
exemption from U.S. federal withholding tax is provided for capital gain
dividends paid by the Fund from long-term capital gains, if any. However,
interest-related dividends paid by the Fund from its qualified net interest
income from U.S. sources and short-term capital gain dividends may be exempt
from U.S. withholding provided the Fund makes certain designations and other
requirements are met. Furthermore, notwithstanding such exemptions from U.S.
federal withholding at the source, any such dividends and distributions of
income and capital gains will be subject to U.S. federal backup withholding at a
rate of 24% if you fail to properly certify that you are not a U.S. person. In
addition, U.S. estate tax may apply to Shares of the Fund.
Other
Reporting and Withholding Requirements.
Under the Foreign Account Tax Compliance Act (FATCA), the Fund will be required
to withhold a 30% tax on (i) income dividends paid by the Fund, and (ii)
possibly in the future, certain capital gain distributions and the proceeds
arising from the sale of Shares paid by the Fund, to certain foreign entities,
referred to as foreign financial institutions or non-financial foreign entities,
that fail to comply (or be deemed compliant) with extensive reporting and
withholding requirements designed to inform the U.S. Department of the Treasury
of U.S.-owned foreign investment accounts. The Fund may disclose the information
that it receives from its shareholders to the IRS, non-U.S. taxing authorities
or other parties as necessary to comply with FATCA. Withholding also may be
required if a foreign entity that is a shareholder of the Fund fails to provide
the Fund with appropriate certifications or other documentation concerning its
status under FATCA.
Possible
Tax Law Changes.
At the time that this prospectus is being prepared, various administrative and
legislative changes to the U.S. federal tax laws are under consideration, but it
is not possible at this time to determine whether any of these changes will be
made or what the changes might entail.
This
discussion of “Dividends, Distributions and Taxes” is not intended or written to
be used as tax advice. Because everyone’s tax situation is unique, you should
consult your tax professional about U.S. federal, state, local or foreign tax
consequences before making an investment in the Fund.
FINANCIAL
HIGHLIGHTS
The
financial highlights table is intended to help you understand the Fund’s
financial performance for the period of the Fund’s operations. Certain
information reflects financial results for a single Share. The total returns in
the table represent the rate that an investor would have gained (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information in the table below has been audited by Tait,
Weller & Baker LLP, an independent registered public accounting firm, whose
report, along with the Fund’s financial statements, is included in the Fund’s
Form
N-CSR,
which is available upon request.
AOT
GROWTH AND INNOVATION ETF
FINANCIAL
HIGHLIGHTS
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| Net
Asset Value, Beginning of Period |
|
Net
Investment Income (Loss)(1) |
| Net
Realized and Unrealized Gain (Loss) on Investments |
| Net
Increase (Decrease) in Net Asset Value Resulting from Operations |
| Net
Asset Value, End of Period |
|
Total
Return(2) |
| Net
Assets, End of Period (000's) |
|
Net
Expenses
(3)(4)(7) |
|
Gross
Expenses
(3)(4)(7) |
|
Net
Investment Income (Loss)(3) |
|
Portfolio
Turnover Rate(5) |
| For
the Year Ended May 31, 2024 |
| $29.50 |
| (0.18) |
| 7.79 |
| 7.61 |
| $37.11 |
| 25.80% |
| $35,997 |
| 0.75% |
| 0.75% |
| (0.55)% |
| 10% |
|
For
the Period June 28, 2022(6)
to
May
31, 2023 |
| $25.00 |
| (0.11) |
| 4.61 |
| 4.50 |
| $29.50 |
| 18.00% |
| $24,190 |
| 0.75% |
| N/A |
| (0.48)% |
| 9% |
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| (1)
Net investment income per share represents net investment income divided
by the daily average shares of beneficial interest outstanding throughout
the period. |
| (2)
All returns reflect reinvested dividends, if any, but do not reflect the
impact of taxes. Total return for a period of less than one year is not
annualized. |
| (3)
For periods of less than one year, these ratios are
annualized. |
| (4)
Net expenses include effects of any reimbursement or
recoupment. |
| (5)
For periods of less than one year portfolio turnover is not annualized and
is calculated without regard to short-term securities having a maturity of
less than one year. Excludes the impact of in-kind
transactions. |
| (6)
Commencement of operations. |
| (7)
Net and gross expenses do not include expenses of the investment companies
in which the Fund invests. |
If
you would like more information about the Fund and the Trust, the following
documents are available free, upon request:
ANNUAL/SEMI-ANNUAL
REPORTS TO SHAREHOLDERS
Additional
information about the Fund is in its annual and semi-annual reports to
shareholders and in Form N-CSR. The annual report explains the market conditions
and investment strategies affecting the Fund’s performance during the last
fiscal year. In Form N-CSR, you will find the Fund’s annual and semi-annual
financial statements.
STATEMENT
OF ADDITIONAL INFORMATION
The
SAI dated September 30, 2024, more details about the Fund, is incorporated
by reference in its entirety into this Prospectus, which means that it is
legally part of this Prospectus.
To
receive a free copy of the latest annual or semi-annual report, or the SAI, or
to request additional information about the Fund, please contact us as
follows:
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| Call: |
(215)
882-9983 |
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| |
| Write: |
19
East Eagle Road
Havertown, PA 19083 |
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| |
| Visit: |
www.aotetf.com |
INFORMATION
PROVIDED BY THE SECURITIES AND EXCHANGE COMMISSION
Reports
and other information about the Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
Investment
Company Act File No. 811-22961.
