ck0001742912-20211130
RPAR Risk Parity ETF
(RPAR)
Listed
on NYSE Arca, Inc.
PROSPECTUS
March 30,
2022
The
U.S. Securities and Exchange Commission (the “SEC”) has not approved or
disapproved of these securities or passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary is a criminal
offense.
TABLE
OF CONTENTS
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RPAR
Risk Parity ETF - Fund Summary |
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Additional
Information about the Fund |
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Portfolio
Holdings Information |
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Management |
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Fund
Sponsor |
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How
to Buy and Sell Shares |
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Dividends,
Distributions, and Taxes |
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Distribution |
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Premium/Discount
Information |
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Additional
Notices |
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Financial
Highlights |
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RPAR
Risk Parity ETF
- FUND
SUMMARY
Investment Objective
The RPAR Risk Parity ETF (the
“Fund”) seeks to generate positive returns during periods of economic growth,
preserve capital during periods of economic contraction, and preserve real rates
of return during periods of heightened inflation.
Fees and Expenses of the
Fund
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares of the Fund
(“Shares”). You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the table and Example
below.
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Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
0.50 |
% |
Distribution
and/or Service (12b-1) Fees |
0.00 |
% |
Other
Expenses |
0.00 |
% |
Acquired
Fund Fees and Expenses1 |
0.03 |
% |
Total
Annual Fund Operating Expenses |
0.53 |
% |
Less
Fee Waiver2 |
-0.02 |
% |
Total
Annual Fund Operating Expenses After Fee Waiver2 |
0.51 |
% |
1 Acquired Fund Fees and
Expenses (“AFFE”) are the indirect costs of investing in other investment
companies. Total Annual Fund
Operating Expenses do not correlate to the expense ratio in the Fund’s Financial
Highlights because the Financial Highlights include only the direct operating
expenses incurred by the Fund and excluse
AFFE.
2 The Fund’s investment
adviser, Toroso Investments, LLC (the “Adviser”), has contractually agreed to
reduce its unitary management fee (which includes all expenses incurred by the
Fund except for interest charges on any borrowings, dividends and other expenses
on securities sold short, taxes, brokerage commissions and other expenses
incurred in placing orders for the purchase and sale of securities and other
investment instruments, AFFE, accrued deferred tax liability, extraordinary
expenses, distribution fees and expenses paid by the Fund under any distribution
plan adopted pursuant to Rule 12b-1 under the 1940 Act, and the unified
management fee payable to the Adviser (collectively, the “Excluded Expenses”))
to 0.48% of the Fund’s average daily net assets through at least April 30,
2023. To the extent the Fund incurs Excluded Expenses, Total
Annual Fund Operating Expenses After Fee Waiver is greater than 0.48%. This fee
waiver agreement may be terminated only by, or with the consent of, the Board of
Trustees (the “Board”) of Tidal ETF Trust (the “Trust”), on behalf of the Fund,
upon sixty (60) days’ written notice to the Adviser. This fee waiver agreement
may not be terminated by the Adviser without the consent of the Board.
Expense Example
This 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 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. The management fee waiver discussed above is
reflected only through April 30, 2023. Although your actual costs may be higher
or lower, based on these assumptions your costs would
be:
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1
Year |
3
Years |
5
Years |
10
Years |
$52 |
$168 |
$294 |
$663 |
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may 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 total annual fund operating expenses or
in the expense example above, affect the Fund’s performance. For the fiscal year
ended November 30, 2021, the Fund’s portfolio turnover rate was 16% of the average value of its portfolio. Effective
December 29, 2021, the Fund changed its fiscal year end from November 30 to the
December 31. For the fiscal period December 1 to December 31, 2021, Fund’s
portfolio turnover rate was 1% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective primarily by investing across a variety of asset
classes, including exposure to global equity securities, U.S. Treasury
securities, and commodities. The Fund’s investment adviser seeks to invest the
Fund’s assets to achieve exposures similar to those of the Advanced Research
Risk Parity Index (the “RPAR Index”), a rules-based index created by Advanced
Research Investment Solutions, LLC (“ARIS”).
The
RPAR Index
The
RPAR Index allocates its exposure to the four asset classes described below
using a “risk-parity” approach that seeks to achieve an equal balance between
the risk associated with each asset class based on the long-term historic
volatility exhibited by each asset class. This means that lower risk asset
classes (such as U.S. Treasury Inflation Protected Securities (“TIPS”)) will
generally have higher notional allocations than higher risk asset classes (such
as global equities). The RPAR Index seeks long-term risk exposure and long-term
target allocations across asset classes as follows:
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Long-Term
Target Risk Allocation |
Long-Term
Target Asset Allocation |
Asset
Class |
Sub-Class |
25% |
35% |
TIPS |
Long-Term
TIPS (15+ years) |
25% |
25% |
Global
Equities |
U.S.
Equities |
Non-U.S.
Developed Markets Equities |
Emerging
Markets Equities |
25% |
25% |
Commodities |
Commodity
Producer Equities |
Gold |
25% |
15%* |
U.S.
Treasuries |
U.S.
Treasury Bills U.S. Treasury Futures |
*
This figure represents the RPAR Index’s allocation to U.S. Treasury bills which
serve as collateral for the RPAR Index’s allocation to U.S. Treasury futures.
Total notional exposure to the U.S. Treasuries asset class will exceed 15% due
to the RPAR Index’s allocation to 10-year U.S. Treasury note futures and Ultra
U.S. Treasury Bond futures.
The
RPAR Index is rebalanced quarterly.
In
seeking to obtain exposures comparable to those of the RPAR Index, the Fund may
invest in a combination of (i) U.S. Treasury securities (including TIPS), (ii)
U.S. Treasury futures contracts, (iii) ETFs that track a broad-based index of
equity securities for one or more asset classes (or sub-classes), (iv)
individual equity securities or depositary receipts, such as American Depositary
Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”), representing an
interest in foreign equity securities, and (v) other exchange-listed vehicles
issuing equity securities (“ETVs”) (including ETFs, exchange-traded notes
(“ETNs”) and exchange-listed trusts).
TIPS
are marketable securities whose principal is adjusted based on changes in the
Consumer Price Index (“CPI”). With inflation (an increase in the CPI), the
principal increases, and with deflation (a decrease in the CPI), the principal
decreases. The relationship between TIPS and the CPI affects both the principal
amount paid when a TIPS instrument matures and the amount of interest that a
TIPS instrument pays semi-annually. When a TIPS instrument matures, the
principal paid is the greater of the CPI-adjusted principal or the original
principal. TIPS pay interest at a fixed rate. However, because the fixed rate is
applied to the CPI-adjusted principal, interest payments can vary in amount from
one period to the next. If inflation occurs, the interest payment increases. In
the event of deflation, the interest payment decreases. The Fund may purchase
TIPS of any maturity.
The
Fund will invest directly in U.S. Treasury securities or directly or indirectly
in futures contracts to gain long exposure to U.S. Treasury bonds.
The
ETFs in which the Fund invests will typically be index-based ETFs that track a
broad-based index that principally invests in equity securities of one or more
asset classes set forth above (e.g., U.S. equities, non-U.S. developed market
equities, emerging market equities, or gold as described below). Such ETFs will
typically have net assets of at least $100 million and have aggregate volume
over the last 90 days of at least 100,000 shares traded. The Fund may
invest in ETFs to obtain exposure to the equity securities of commodity
producers including in the energy (including clean energy), industrial metals,
agriculture and water sectors.
An
ETV allows the Fund to indirectly obtain exposure to an underlying asset class
such as futures contracts and commodities without directly trading futures or
taking physical delivery of the underlying commodity. For example, the Fund may
obtain exposure to gold by investing in an ETV that owns gold, rather than the
Fund directly holding gold.
In
addition to achieving exposure to the global equities asset class indirectly
through ETFs, the Fund may also invest directly in equity securities. The equity
securities that may comprise the Fund’s equity positions include, but are not
limited to, U.S.-listed common and preferred stock of domestic and foreign
companies, including those in developed and emerging markets, real estate
investment trusts (“REITs”), and ADRs. Such securities may be issued by small-,
mid-, or large-capitalization companies. ADRs are securities traded on a U.S.
stock exchange that represent interests in securities issued by a foreign
publicly listed company.
Under
normal market conditions, the Fund’s investment adviser will typically buy or
sell investments to reflect the quarterly rebalance of the RPAR Index, rather
than based on an individual determination of which investments are most
attractive at a given time.
Principal Risks of Investing in the
Fund
The
principal risks of investing in the Fund are summarized below.
The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which they appear. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s NAV per share, trading price,
yield, total return and/or ability to meet its investment objective. For more
information about the risks of investing in the Fund, see the section in the
Fund’s Prospectus titled “Additional Information About the Fund—Principal Risks
of Investing in the Fund.”
Agriculture
Risk. Companies
in the agriculture industry are subject to risks such as adverse weather
conditions, embargoes, tariffs, and adverse international economic, political
and regulatory developments.
Capital
Controls and Sanctions Risk. Economic
conditions, such as volatile currency exchange rates and interest rates,
political events, military action and other conditions may, without prior
warning, lead to foreign government intervention (including intervention by the
U.S. government with respect to foreign governments, economic sectors, foreign
companies and related securities and interests) and the imposition of capital
controls and/or sanctions, which may also include retaliatory actions of one
government against another government, such as seizure of assets. Capital
controls and/or sanctions include the prohibition of, or restrictions on, the
ability to transfer currency, securities or other assets. Capital controls
and/or sanctions may also impact the ability of the Fund to buy, sell or
otherwise transfer securities or currency, negatively impact the value and/or
liquidity of such instruments, adversely affect the trading market and price for
Shares of the Fund, and cause the Fund to decline in value.
Commodities
Risk. The
Fund’s exposure to investments in physical commodities subjects the Fund to
greater volatility than investments in traditional securities, such as stocks
and bonds. The commodities markets may fluctuate rapidly based on a variety of
factors, including overall market movements; economic events and policies;
changes in interest rates or inflation rates; changes in monetary and exchange
control programs; war; acts of terrorism; natural disasters; and technological
developments. Variables such as disease, drought, floods, weather, trade,
embargoes, tariffs, and other political events, in particular, may have a larger
impact on commodity prices than on traditional securities. The prices of
commodities can also fluctuate widely due to supply and demand disruptions in
major producing or consuming regions. Because certain commodities may be
produced in a limited number of countries and may be controlled by a small
number of producers, political, economic, and supply-related events in such
countries could have a disproportionate impact on the prices of such
commodities. These factors may affect the value of the Fund in varying ways, and
different factors may cause the value and the volatility of the Fund to move in
inconsistent directions at inconsistent rates. The current or “spot” prices of
physical commodities may also affect, in a volatile and inconsistent manner, the
prices of futures contracts in respect of the relevant commodity.
Credit
Risk.
Credit
risk is the risk that an issuer or guarantor of debt instruments, such as the
U.S. Government its agencies or instrumentalities with respect to U.S.
government obligations, will be unable or unwilling to make its timely interest
and/or principal payments or to otherwise honor its obligations. Please see
“Government Obligations Risks,” below, for risks specific to investing in
securities issued by the U.S. government or its agencies or instrumentalities.
Debt instruments such as U.S. Treasuries and TIPS are subject to varying degrees
of credit risk, which may be reflected in their credit ratings. There is the
chance that the Fund’s portfolio holdings will have their credit ratings
downgraded or will default (i.e., fail to make scheduled interest or principal
payments), potentially reducing the Fund’s income level or share
price.
Currency
Exchange Rate Risk. The
Fund invests, directly or indirectly, in investments denominated in non-U.S.
currencies or in securities that provide exposure to such currencies. Changes in
currency exchange rates and the relative value of non-U.S. currencies will
affect the value of the Fund’s investments and the value of your Shares.
Currency exchange rates can be very volatile and can change quickly and
unpredictably. As a result, the value of an investment in the Fund may change
quickly and without warning, and you may lose money.
Depositary
Receipt Risk.
Depositary receipts involve risks similar to those associated with investments
in foreign securities and certain additional risks. Depositary receipts listed
on U.S. or foreign exchanges are issued by banks or trust companies, and entitle
the holder to all dividends and capital gains that are paid out on the
underlying foreign shares (“Underlying Shares”). When the Fund invests in
depositary receipts as a substitute for an investment directly in the Underlying
Shares, the Fund is exposed to the risk that the depositary receipts may not
provide a return that corresponds precisely with that of the Underlying
Shares.
Derivatives
Risk. The
Fund’s derivative investments have risks, including the imperfect correlation
between the value of such instruments and the underlying assets or index; the
loss of principal, including the potential loss of amounts greater than the
initial amount invested in the derivative instrument; the possible default of
the other party to the transaction; and illiquidity of the derivative
investments. If a counterparty becomes bankrupt or otherwise fails to perform
its obligations under a derivative contract due to financial difficulties, the
Fund may experience significant delays in obtaining any recovery under the
derivative contract in a bankruptcy or other reorganization proceeding. The
derivatives used by the Fund may give rise to a form of leverage. Leverage
magnifies the potential for gain and the risk of loss. Certain of the Fund’s
transactions in derivatives could also affect the amount, timing, and character
of distributions to shareholders, which may result in the Fund realizing more
short-term capital gain and ordinary income subject to tax at ordinary income
tax rates than it would if it did not engage in such transactions, which may
adversely impact the Fund’s after-tax returns.
Emerging
Markets Risk. The
Fund may invest in securities issued by companies domiciled or headquartered in
emerging market nations. Investments in securities traded in developing or
emerging markets, or that provide exposure to such securities or markets, can
involve additional risks relating to political, economic, currency, or
regulatory conditions not associated with investments in U.S. securities and
investments in more developed international markets. Such conditions may impact
the ability of the Fund to buy, sell, or otherwise transfer securities,
adversely affect the trading market and price for Shares and cause the Fund to
decline in value.
Energy
Producers Industry Risk. Companies
in the energy producing industry are subject to risks associated with companies
owning and/or operating pipelines, gathering and processing assets, power
infrastructure, propane assets, as well as capital markets, terrorism, natural
disasters, climate change, operating, regulatory, environmental, supply and
demand, and price volatility risks. The volatility of energy commodity prices
can significantly affect energy companies due to the impact of prices on the
volume of commodities developed, produced, gathered, and processed.
Historically, energy commodity prices have been cyclical and exhibited
significant volatility, which may adversely impact the value, operations, cash
flows, and financial performance of energy companies.
Equity
Market Risk. The
Fund will invest in common stocks directly or indirectly through ETFs. Common
stocks are generally exposed to greater risk than other types of securities,
such as preferred stock and debt obligations, because common stockholders
generally have inferior rights to receive payment from specific
issuers.
The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests. Common
stocks, such as those held by the Fund, are generally exposed to greater risk
than other types of securities, such as preferred stock and debt obligations,
because common stockholders generally have inferior rights to receive payment
from issuers. Securities in the Fund’s portfolio may underperform in comparison
to securities in the general financial markets, a particular financial market,
or other asset classes, due to a number of factors, including inflation (or
expectations for inflation), interest rates, global demand for particular
products or resources, natural disasters or events, pandemic diseases,
terrorism, regulatory events, or government controls.
ETF
Risk.
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration Risk.
The
Fund has a limited number of financial institutions that are authorized to
purchase and redeem Shares directly from the Fund (known as “Authorized
Participants” or “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.
◦Cash
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. For example, the Fund
may not be able to redeem in-kind certain securities held by the Fund (e.g.,
derivative instruments). In such a case, the Fund may be required to sell or
unwind portfolio investments to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize a capital gain that it might not
have recognized if it had made a redemption in-kind. As a result, the Fund may
pay out higher annual capital gain distributions than if the in-kind redemption
process was used.
◦Costs
of Buying or Selling Shares. Due
to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums and discounts greater than those of ETFs holding only domestic
securities.
◦Trading.
Although Shares are listed on a national securities exchange, such as NYSE Arca,
Inc. (the “Exchange”), and may be traded on U.S. exchanges other than the
Exchange, there can be no assurance that Shares will trade with any volume, or
at all, on any stock exchange. 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.
ETV
Risk. The
Fund may invest in ETFs, ETNs and exchange-listed trusts. Please see “ETF
Risks,” above, for risks specific to investing in ETFs. The risks of owning
interests of an ETV generally reflect the same risks as owning the underlying
securities or other instruments that the ETV is designed to track and which are
disclosed elsewhere in this Prospectus. The shares of certain ETVs may trade at
a premium or discount to their intrinsic value (i.e., the market value may
differ from the NAV of an ETV’s shares). For example, the value of an ETV may
drop due to a downgrade in the issuer’s credit rating. By investing in an
ETV, the Fund indirectly bears the proportionate share of any fees and expenses
of the ETV in addition to the Fund’s direct fees and expenses. Additionally,
trading in an ETV may be halted by the exchange on which it trades.
◦Exchange-Listed
Trust Risk. Exchange-listed
trusts are not registered as investment companies under the 1940 Act.
Consequently, an investment in an exchange-listed trust will not have the
regulatory protections provided to investors in registered investment companies.
Some exchange-listed trusts may qualify as “emerging growth companies” and
therefore may be subject to reduced public reporting requirements. Under certain
circumstances, the exchange on which an exchange-listed trust trades may halt
trading in the exchange-listed trust.
◦ETN
Risk. The
Fund may invest in ETNs. 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 securities’ markets, changes in the applicable
interest rates, changes in the issuer’s credit rating and economic, legal,
political or geographic events that affect the referenced index. In addition,
the notes issued by ETNs and held by the Fund are unsecured debt of the
issuer.
Foreign
Securities Risk. Investments
in securities or other instruments of non-U.S. issuers involve certain risks not
involved in domestic investments and may experience more rapid and extreme
changes in value than investments in securities of U.S. companies. Financial
markets in foreign countries often are not as developed, efficient, or liquid as
financial markets in the United States, and therefore, the prices of non-U.S.
securities and instruments can be more volatile. In addition, the Fund will be
subject to risks associated with adverse political and economic developments in
foreign countries, which may include the imposition of economic sanctions.
Generally, there is less readily available and reliable information about
non-U.S. issuers due to less rigorous disclosure or accounting standards and
regulatory practices.
Futures
Contracts Risk.
A futures contract is a standardized agreement to buy or sell a specific
quantity of an underlying instrument at a specific price at a specific future
time. A decision as to whether, when, and how to use futures involves the
exercise of skill and judgment and even a well-conceived futures transaction may
be unsuccessful because of market behavior
or
unexpected events. In addition to the risks associated with all derivatives, the
prices of futures can be highly volatile, using futures can lower total return,
and the potential loss from futures can exceed the Fund’s initial investment in
such contracts.
Gold
Risk. The
prices of precious metals, such as gold, rise and fall in response to many
factors, including: economic cycles; changes in inflation or expectations about
inflation in various countries; interest rates; currency fluctuations; metal
sales by governments, central banks, or international agencies; investment
speculation; resource availability; fluctuations in industrial and commercial
supply and demand; government regulation of the metals and materials industries;
and government prohibitions or restrictions on the private ownership of certain
precious and rare metals.
Government
Obligations Risk. The
Fund may invest in securities issued by the U.S. government or its agencies or
instrumentalities such as U.S. Treasury securities. There can be no guarantee
that the United States will be able to meet its payment obligations with respect
to such securities. Additionally, market prices and yields of securities
supported by the full faith and credit of the U.S. government or other countries
may decline or be negative for short or long periods of time.
Illiquid
Investments Risk.
The
Fund may, at times, hold illiquid investments, by virtue of the absence of a
readily available market for certain of its investments, or because of legal or
contractual restrictions on sales. The Fund could lose money if it is unable to
dispose of an investment at a time or price that is most beneficial to the
Fund.
Interest
Rate Risk.
Generally,
the value of fixed income securities will change inversely with changes in
interest rates. As interest rates rise, the market value of fixed income
securities tends to decrease. Conversely, as interest rates fall, the market
value of fixed income securities tends to increase. This risk will be greater
for long-term securities than for short-term securities. Changes in government
intervention may have adverse effects on investments, volatility, and
illiquidity in debt markets.
Leverage
Risk. Using
derivatives such as futures to increase the Fund's combined long and short
exposure creates leverage, which can magnify the Fund's potential for gain or
loss and, therefore, amplify the effects of market volatility on the Fund's
share price.
Management
Risk. The
Fund is actively-managed and may not meet its investment objective based on the
Adviser’s success or failure to implement investment strategies for the Fund.
Market
Capitalization Risk.
◦Large-Capitalization
Investing. The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing. The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large-capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies.
Market
Risk.
The trading prices of securities and other instruments fluctuate in response to
a variety of factors. Turbulence in financial markets and reduced liquidity in
equity, credit and fixed income markets may negatively affect many issuers
worldwide, which could have an adverse effect on the Fund. The Fund’s NAV and
market price may fluctuate significantly in response to these and other factors.
As a result, an investor could lose money over short or long periods of
time.
Maturity
Risk.
Debt securities with a longer maturity, including U.S. Treasuries and TIPS, may
fluctuate in value more than one with a shorter maturity.
Mining
and Metal Industry Risk. Mining
and metal companies can be significantly affected by international political and
economic developments, energy conservation, the success of exploration projects,
commodity prices, taxes and government regulations. Investments in mining and
metal industry companies may be speculative and subject to greater price
volatility than investments in other types of companies. Increased environmental
or labor costs may depress the value of mining and metal investments. In
addition, changes in international monetary policies or economic and political
conditions can affect the
supply
of gold and precious metals, and consequently the value of mining and metal
company investments. Further, the principal supplies of metal industries may be
concentrated in a small number of countries and regions.
Non-Diversification
Risk.
The Fund is considered to be non-diversified,
which means that it may invest more of its assets in the securities of a single
issuer or a smaller number of issuers than if it were a diversified fund. As a
result, the Fund may be more exposed to the risks associated with and
developments affecting an individual issuer or a smaller number of issuers than
a fund that invests more widely. This may increase the Fund’s volatility and
cause the performance of a relatively smaller number of issuers to have a
greater impact on the Fund’s performance.
Other
Investment Companies Risk. The
Fund will incur higher and duplicative expenses when it invests in ETFs and
other investment companies. By investing in another investment company, the Fund
becomes a shareholder of that investment company and bears its proportionate
share of the fees and expenses of the other investment company. There is also
the risk that the Fund may suffer losses due to the investment practices of the
underlying funds as the Fund will be subject to substantially the same risks as
those associated with the direct ownership of securities held by such investment
companies. The Fund may be subject to statutory limits with respect to the
amount it can invest in other ETFs, which may adversely affect the Fund’s
ability to achieve its investment objective. ETFs may be less liquid than other
investments, and thus their share values more volatile than the values of the
investments they hold. Investments in ETFs are also subject to the “ETF Risks”
described above.
Recent
Market Events Risk.
U.S. and international markets have experienced significant periods of
volatility in recent years and months due to a number of economic, political and
global macro factors including the impact of COVID-19 as a global pandemic,
which has resulted in a public health crisis, disruptions to business operations
and supply chains, stress on the global healthcare system, growth concerns in
the U.S. and overseas, staffing shortages and the inability to meet consumer
demand, and widespread concern and uncertainty. The global recovery from
COVID-19 is proceeding at slower than expected rates due to the emergence of
variant strains and may last for an extended period of time. Continuing
uncertainties regarding interest rates, rising inflation, political events,
rising government debt in the U.S. and trade tensions also contribute to market
volatility. As a result of continuing political tensions and armed conflicts,
including the war between Ukraine and Russia, the U.S. and the European Union
imposed sanctions on certain Russian individuals and companies, including
certain financial institutions, and have limited certain exports and imports to
and from Russia. The war has contributed to recent market volatility and may
continue to do so.
REIT
Investment Risk.
Investments in REITs involve unique risks. REITs may have limited financial
resources, may trade less frequently and in limited volume, and may be more
volatile than other securities. REITs may be affected by changes in the value of
their underlying properties or mortgages or by defaults by their borrowers or
tenants. Furthermore, these entities depend upon specialized management skills,
have limited diversification and are, therefore, subject to risks inherent in
financing a limited number of projects. In addition, the performance of a REIT
may be affected by changes in the tax laws or by its failure to qualify for
tax-free pass-through of income.
Tax
Risk.
To qualify for the favorable U.S. federal income tax treatment accorded to
regulated investment companies (“RICs”), the Fund must derive at least 90% of
its gross income in each taxable year from certain categories of income
(“qualifying income”) and must satisfy certain asset diversification
requirements. Certain of the Fund’s investments may generate income that is not
qualifying income. If the Fund were to fail to meet the qualifying income test
or the asset diversification requirements and fail to qualify as a RIC, 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.
TIPS
Risk. Interest
payments on TIPS are unpredictable and will fluctuate as the principal and
corresponding interest payments are adjusted for inflation. There can be no
assurance that the CPI will accurately measure the real rate of inflation in the
prices of goods and services. Any increases in the principal amount of TIPS will
be considered taxable ordinary income, even though the Fund or applicable
underlying ETF will not receive the principal until maturity. As a result, the
Fund may make income distributions to shareholders that exceed the cash it
receives. In addition, TIPS are subject to credit risk, interest rate
risk, and maturity risk.
Water
Industry Risk.
The water industry can be significantly affected by economic trends or other
conditions or developments, such as the availability of water, the level of
rainfall and occurrence of other climatic events, changes in water consumption,
new technologies relating to the supply of water, and water conservation. The
industry can also be significantly affected by environmental considerations,
taxation, government regulation (including the increased cost of compliance),
inflation, increases in interest rates, price and supply fluctuations, increases
in the cost of raw materials and other operating costs, technological advances,
and competition from new market entrants.
Performance
The following performance
information provides some indication of the risks of investing in the Fund by
showing changes in the Fund’s performance from year to year. The bar chart shows
the Fund’s performance for the calendar years ended December 31, 2020 and 2021.
The table
illustrates how the Fund’s average annual returns for the 1-year and since
inception periods compare with those of a broad measure of market performance
(S&P 500 Total Return Index), a blended index, and the RPAR
Index. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.rparetf.com/rpar.
Calendar Year Ended December
31,
During the period of time shown
in the bar chart, the Fund’s highest quarterly return
was 11.03% for the quarter ended June 30, 2020 and the
lowest quarterly return was
-5.07% for the quarter ended March 31,
2020.
Average
Annual Total Returns
For
the Periods Ended December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Year |
|
Since
Inception
(12/12/2019) |
Return Before
Taxes |
7.78% |
|
13.42% |
Return After Taxes on
Distributions |
7.08% |
|
12.91% |
Return After Taxes on Distributions and
Sale of Fund Shares |
4.78% |
|
10.25% |
S&P
500 Total Return Index (reflects no deduction for
fees, expenses, or taxes) |
28.71% |
|
24.00% |
60%
S&P 500 Index / 40% Bloomberg U.S. Aggregate Bond Index 1
(reflects
no deduction for fees, expenses, or taxes) |
15.86% |
|
15.63% |
Advanced
Research Risk Parity Index
(reflects
no deduction for fees, expenses, or taxes) |
9.34% |
|
15.69% |
1
The blended index is 60%
S&P 500 Index (stocks) and 40% Bloomberg U.S. Aggregate Bond Index
(bonds).
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts.
Management
Investment
Adviser:
Toroso Investments, LLC (“Toroso” or the “Adviser”) serves as investment adviser
to the Fund.
Portfolio
Managers:
Michael
Venuto, Chief Investment Officer for the Adviser, is responsible for the
day-to-day management of the Fund and has been a portfolio manager of the Fund
since its inception in December 2019.
Charles
A. Ragauss, CFA, Portfolio Manager for the Adviser, is responsible for the
day-to-day management of the Fund and has been a portfolio manager of the Fund
since its inception in December 2019.
Purchase
and Sale of 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. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities (the “Deposit Securities”) and/or a designated amount of U.S.
cash.
Shares
are listed on a national securities exchange, such as the Exchange, and
individual Shares may only be bought and sold in the secondary market through
brokers at market prices, rather than NAV. Because Shares trade at market prices
rather than NAV, Shares may trade at a price greater than NAV (premium) or less
than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. This difference in bid and ask
prices is often referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.rparetf.com/rpar
Tax
Information
Fund
distributions are generally taxable to shareholders as ordinary income,
qualified dividend income, qualified REIT dividend income, or capital gains (or
a combination), unless an investment is in an IRA or other tax-advantaged
account. Distributions on investments made through tax-deferred arrangements may
be taxed later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
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, educational training, or other initiatives
related to the sale or promotion of Shares. These payments may create a conflict
of interest by influencing the Intermediary and your salesperson to recommend
the Fund over another investment. Any such arrangements do not result in
increased Fund expenses. Ask your salesperson or visit the Intermediary’s
website for more information.
ADDITIONAL
INFORMATION ABOUT THE FUND
Investment
Objective
The
Fund seeks to generate positive returns during periods of economic growth,
preserve capital during periods of economic contraction, and preserve real rates
of return during periods of heightened inflation.
An
investment objective is fundamental if it cannot be changed without the consent
of the holders of a majority of the outstanding Shares. The Fund’s investment
objective has not been adopted as a fundamental investment policy and therefore
may be changed without the consent of the Fund’s shareholders upon approval by
the Board and 60 days’ written notice to shareholders.
Principal
Investment Strategies
The
following information is in addition to, and should be read along with, the
description of the Fund’s principal investment strategies in the section titled
“Fund Summary-Principal Investment Strategies” above.
Temporary
Defensive Strategies. For
temporary defensive purposes during adverse market, economic, political, or
other conditions, the Fund may invest in cash or cash equivalents or short-term
instruments such as commercial paper, money market mutual funds, or short-term
U.S. government securities. Taking a temporary defensive position may result in
the Fund not achieving its investment objective.
Manager
of Managers Structure
Although
the Fund is not currently sub-advised, the Fund and the Adviser have received
exemptive relief from the SEC permitting the Adviser (subject to certain
conditions and the approval of the Board) to change or select new unaffiliated
sub-advisers without obtaining shareholder approval. The relief also permits the
Adviser to materially amend the terms of agreements with an unaffiliated
sub-adviser (including an increase in the fee paid by the Adviser to the
unaffiliated sub-adviser (and not paid by the Fund)) or to continue the
employment of an unaffiliated sub-adviser after an event that would otherwise
cause the automatic termination of services with Board approval, but without
shareholder approval. Shareholders will be notified of any unaffiliated
sub-adviser changes. The Adviser has the ultimate responsibility, subject to
oversight by the Board, to oversee a sub-adviser and recommend their hiring,
termination and replacement.
Principal
Risks of Investing in the Fund
The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any investment, there is a
risk that you could lose all or a portion of your investment in the Fund. Some
or all of these risks may adversely affect the Fund’s NAV per share, trading
price, yield, total return and/or ability to meet its investment objective. The
following risks could affect the value of your performance in the
Fund:
Agriculture
Risk. Companies
in the agriculture industry are subject to risks such as adverse weather
conditions, embargoes, tariffs, and adverse international economic, political
and regulatory developments. Agriculture prices can be more volatile than prices
of other types of investments and can be affected by a wide range of factors,
including changes in overall
market
movements, speculative activity of other investors, real or perceived
inflationary trends, economic or other sanctions, international regulatory,
political, and economic developments (for example, regime changes and changes in
economic activity levels), and developments affecting a particular sector,
industry, or commodity, such as drought, floods, or other weather conditions,
livestock disease, trade embargoes, competition from substitute products,
transportation bottlenecks or shortages, fluctuations in supply and demand,
tariffs and international economic, political and regulatory developments.
Capital
Controls and Sanctions Risk. Economic
conditions, such as volatile currency exchange rates and interest rates,
political events, military action and other conditions may, without prior
warning, lead to foreign government intervention (including intervention by the
U.S. government with respect to foreign governments, economic sectors, foreign
companies and related securities and interests) and the imposition of capital
controls and/or sanctions, which may also include retaliatory actions of one
government against another government, such as seizure of assets. Capital
controls and/or sanctions include the prohibition of, or restrictions on, the
ability to transfer currency, securities or other assets. Capital controls
and/or sanctions may also impact the ability of the Fund to buy, sell or
otherwise transfer securities or currency, negatively impact the value and/or
liquidity of such instruments, adversely affect the trading market and price for
Shares of the Fund, and cause the Fund to decline in value.
Commodities
Risk. The
Fund’s exposure to investments in physical commodities subjects the Fund to
greater volatility than investments in traditional securities, such as stocks
and bonds. The commodities markets may fluctuate rapidly based on a variety of
factors, including overall market movements; economic events and policies;
changes in interest rates or inflation
rates;
changes in monetary and exchange control programs; war; acts of terrorism;
natural disasters; and technological developments. Variables such as disease,
drought, floods, weather, trade, embargoes, tariffs, and other political events,
in particular, may have a larger impact on commodity prices than on traditional
securities. The prices of commodities can also fluctuate widely due to supply
and demand disruptions in major producing or consuming regions. Because certain
commodities may be produced in a limited number of countries and may be
controlled by a small number of producers, political, economic, and
supply-related events in such countries could have a disproportionate impact on
the prices of such commodities. These factors may affect the value of the Fund
in varying ways, and different factors may cause the value and the volatility of
the Fund to move in inconsistent directions at inconsistent rates. The current
or “spot” prices of physical commodities may also affect, in a volatile and
inconsistent manner, the prices of futures contracts in respect of the relevant
commodity.
Credit
Risk.
Credit risk is the risk that an issuer or guarantor of debt instruments, such as
the U.S. Government or its agencies or instrumentalities with respect to U.S.
government obligations, will be unable or unwilling to make its timely interest
and/or principal payments or to otherwise honor its obligations. Please see
“Government Obligations Risks,” below, for risks specific to investing in
securities issued by the U.S. government or its agencies or instrumentalities.
Debt instruments such as U.S. Treasuries and TIPS are subject to varying degrees
of credit risk, which may be reflected in their credit ratings. There is the
chance that the Fund’s portfolio holdings will have their credit ratings
downgraded or will default (i.e., fail to make scheduled interest or principal
payments), potentially reducing the Fund’s income level or share
price.
Currency
Exchange Rate Risk. The
Fund invests, directly or indirectly, in investments denominated in non-U.S.
currencies or in securities that provide exposure to such currencies. Changes in
currency exchange rates and the relative value of non-U.S. currencies will
affect the value of the Fund’s investments and the value of your Shares. Because
the Fund’s NAV is determined on the basis of U.S. dollars, the U.S. dollar value
of your investment in the Fund may go down if the value of the local currency of
the non-U.S. markets in which the Fund invests depreciates against the U.S.
dollar. This is true even if the local currency value of securities in the
Fund’s holdings goes up. Conversely, the dollar value of your investment in the
Fund may go up if the value of the local currency appreciates against the U.S.
dollar. The value of the U.S. dollar measured against other currencies is
influenced by a variety of factors. These factors include: national debt levels
and trade deficits, changes in balances of payments and trade, domestic and
foreign interest and inflation rates, global or regional political, economic or
financial events, monetary policies of governments, actual or potential
government intervention, and global energy prices. Political instability, the
possibility of government intervention and restrictive or opaque business and
investment policies may also reduce the value of a country’s currency.
Government monetary policies and the buying or selling of currency by a
country’s government may also influence exchange rates. Currency exchange rates
can be very volatile and can change quickly and unpredictably. As a result, the
value of an investment in the Fund may change quickly and without warning, and
you may lose money.
Depositary
Receipt Risk.
Depositary receipts involve risks similar to those associated with investments
in foreign securities and certain additional risks. Depositary receipts listed
on U.S. or foreign exchanges are issued by banks or trust companies, and entitle
the holder to all dividends and capital gains that are paid out on the
underlying foreign shares (“Underlying Shares”). When the Fund invests in
depositary receipts as a substitute for an investment directly in the Underlying
Shares, the Fund is exposed to the risk that the depositary receipts may not
provide a return that corresponds precisely with that of the Underlying Shares.
The underlying securities of the ADRs in the Fund’s portfolio are usually
denominated or quoted in currencies other than the U.S. dollar. GDRs may be
issued in bearer form and denominated in other currencies and are generally
designed for use throughout the world. As a result, changes in foreign currency
exchange rates may affect the value of the Fund’s portfolio. In addition,
because the underlying securities of ADRs or GDRs trade on foreign exchanges at
times when the U.S. markets are not open for trading, the value of the
securities underlying the ADRs or GDRs may change materially at times when the
U.S. markets are not open for trading, regardless of whether there is an active
U.S. market for Shares.
Derivatives
Risk. The
Fund’s derivative investments have risks, including the imperfect correlation
between the value of such instruments and the underlying assets or index; the
loss of principal, including the potential loss of amounts greater than the
initial amount invested in the derivative instrument; the possible default of
the other party to the transaction; and illiquidity of the derivative
investments. If a counterparty becomes bankrupt or otherwise fails to perform
its obligations under a derivative contract due to financial difficulties, the
Fund may experience significant delays in obtaining any recovery under the
derivative contract in a bankruptcy or other reorganization proceeding. The
derivatives used by the Fund may give rise to a form of leverage. Leverage
magnifies the potential for gain and the risk of loss. Certain of the Fund’s
transactions in derivatives could also affect the amount, timing, and character
of distributions to shareholders, which may result in the Fund realizing more
short-term capital gain and ordinary income subject to tax at ordinary income
tax rates than it would if it did not engage in such transactions, which may
adversely impact the Fund’s after-tax returns.
Emerging
Markets Risk. Investments
in securities and instruments traded in developing or emerging markets, or that
provide exposure to such securities or markets, can involve additional risks
relating to political, economic, or regulatory conditions not associated with
investments in U.S. securities and instruments. For example, developing and
emerging markets may be subject to (i) greater market volatility, (ii) lower
trading volume and liquidity, (iii) greater social, political, and economic
uncertainty, (iv) governmental controls on foreign investments and limitations
on repatriation of invested capital, (v) lower disclosure, corporate governance,
auditing and financial reporting standards, (vi) fewer protections of property
rights, (vii) restrictions on the transfer of securities or currency, and (viii)
settlement and trading practices that differ from those in U.S. markets. Each of
these factors may impact the ability of the Fund to buy, sell, or otherwise
transfer securities, adversely affect the trading market and price for Fund
Shares and cause the Fund to decline in value.
Energy
Producers Industry Risk. Companies
in the energy producing industry are subject to risks associated with companies
owning and/or operating pipelines, gathering and processing assets, power
infrastructure, propane assets, as well as capital markets, terrorism, natural
disasters, climate change, operating, regulatory, environmental, supply and
demand, and price volatility risks. The volatility of energy commodity prices
can significantly affect energy companies due to the impact of prices on the
volume of commodities developed, produced, gathered, and processed.
Historically, energy commodity prices have been cyclical and exhibited
significant volatility, which may adversely impact the value, operations, cash
flows, and financial performance of energy companies.
Equity
Market Risk. The
Fund will invest in common stocks directly or indirectly through ETFs. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests. Common
stocks, such as those held by the Fund, are generally exposed to greater risk
than other types of securities, such as preferred stock and debt obligations,
because common stockholders generally have inferior rights to receive payment
from issuers. Securities
in the Fund’s portfolio may underperform in comparison to securities in the
general financial markets, a particular financial market, or other asset
classes, due to a number of factors, including inflation (or expectations for
inflation), interest rates, global demand for particular products or resources,
natural disasters or events, pandemic diseases, terrorism, regulatory events, or
government controls.
ETF
Risks.
◦APs,
Market Makers, and Liquidity Providers Concentration Risk. The
Fund has a limited number of financial institutions that may act as 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.
◦Cash
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. For example, the Fund
may not be able to redeem in-kind certain securities held by the Fund (e.g.,
derivative instruments). In such a case, the Fund may be required to sell or
unwind portfolio investments to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize a capital gain that it might not
have recognized if it had made a redemption in-kind. As a result, the Fund may
pay out higher annual capital gain distributions than if the in-kind redemption
process was used.
◦Costs
of Buying or Selling Shares. 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 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, a relatively small investor base in the Fund, asset swings
in the Fund and/or increased market volatility may cause increased bid-ask
spreads. Due to the costs of buying or selling Shares, including bid-ask
spreads, frequent trading of Shares may significantly reduce investment results
and an investment in Shares may not be advisable for investors who anticipate
regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of the Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of the Shares or during periods of market
volatility. This
risk
is heightened in times of market volatility or periods of steep market declines.
The market price of Shares during the trading day, like the price of any
exchange-traded security, includes a “bid-ask” spread charged by the exchange
specialist, market makers, or other participants that trade the Shares. In times
of severe market disruption, the bid-ask spread can increase significantly. At
those times, Shares are most likely to be traded at a discount to NAV, and the
discount is likely to be greatest when the price of Shares is falling fastest,
which may be the time that you most want to sell your Shares. Because securities
held by the Fund may trade on foreign exchanges that are closed when the Fund’s
primary listing exchange is open, the Fund is likely to experience premiums and
discounts greater than those of ETFs holding only domestic
securities.
◦Trading.
Although
Shares are listed for trading on the Exchange and may be listed or traded on
U.S. and non-U.S. stock exchanges other than the Exchange, there can be no
assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “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%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. 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.
ETV
Risk. The
Fund may invest in ETFs, ETNs and exchange-listed trusts. Please see “ETF
Risks,” above, for risks specific to investing in ETFs. The risks of owning
interests of an ETV generally reflect the same risks as owning the underlying
securities or other instruments that the ETV is designed to track and which are
disclosed elsewhere in this Prospectus. The shares of certain ETVs may trade at
a premium or discount to their intrinsic value (i.e., the market value may
differ from the NAV of an ETV’s shares). For example, the value of an ETV may
drop due to a downgrade in the issuer’s credit rating. By investing in an ETV,
the Fund indirectly bears the proportionate share of any fees and expenses of
the ETV in addition to the Fund’s direct fees and expenses. Additionally,
trading in an ETV may be halted by the exchange on which it trades.
◦Exchange-Listed
Trust Risk.
Exchange-listed trusts are not registered as investment companies under the 1940
Act. Consequently, an investment in an exchange-listed trust will not have the
regulatory protections provided to investors in registered investment companies.
Some exchange-listed trusts may qualify as “emerging growth companies” and
therefore may be subject to reduced public reporting requirements. Under certain
circumstances, the exchange on which an exchange-listed trust trades may halt
trading in the exchange-listed trust.
◦ETN
Risk.
The Fund may invest in ETNs. 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 securities’ markets, changes in the applicable
interest rates, changes in the issuer’s credit rating and economic, legal,
political or geographic events that affect the referenced index. In addition,
the notes issued by ETNs and held by the Fund are unsecured debt of the
issuer.
Foreign
Securities Risk. Securities
of non-U.S. issuers, including ADRs, are subject to certain inherent risks.
Certain foreign countries may impose exchange control regulations, restrictions
on repatriation of profit on investments or of capital invested, local taxes on
investments, and restrictions on the ability of issuers of non-U.S. securities,
including ADRs, to make payments of principal and interest to investors located
outside the country, whether from currency blockage or otherwise. In addition,
the Fund will be subject to risks associated with adverse political and economic
developments in foreign countries, including seizure or nationalization of
foreign deposits, the imposition of economic sanctions, different legal systems
and laws relating to bankruptcy and creditors’ rights, and the potential
inability to enforce legal judgments, all of which could cause the Fund to lose
money on its investments in non-U.S. securities, including ADRs. The cost of
servicing external debt will also generally be adversely affected by rising
international interest rates, as many external debt obligations bear interest at
rates which are adjusted based upon international interest rates. Because
non-U.S. securities, including ADRs, may trade on days when the Fund’s shares
are not priced, NAV may change at times when the Fund’s shares cannot be
sold.
Foreign
banks and securities depositories at which the Fund holds its foreign securities
and cash may be recently organized or new to the foreign custody business and
may be subject to only limited or no regulatory oversight. Additionally, many
foreign governments do not supervise and regulate stock exchanges, brokers and
the sale of securities to the same extent as does the United States and may not
have laws to protect investors that are comparable to U.S. securities laws.
Settlement and clearance procedures in certain foreign markets may result in
delays in payment for or delivery of securities not typically associated with
settlement and clearance of U.S. investments.
In
recent years, the European financial markets have experienced volatility and
adverse trends due to concerns about economic downturns in, or rising government
debt levels of, several European countries. These events may spread to other
countries in Europe, including countries that do not use the Euro. These events
may affect the value and liquidity of certain of the Fund’s
investments.
Futures
Contracts Risk.
A
futures contract is a standardized agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a specific future time. The
value of a futures contract tends to increase and decrease in tandem with the
value of the underlying instrument. Depending on the terms of the particular
contract, futures contracts are settled through either physical delivery of the
underlying instrument on the settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether, when, and how to use
futures involves the exercise of skill and judgment and even a well-conceived
futures transaction may be unsuccessful because of market behavior or unexpected
events. In addition to the risks associated with all derivatives, the prices of
futures can be highly volatile, using futures can lower total return, and the
potential loss from futures can exceed the Fund’s initial investment in such
contracts.
Gold
Risk. The
prices of precious metals, such as gold, rise and fall in response to many
factors, including: economic cycles; changes in inflation or expectations about
inflation in various countries; interest rates; currency fluctuations; metal
sales by governments, central banks, or international agencies; investment
speculation; resource availability; fluctuations in industrial and commercial
supply and demand; government regulation of the metals and materials industries;
and government prohibitions or restrictions on the private ownership of certain
precious and rare metals.
Government
Obligations Risk. The
Fund may invest in securities issued by the U.S. government or its agencies or
instrumentalities, such as U.S. Treasury securities. There can be no guarantee
that the United States will be able to meet its payment obligations with respect
to such securities. Additionally, market prices and yields of securities
supported by the full faith and credit of the U.S. government or other countries
may decline or be negative for short or long periods of time.
Illiquid
Investments Risks. The
Fund may invest in illiquid or restricted investments deemed illiquid.
Investments in restricted investments could have the effect of increasing the
amount of the Fund’s assets invested in illiquid investments if qualified
institutional buyers are unwilling to purchase these investments. Illiquid and
restricted investments may be difficult to dispose of at a fair price at the
times when the Fund believes it is desirable to do so. The market price of
illiquid and restricted investments generally is more volatile than that of more
liquid investments, which may adversely affect the price that the Fund pays for
or recovers upon the sale of such investments. Illiquid and restricted
investments are also more difficult to value, especially in challenging markets.
The Adviser’s judgment may play a greater role in the valuation process.
Investment of the Fund’s assets in illiquid and restricted investments may
restrict the Fund’s ability to take advantage of market investment. To dispose
of an unregistered investment, the Fund, where it has contractual rights to do
so, may have to cause such investment to be registered. A considerable period
may elapse between the time the decision is made to sell the investment and the
time the investment is registered, thereby enabling the Fund to sell it.
Contractual restrictions on the resale of investments vary in length and scope
and are generally the result of a negotiation between the issuer and acquiror of
the investments. In either case, the Fund would bear market risks during that
period. Liquidity risk may impact the Fund’s ability to meet shareholder
redemptions and as a result, the Fund may be forced to sell investments at
inopportune prices. Certain fixed income instruments are not readily marketable
and may be subject to restrictions on resale. Fixed income instruments may not
be listed on any national securities exchange and no active trading market may
exist for certain of the fixed income instruments in which the Fund will invest.
Where a secondary market exists, the market for some fixed income instruments
may be subject to irregular trading activity, wide bid-ask spreads and extended
trade settlement periods. In addition, dealer inventories of certain investments
are at historic lows in relation to market size, which indicates a potential for
reduced liquidity as dealers may be less able to “make markets” for certain
fixed income securities.
Interest
Rate Risk.
Generally,
the value of fixed income securities will change inversely with changes in
interest rates. As interest rates rise, the market value of fixed income
securities tends to decrease. Conversely, as interest rates fall, the market
value of fixed income securities tends to increase. This risk will be greater
for long-term securities than for short-term securities. Changes in government
intervention may have adverse effects on investments, volatility, and
illiquidity in debt markets.
Leverage
Risk. Leverage
is investment exposure that exceeds the initial amount invested. Leveraging
investments, by purchasing securities with borrowed money, is a speculative
technique that increases investment risk while increasing investment
opportunity. Leverage will magnify changes in the Fund’s net asset value and on
the Fund’s investments. Derivatives and other transactions, such as reverse
repurchase agreements, that give rise to leverage may cause the Fund’s
performance to be more volatile than if the Fund had not been leveraged.
Leveraging also may require that the Fund liquidate portfolio securities when it
may not be advantageous to do so to satisfy its obligations or to meet
segregation requirements. Further, the use of leverage may require the Fund to
maintain assets as “cover,” maintain segregated asset accounts, or make margin
payments, which might impair the Fund’s ability to sell a portfolio security or
make an investment at a time when it
would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time. Certain derivatives provide the potential
for investment gain or loss that may be several times greater than the change in
the value of an underlying security, asset, interest rate, index or currency,
resulting in the potential for a loss that may be substantially greater than the
amount invested. Some leveraged instruments have the potential for unlimited
loss, regardless of the size of the initial investment. Use of leverage by the
Fund may increase the Fund’s assets under management thereby creating a
potential conflict of interest for the Adviser, which receives a management fee
based on the Fund’s assets under management. Assets raised through leverage will
be subject to interest and other costs, and these costs could exceed the income
earned by the Fund on the proceeds of such leverage. There can be no assurance
that the Fund’s income from the proceeds of leverage will exceed these
costs.
Management
Risk. The
Fund is actively-managed and may not meet its investment objective based on the
Adviser’s success or failure to implement investment strategies for the Fund.
Market
Capitalization Risk.
◦Large-Capitalization
Investing. The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing. The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole. Some mid-capitalization companies have limited product lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization
companies.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. Some small-capitalization companies have limited
product lines, markets, and financial and managerial resources and tend to
concentrate on fewer geographical markets relative to larger-capitalization
companies. There is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and
earnings.
Market
Risk. The
trading prices of debt securities and other instruments fluctuate in response to
a variety of factors. These factors include events impacting the entire market
or specific market segments, such as political, market and economic
developments, as well as events that impact specific issuers. Turbulence in
financial markets and reduced liquidity in equity, credit and fixed income
markets may negatively affect many issuers worldwide, which could have an
adverse effect on the Fund. The Fund’s NAV and market price, like security and
commodity prices generally, may fluctuate significantly in response to these and
other factors. As a result, an investor could lose money over short or long
periods of time.
Maturity
Risk.
Debt securities with a longer maturity, including U.S. Treasuries and TIPs, may
fluctuate in value more than one with a shorter maturity.
Mining
and Metal Industry Risk. Mining
and metal companies can be significantly affected by international political and
economic developments, energy conservation, the success of exploration projects,
commodity prices, taxes and government regulations. Investments in mining and
metal industry companies may be speculative and subject to greater price
volatility than investments in other types of companies. Increased environmental
or labor costs may depress the value of mining and metal investments. In
addition, changes in international monetary policies or economic and political
conditions can affect the supply of gold and precious metals, and consequently
the value of mining and metal company investments. Further, the principal
supplies of metal industries may be concentrated in a small number of countries
and regions.
Non-Diversification
Risk.
The Fund is considered to be non-diversified, which means that it may invest
more of its assets in the securities of a single issuer or a smaller number of
issuers than if it were a diversified fund. As a result, the Fund may be more
exposed to the risks associated with and developments affecting an individual
issuer or a smaller number of issuers than a fund that invests more widely. This
may increase the Fund’s volatility and cause the performance of a relatively
smaller number of issuers to have a greater impact on the Fund’s
performance.
Other
Investment Companies Risks. The
Fund will incur higher and duplicative expenses when it invests in ETFs and
other investment companies. By investing in another investment company, the Fund
becomes a shareholder of that investment company and bears its proportionate
share of the fees and expenses of the other investment company. There is also
the risk that the Fund may suffer losses due to the investment practices of the
underlying funds as the Fund will be subject to substantially the same risks as
those associated with the direct ownership of securities held by such investment
companies. The Fund may be subject to statutory limits with respect to the
amount it can invest in other ETFs, which may adversely affect the Fund’s
ability to achieve its investment objective. ETFs may be less liquid than other
investments, and thus their share values more volatile than the values of the
investments they hold. Investments in ETFs are also subject to the “ETF Risks”
described above.
Recent
Market Events Risk.
U.S. and international markets have experienced significant periods of
volatility in recent years and months due to a number of economic, political and
global macro factors including the impact of COVID-19 as a global pandemic and
related public health crisis, growth concerns in the U.S. and overseas,
uncertainties regarding interest rates, rising inflation, trade tensions, and
the threat of tariffs imposed by the U.S. and other countries. In particular,
the global spread of COVID-19 has resulted in disruptions to business operations
and supply chains, stress on the global healthcare system, growth concerns in
the U.S. and overseas, staffing shortages and the inability to meet consumer
demand, and widespread concern and uncertainty. The global recovery from
COVID-19 is proceeding at slower than expected rates due to the emergence of
variant strains and may last for an extended period of time. Health crises and
related political, social and economic disruptions caused by the spread of
COVID-19 may also exacerbate other pre-existing political, social and economic
risks in certain countries. As a result of continuing political tensions and
armed conflicts, including the war between Ukraine and Russia, the U.S. and the
European Union imposed sanctions on certain Russian individuals and companies,
including certain financial institutions, and have limited certain exports and
imports to and from Russia. The war has contributed to recent market volatility
and may continue to do so. These developments, as well as other events, could
result in further market volatility and negatively affect financial asset
prices, the liquidity of certain securities and the normal operations of
securities exchanges and other markets, despite government efforts to address
market disruptions. As a result, the risk environment remains elevated. The
Adviser will monitor developments and seek to manage the Fund in a manner
consistent with achieving the Fund’s investment objective, but there can be no
assurance that they will be successful in doing so.
REIT
Risk.
A REIT is a company that owns or finances income-producing real estate. Through
its investments in REITs, the Fund is subject to the risks of investing in the
real estate market, including decreases in property revenues, increases in
interest rates, increases in property taxes and operating expenses, legal and
regulatory changes, a lack of credit or capital, defaults by borrowers or
tenants, environmental problems and natural disasters. REITs are subject to
additional risks, including those related to adverse governmental actions;
declines in property value and the real estate market; the potential failure to
qualify for tax-free pass through of income; and exemption from registration as
an investment company. REITs are dependent upon specialized management skills
and may invest in relatively few properties, a small geographic area, or a small
number of property types. As a result, investments in REITs may be volatile. To
the extent the Fund invests in REITs concentrated in specific geographic areas
or property types, the Fund may be subject to a greater loss as a result of
adverse developments affecting such area or property types. REITs are pooled
investment vehicles with their own fees and expenses and the Fund will
indirectly bear a proportionate share of those fees and expenses.
Tax
Risk.
To qualify for the favorable U.S. federal income tax treatment accorded to RICs,
the Fund must derive at least 90% of its gross income in each taxable year from
certain categories of income (“qualifying income”) and must satisfy certain
asset diversification requirements. The Fund’s investments in ETFs and stocks
are generally expected to generate qualifying income. Certain of the Fund’s
investments, however, may generate income that is not qualifying income. The
Fund might generate more non-qualifying income than anticipated, might not be
able to generate qualifying income in a particular taxable year at levels
sufficient to meet the qualifying income test, or might not be able to determine
the percentage of qualifying income it derives for a taxable year until after
year-end. In addition, the Fund must satisfy a quarterly asset diversification
test. If the Fund were to fail to meet the qualifying income test or the asset
diversification test and fail to qualify as a RIC, 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. Under certain
circumstances, the Fund may be able to cure a failure to meet the qualifying
income test or the asset diversification test if such failure was due to
reasonable cause and not willful neglect, but to do so the Fund may incur
significant fund-level taxes, which would effectively reduce (and could
eliminate) the Fund’s returns.
TIPS
Risk. Interest
payments on TIPS are unpredictable and will fluctuate as the principal and
corresponding interest payments are adjusted for inflation. There can be no
assurance that the CPI will accurately measure the real rate of inflation in the
prices of goods and services. Any increases in the principal amount of TIPS will
be considered taxable ordinary income, even though the Fund or applicable
underlying ETF, will not receive the principal until maturity. As a result, the
Fund
may make income distributions to shareholders that exceed the cash it
receives. In addition, TIPS are subject to credit risk, interest rate
risk, and maturity risk.
Water
Industry Risk.
The water industry can be significantly affected by economic trends or other
conditions or developments, such as the availability of water, the level of
rainfall and occurrence of other climatic events, changes in water consumption,
new technologies relating to the supply of water, and water conservation. The
industry can also be significantly affected by environmental considerations,
taxation, government regulation (including the increased cost of compliance),
inflation, increases in interest rates, price and supply fluctuations, increases
in the cost of raw materials and other operating costs, technological advances,
and competition from new market entrants.
PORTFOLIO
HOLDINGS INFORMATION
Information
about the Fund’s daily portfolio holdings is available on the Fund’s website at
www.rparetf.com/rpar.
A
complete 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
SAI.
MANAGEMENT
Investment
Adviser
Toroso
Investments, LLC, located at 898 N. Broadway, Suite 2, Massapequa, New York
11758, is an SEC-registered investment adviser and a Delaware limited liability
company. Toroso was founded in and has been managing investment companies since
March 2012 and is dedicated to understanding, researching and managing assets
within the expanding ETF universe. As of February 28, 2022, Toroso had assets
under management of approximately $7.7 billion and served as the investment
adviser or sub-adviser for 50 registered funds.
Toroso
serves as investment adviser to the Fund and has overall responsibility for the
general management and administration of the Fund pursuant to an investment
advisory agreement with the Trust, on behalf of the Fund (the “Advisory
Agreement”). The Adviser is responsible for determining the securities purchased
and sold by the Fund. The Adviser also arranges for sub-advisory, transfer
agency, custody, fund administration, and all other related services necessary
for the Fund to operate.
Under
the Advisory Agreement, in exchange for a single unitary management fee from the
Fund, the Adviser has agreed to pay all expenses incurred by the Fund except for
Excluded Expenses.
For
its services provided to the Fund, the Fund pays the Adviser a unified
management fee, which is calculated daily and paid monthly, at an annual rate of
0.50% of the Fund’s average daily net assets. The Adviser has contractually
agreed to reduce its unitary management fee to 0.48% of the Fund’s average daily
net assets through at least April 30, 2023. Prior to March 30, 2022, the
Adviser had contractually agreed to reduce its unitary fee to 0.47% of the
Fund’s average daily net assets. To the extent the Fund incurs Excluded
Expenses, Total Annual Fund Operating Expenses After Fee Waiver in the Fees and
Expenses table will be greater than 0.48%. This agreement may be terminated only
by, or with the consent of, the Board, on behalf of the Fund, upon sixty (60)
days’ written notice to the Adviser. This agreement may not be terminated by the
Adviser without the consent of the Board. For the fiscal year ended and fiscal
period November 30, 2021, and December 31, 2021, the Adviser received an
aggregate fee of 0.47% of average net assets.
A
discussion regarding the basis for the Board’s approval of the Fund’s Advisory
Agreement is available in the Fund’s annual report to shareholders for the
reporting period ended December 31, 2021.
Portfolio
Managers
The
following individuals (each, a “Portfolio Manager”) have served as portfolio
managers of the Fund since its inception in 2019. Messrs. Venuto and Ragauss are
jointly and primarily responsible for the day-to-day management of the Fund.
Michael
Venuto, Chief Investment Officer for the Adviser
Mr.
Venuto is a co-founder and has been the Chief Investment Officer of the Adviser
since 2012. Mr. Venuto is an ETF industry veteran with over a decade of
experience in the design and implementation of ETF-based investment strategies.
Previously, he was Head of Investments at Global X Funds where he provided
portfolio optimization services to institutional clients. Before that, he was
Senior Vice President at Horizon Kinetics where his responsibilities included
new business development, investment strategy and client and strategic
initiatives.
Charles
A. Ragauss, CFA, Portfolio Manager for the Adviser
Mr.
Ragauss serves as Portfolio Manager of the Adviser, having joined the Adviser in
September 2020. Mr. Ragauss previously served as Chief Operating Officer and in
other roles at CSat Investment Advisory, L.P. from April 2016 to
September
2020. Previously, Mr. Ragauss was Assistant Vice President at Huntington
National Bank (“Huntington”), where he was Product Manager for the Huntington
Funds and Huntington Strategy Shares ETFs, a combined fund complex of almost $4
billion in assets under management. At Huntington, he led ETF development
bringing to market some of the first actively managed ETFs. Mr. Ragauss joined
Huntington in 2010. Mr. Ragauss attended Grand Valley State University where he
received his Bachelor of Business Administration in Finance and International
Business, as well as a minor in French. He is a member of both the National and
West Michigan CFA societies and holds the CFA designation.
CFA®
is a registered trademark owned by the CFA Institute.
The
Fund’s SAI provides additional information about each Portfolio Manager’s
compensation structure, other accounts that each Portfolio Manager manages, and
each Portfolio Manager’s ownership of Shares.
FUND
SPONSOR
The
Adviser has entered into an Agreement with RPAR, LLC (the “Sponsor”), under
which the Sponsor assumes the obligation of the Adviser to pay all expenses of
the Fund, except Excluded Expenses (such expenses of the Fund, except Excluded
Expenses, the “Unitary Expenses”). Although the Sponsor has agreed to be
responsible for the Unitary Expenses, the Adviser retains the ultimate
obligation to the Fund to pay such expenses. For assuming the payment
obligations, the Adviser has agreed to pay to the Sponsor the profits, if any,
generated by the Fund’s unified management fee. The Sponsor does not make
investment decisions, provide investment advice, participate in the active
management of the Fund, or otherwise act in the capacity of an investment
adviser to the Fund.
HOW
TO BUY AND SELL SHARES
The
Fund issues and redeems Shares only in Creation Units at the NAV per share next
determined after receipt of an order from an AP. Only APs may acquire Shares
directly from the Fund, and only APs may tender their Shares for redemption
directly to the Fund, at NAV. APs must be a member or participant of a clearing
agency registered with the SEC and must execute a Participant Agreement that has
been agreed to by the Distributor (defined below), and that has been accepted by
the Fund’s transfer agent, with respect to purchases and redemptions of Creation
Units. Once created, Shares trade in the secondary market in quantities less
than a Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Individual Shares are listed for trading on the secondary market on the Exchange
and can be bought and sold throughout the trading day like other publicly traded
securities.
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 offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares, and receive less than NAV when you sell those Shares.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book-entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, the Board has also
determined that frequent purchases and redemptions for cash may increase
tracking error and portfolio transaction costs and may lead to the realization
of capital gains. To minimize these potential consequences of frequent purchases
and redemptions, the Fund employs fair value pricing and may impose transaction
fees on purchases and redemptions of Creation Units to cover the custodial and
other costs incurred by the Fund in effecting trades. In addition, the Fund and
the Adviser reserve the right to reject any purchase order at any
time.
Determination
of Net Asset Value
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern Time, each day
the NYSE is open for business. The NAV for the Fund is calculated by dividing
the Fund’s net assets by its Shares outstanding.
In
calculating its NAV, the Fund generally values its assets on the basis of market
quotations, last sale prices, or estimates of value furnished by a pricing
service or brokers who make markets in such instruments. The values of non-U.S.
dollar denominated securities are converted to U.S. dollars using foreign
currency exchange rates generally determined as of 4:00 p.m. London Time. If
such information is not available for a security held by the Fund or is
determined to be unreliable, the security will be valued at fair value estimates
under guidelines established by the Board (as described below).
Fair
Value Pricing
The
Board has adopted procedures and methodologies to fair value Fund securities
whose market prices are not “readily available” or are deemed to be unreliable.
For example, such circumstances may arise when: (i) a security has been delisted
or has had its trading halted or suspended; (ii) a security’s primary pricing
source is unable or unwilling to provide a price; (iii) a security’s primary
trading market is closed during regular market hours; or (iv) a security’s value
is materially affected by events occurring after the close of the security’s
primary trading market. Generally, when fair valuing a security, the Fund will
take into account all reasonably available information that may be relevant to a
particular valuation including, but not limited to, fundamental analytical data
regarding the issuer, information relating to the issuer’s business, recent
trades or offers of the security, general and/or specific market conditions, and
the specific facts giving rise to the need to fair value the security. Fair
value determinations are made in good faith and in accordance with the fair
value methodologies included in the Board-adopted valuation procedures. Due to
the subjective and variable nature of fair value pricing, there can be no
assurance that the Adviser or a sub-adviser will be able to obtain the fair
value assigned to the security upon the sale of such security.
Investments
by Other Registered Investment Companies in the Fund
Section 12(d)(1)
of the 1940 Act restricts investments by registered investment companies in the
securities of other investment companies, including Shares. Registered
investment companies are permitted to invest in the Fund beyond the limits set
forth in Section 12(d)(1), subject to certain terms and conditions set forth in
an SEC exemptive order issued to the Trust or rule under the 1940 Act, including
that such investment companies enter into an agreement with the
Fund.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Fund. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Fund is available through certain broker-dealers. If
you are interested in enrolling in householding and receiving a single copy of
prospectuses and other shareholder documents, please contact your broker-dealer.
If you are currently enrolled in householding and wish to change your
householding status, please contact your broker-dealer.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
The
Fund intends to pay out dividend and interest income, if any, quarterly, and
distribute any net realized capital gains to its shareholders at least annually.
The
Fund will declare and pay income and capital gain distributions, if any, in
cash. 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.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax advisor
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Fund intends to qualify each year for treatment as a regulated investment
company (a “RIC”) under the Internal Revenue Code of 1986, as amended. If it
meets certain minimum distribution requirements, a RIC is not subject to tax at
the fund-level on income and gains from investments that are timely distributed
to shareholders. However, the Fund’s failure to qualify as a
RIC
or to meet minimum distribution requirements would result (if certain relief
provisions were not available) in fund-level taxation and, consequently, a
reduction in income available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when the Fund makes distributions, when you sell your Shares listed
on the Exchange, and when you purchase or redeem Creation Units (institutional
investors only).
The
following general discussion of certain U.S. federal income tax consequences is
based on provisions of the Code and the regulations issued thereunder as in
effect on the date of this SAI. New legislation, as well as administrative
changes or court decisions, may significantly change the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.
Taxes
on Distributions
For
federal income tax purposes, distributions of net investment income are
generally taxable to shareholders as ordinary income or qualified dividend
income. Taxes on distributions of net capital gains (if any) are determined by
how long the Fund owned the investments that generated them, rather than how
long a shareholder has owned their 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 of the Fund’s net capital
gain (the excess of net long-term capital gains over net short-term capital
losses) that are reported by the Fund as capital gain dividends (“Capital Gain
Dividends”) will be taxable to shareholders as long-term capital gains.
Distributions of short-term capital gain will generally be taxable to
shareholders as ordinary income. Dividends and distributions are generally
taxable to you whether you receive them in cash or reinvest them in additional
Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided certain holding period and other requirements are met. “Qualified
dividend income” generally is income derived from dividends paid by U.S.
corporations or certain foreign corporations that are either incorporated in a
U.S. possession or eligible for tax benefits under certain U.S. income tax
treaties. In addition, dividends that the Fund receives in respect of stock of
certain foreign corporations may be qualified dividend income if that stock is
readily tradable on an established U.S. securities market. Corporate
shareholders may be entitled to a dividends-received deduction for the portion
of dividends they receive from the Fund that are attributable to dividends
received by the Fund from U.S. corporations, subject to certain limitations.
Shortly
after the close of each calendar year, you will be informed of the character of
any distributions received from the Fund.
In
addition to the federal income tax, certain individuals, trusts, and estates may
be subject to a Net Investment Income (“NII”) tax of 3.8%. The NII tax is
imposed on the lesser of: (i) a taxpayer’s investment income, net of deductions
properly allocable to such income; or (ii) the amount by which such taxpayer’s
modified adjusted gross income exceeds certain thresholds ($250,000 for married
individuals filing jointly, $200,000 for unmarried individuals and $125,000 for
married individuals filing separately). The Fund’s distributions are
includable in a shareholder’s investment income for purposes of this NII
tax. In addition, any capital gain realized by a shareholder upon a sale or
redemption of Fund shares is includable in such shareholder’s investment income
for purposes of this NII tax.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable to you even if they are paid from income or gains earned by the Fund
before your investment (and thus were included in the Shares’ NAV when you
purchased your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable to you even
though it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. The Fund may, under certain circumstances,
report all or a portion of a dividend as an “interest-related dividend” or a
“short-term capital gain dividend,” which would generally be exempt from this
30% U.S. withholding tax, provided certain other requirements are
met.
Under
the Foreign Account Tax Compliance Act (“FATCA”), the Fund may be required to
withhold a generally nonrefundable 30% tax on (i) distributions of investment
company taxable income and (ii) distributions of net capital gain and the gross
proceeds of a sale or redemption of Fund shares paid to (A) certain “foreign
financial institutions” unless such foreign financial institution agrees to
verify, monitor, and report to the Internal Revenue Service (“IRS”) the identity
of
certain
of its account-holders, among other items (or unless such entity is otherwise
deemed compliant under the terms of an intergovernmental agreement between the
United States and the foreign financial institution’s country of residence), and
(B) certain “non-financial foreign entities” unless such entity certifies to the
Fund that it does not have any substantial U.S. owners or provides the name,
address, and taxpayer identification number of each substantial U.S. owner,
among other items. In December 2018, the IRS and Treasury Department released
proposed Treasury Regulations that would eliminate FATCA withholding on Fund
distributions of net capital gain and the gross proceeds from a sale or
redemption of Fund shares. Although taxpayers are entitled to rely on these
proposed Treasury Regulations until final Treasury Regulations are issued, these
proposed Treasury Regulations have not been finalized, may not be finalized in
their proposed form, and are potentially subject to change. This FATCA
withholding tax could also affect the Fund’s return on its investments in
foreign securities or affect a shareholder’s return if the shareholder holds its
Fund shares through a foreign intermediary. You are urged to consult your tax
adviser regarding the application of this FATCA withholding tax to your
investment in the Fund and the potential certification, compliance, due
diligence, reporting, and withholding obligations to which you may become
subject in order to avoid this withholding tax.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and 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 underreported dividend or interest income, or who fails to
certify that they are not subject to such withholding.
Taxes
When Shares are Sold on the Exchange
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares are acquired, including through reinvestment of
dividends, within a 61-day period beginning 30 days before and ending 30 days
after the sale of substantially identical Shares.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The IRS may
assert, however, that a loss that is realized upon an exchange of securities for
Creation Units may not be currently deducted under the rules governing “wash
sales” (for an AP who does not mark-to-market their holdings) 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 wash sale rules apply and when a loss might be deductible.
Any
capital gain or loss realized upon redemption of Creation Units is generally
treated as long-term capital gain or loss if Shares comprising the Creation
Units have been held for more than one year and as a short-term capital gain or
loss if such Shares have been held for one year or less.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Foreign
Investments by the Fund
Interest
and other income received by the Fund with respect to foreign securities may
give rise to withholding and other taxes imposed by foreign countries. Tax
treaties or conventions between certain countries and the United States may
reduce or eliminate such taxes. If, as of the close of a taxable year, more than
50% of the value of the Fund’s assets consists of certain foreign stock or
securities, the Fund will be eligible to elect to “pass through” to investors
the amount of certain qualifying foreign income and similar taxes paid by the
Fund during that taxable year. This means that investors would be considered to
have received as additional income their respective shares of such foreign
taxes, but may be entitled to either a corresponding tax deduction in
calculating taxable income, or, subject to certain limitations, a credit in
calculating federal income tax. If the Fund does not so elect, the Fund will be
entitled to claim a deduction for certain foreign taxes incurred by the Fund.
The Fund
(or
its administrative agent) will notify you if it makes such an election and
provide you with the information necessary to reflect foreign taxes paid on your
income tax return.
Taxation
of REIT Investments
The
Fund will invest in REITs. The Tax Act treats “qualified REIT dividends” (i.e.,
ordinary REIT dividends other than capital gain dividends and portions of REIT
dividends designated as qualified dividend income eligible for capital gain tax
rates) as eligible for a 20% deduction by non-corporate taxpayers. In general,
qualified REIT dividends that an investor receives directly from a REIT are
automatically eligible for the 20% qualified business income deduction. The IRS
has issued final Treasury Regulations that permit a dividend or part of a
dividend paid by a RIC and reported as a “section 199A dividend” to be treated
by the recipient as a qualified REIT dividend for purposes of the 20% qualified
business income deduction, if certain holding period and other requirements have
been satisfied by the recipient with respect to its Fund shares.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to foreign, state, and local tax on
Fund distributions and sales of Shares. Consult your personal tax advisor about
the potential tax consequences of an investment in Shares
under
all applicable tax laws. For more information, please see the section entitled
“Federal Income Taxes” in the SAI.
DISTRIBUTION
Foreside
Fund Services, LLC (the “Distributor”), the Fund’s distributor, is a
broker-dealer registered with the SEC. The Distributor distributes Creation
Units for the Fund on an agency basis and does not maintain a secondary market
in Shares. The Distributor has no role in determining the policies of the Fund
or the securities that are purchased or sold by the Fund. The Distributor’s
principal address is Three Canal Plaza, Suite 100, Portland, Maine
04101.
The
Board has adopted a Distribution (Rule 12b-1) Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year to pay
distribution fees for the sale and distribution of its Shares.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the future,
because the fees are paid out of Fund assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
certain other types of sales charges.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often Shares traded on the Exchange at a price above (i.e., at a
premium) or below (i.e., at a discount) the NAV of the Fund can be found on the
Fund’s website at www.rparetf.com/rpar.
ADDITIONAL
NOTICES
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,
prices, 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 lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser and the Fund make no representation or warranty, express or implied, to
the owners of Shares or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly.
FINANCIAL
HIGHLIGHTS
The
Financial Highlights table is intended to help you understand the Fund’s
financial performance for the fiscal periods shown. Certain information reflects
financial results for a single Fund share. The total return in the table
represents the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Tait, Weller & Baker LLP, the Fund’s
independent registered public accounting firm, whose report, along with the
Fund’s financial statements, is included in the Fund’s annual report, which is
available upon request.
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FINANCIAL
HIGHLIGHTS For a capital share outstanding throughout the period |
|
|
Period
Ended December 31, 2021(1) |
|
Year
Ended November 30, 2021 |
|
Period
Ended November 30,
2020
(2) |
|
Net
asset value, beginning of period |
$ |
25.10 |
|
|
$ |
23.00 |
|
|
$ |
20.00 |
|
|
|
|
|
|
|
|
|
Income
from Investment Operations: |
|
|
|
|
|
|
Net
investment income (loss)
(3) |
0.10 |
|
|
0.48 |
|
|
0.21 |
|
|
Net
realized and unrealized gain (loss) on investments |
0.22 |
|
|
1.88 |
|
|
2.94 |
|
|
Total
from investment operations |
0.32 |
|
|
2.36 |
|
|
3.15 |
|
|
|
|
|
|
|
|
|
Less
Distributions: |
|
|
|
|
|
|
From
net investment income |
(0.32) |
|
|
(0.26) |
|
|
(0.15) |
|
|
Total
distributions |
(0.32) |
|
|
(0.26) |
|
|
(0.15) |
|
|
|
|
|
|
|
|
|
Net
asset value, end of period |
$ |
25.10 |
|
|
$ |
25.10 |
|
|
$ |
23.00 |
|
|
Total
return (5) |
1.29 |
% |
(4) |
10.32 |
% |
|
15.88 |
% |
(4) |
|
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|
|
|
|
|
Supplemental
Data: |
|
|
|
|
|
|
Net
assets, end of period (millions) |
$ |
1,634.2 |
|
|
$ |
1,549.3 |
|
|
$ |
883.4 |
|
|
Portfolio
turnover rate |
1 |
% |
(4) |
16 |
% |
|
65 |
% |
(4) |
|
|
|
|
|
|
|
Ratios
of Expenses to Average Net Assets: |
|
|
|
|
|
|
Before
fees waived |
0.50 |
% |
(6) |
0.50 |
% |
(7) |
0.50 |
% |
(6)(7) |
After
fees waiver |
0.47 |
% |
(6) |
0.47 |
% |
(7) |
0.47 |
% |
(6)(7) |
|
|
|
|
|
|
|
Ratios
of Net Investment Income (Loss) to Average Net Assets |
|
|
|
|
|
|
Before
fees waived |
4.69 |
% |
(6) |
1.96 |
% |
(8) |
0.98 |
% |
(6)(8) |
After
fees waiver |
4.72 |
% |
(6) |
1.99 |
% |
(8) |
1.01 |
% |
(6)(8) |
|
|
|
|
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|
|
(1)
The Fund changed its fiscal year end from November 30, 2021 to December
31, 2021. The information presented is from December 1, 2021 to December
31, 2021. |
(2)
The Fund commenced operations on December 12, 2019. The information
presented is from December 12, 2019 to November 30, 2020.
|
(3)
Calculated
using average shares outstanding method. |
(4)
Not
annualized. |
(5)
The
total return is based on the Fund’s net asset value. Additional
performance is presented in the Performance Summary. |
(6)
Annualized. |
(7)
The
ratio of expenses to average net assets includes interest expense on
futures. The expense ratios excluding interest expense on futures were
0.50% and 0.47% for the year ended November 30, 2021 and 0.50% and 0.47%
for the period ended November 30, 2020. |
(8)
The ratios of net investment income (loss) to average net assets include
interest expense on futures. |
RPAR
Risk Parity ETF
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Adviser |
Toroso
Investments, LLC
898
N. Broadway, Suite 2
Massapequa,
New York 11758 |
Administrator |
Tidal
ETF Services LLC
898
N. Broadway, Suite 2
Massapequa,
New York 11758 |
Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Dr.
Milwaukee,
Wisconsin 53212 |
Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
Sub-Administrator,
Fund Accountant, and Transfer Agent |
U.S.
Bancorp Fund Services, LLC
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Independent
Registered Public Accounting Firm |
Tait,
Weller & Baker LLP
Two
Liberty Place 50 South 16th Street
Philadelphia,
Pennsylvania 19102 |
Legal
Counsel |
Godfrey
& Kahn, S.C.
833
East Michigan Street, Suite 1800
Milwaukee,
Wisconsin 53202 |
Fund
Sponsor |
RPAR,
LLC
10635
Santa Monica Blvd, Suite 240
Los
Angeles, California 90025 |
Investors
may find more information about the Fund in the following documents:
Statement
of Additional Information: The
Fund’s SAI provides additional details about the investments of the Fund and
certain other additional information. A current SAI dated March 30, 2022, as
supplemented from time to time, is on file with the SEC and is herein
incorporated by reference into this Prospectus. It is legally considered a part
of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments is available in the Fund’s annual and
semi-annual reports to shareholders. In the annual report you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund’s performance during the Fund’s prior fiscal
year.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at RPAR Risk Parity ETF,
c/o U.S. Bank Global Fund Services, P.O. Box 701, Milwaukee, Wisconsin
53201-0701 or calling 833-540-0039.
Shareholder
reports, the Fund’s current Prospectus and SAI 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
•Free
of charge from the Fund’s Internet website at www.rparetf.com/rpar;
or
•For
a duplicating fee, by e-mail request to publicinfo@sec.gov.
(SEC
Investment Company Act File No. 811-23377)