ck0001873280-20220831
PROSPECTUS
December 29,
2022
Kelly E-Commerce & Logistics Sector
ETF (ECMM)
listed
on NYSE Arca, Inc. (Not currently available for purchase)
Kelly Fintech & Digital Payments Sector
ETF ( XPAY)
listed
on NYSE Arca, Inc. (Not currently available for purchase)
Kelly Internet of Things Technology
ETF (INET)
listed
on NYSE Arca, Inc. (Not currently available for purchase)
Kelly Hotel & Lodging Sector ETF
( HOTL)
listed
on NYSE Arca, Inc.
Kelly Residential & Apartment Real Estate
ETF (RESI)
listed
on NYSE Arca, Inc.
Kelly Technology & E-Commerce Real Estate
ETF (TRE)
listed
on NYSE Arca, Inc. (Not currently available for purchase)
Kelly CRISPR & Gene Editing Technology
ETF (XDNA)
listed
on Nasdaq
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved
these securities or determined if this Prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The
Funds offered through this Prospectus are not money market funds and do not seek
to maintain a fixed or stable NAV of $1.00 per share.
Investment Objective
The Kelly E-Commerce &
Logistics Sector ETF (the “Fund”) seeks to track the total return performance,
before fees and expenses, of the Strategic E-Commerce & Logistics Sector
Index (the “Index”).
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 tables and examples
below.
|
|
|
|
|
| |
|
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
|
|
Management
Fees |
0.68% |
|
Distribution
and/or Service (12b-1) Fees |
none |
|
Other
Expenses1 |
0.00% |
|
Total
Annual Fund Operating Expenses |
0.68% |
1Estimated for the current
fiscal year.
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. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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 Fund Shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. As the Fund has not yet
commenced operations, there is no portfolio turnover information to provide at
this time.
Principal Investment Strategies of the
Fund
The
Fund employs a “passive management” (or indexing) investment approach designed
to track the total return performance, before fees and expenses, of the Index.
The Index is based on a proprietary methodology developed and maintained by
Strategic Indexes, LLC (the “Index Provider”), an affiliate of Kelly Strategic
Management, LLC, the Fund’s investment adviser (the “Adviser”). Unlike many
investment companies, the Fund does not try to “beat” the Index and does not
seek temporary defensive positions when markets decline or appear overvalued
other than those indicated in the Index.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning the Fund will generally invest in all of the component
securities of the Index in the same approximate proportions as in the Index.
However, the Fund may use a “representative sampling” strategy, meaning it may
invest in a sample of the securities in the Index whose risk, return, and other
characteristics closely resemble the risk, return, and other characteristics of
the Index as a whole, when the Fund’s Sub-Adviser believes it is in the best
interests of the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
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.
The
Index
The
Index is a rules-based index that consists of the stocks or corresponding
depositary receipts of companies engaged in the creation, development,
production, operation, provision, distribution, ownership, servicing, licensing,
or franchising of at least one of the following (“E-Commerce
Business”):
|
|
|
|
|
| |
| E-Commerce
Marketplaces, Platforms, and Merchants |
E-commerce
marketplaces, platforms, and merchants that (i) connect buyers and sellers
of goods and services via online marketplaces or (ii) primarily sell goods
and services online and generate the majority of their overall revenue
from online retail services. |
| E-Commerce
Technology Infrastructure & Support Services |
(i)
E-commerce software or analytics or (ii) services that facilitate the
development and enhancement of e-commerce platforms, including e-commerce
payments and merchant processing services. |
| E-Commerce
Logistics & Fulfillment |
Includes
activities of companies that provide (i) e-commerce logistics (e.g. supply
chain management), (ii) shipping, fulfillment or distribution services, or
(iii) real estate services related
thereto. |
E-commerce
refers to the buying and selling of goods using the Internet and the transfer of
money to execute these transactions. E-commerce logistics refers to supply chain
operations derived from the buying of selling of goods through e-commerce.
E-commerce fulfillment or distribution services refers to activities related to
the processing and delivery of goods and services purchased through e-commerce.
E-commerce logistics also refers to the provision of industrial or commercial
real estate in the support of e-commerce companies (e.g.,
real estate related to storage, manufacturing, production, and research and
development of goods and services sold through e-commerce).
Construction
of the Index begins with equity securities listed on an exchange in a developed
country. Companies are then considered for inclusion in the Index based on an
analysis of the company’s source of revenues and profits. A company is eligible
for inclusion in the Index if, according to a public filing, it generates a
majority of its revenue or profits from one of the activities described above
(“E-Commerce Companies”). The Index Provider screens for the source of a
company’s revenues and profits using information in regulatory filings
(e.g.,
financial statements, annual reports, investor presentations), analyst reports,
and industry-specific trade publications.
Equity
securities included in the Index include common stocks, real estate investment
trusts (“REITs”), depositary receipts, and preferred stocks. As of October 31,
2022, companies listed in the following countries were eligible for inclusion in
the Index: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the
United States. Eligible Companies identified by the Index Provider are added to
the Index, subject to meeting the investibility requirements described below.
The Index may include small-, mid-, and large-capitalization companies. The
Index is subject to a maximum of 90 constituents, with no more than 30
constituents from each category described above (i.e.,
e-commerce marketplaces, platforms, and merchants, etc.). Where the number of
eligible constituents exceeds the maximum allowable, the Fund will rank the
constituents by float adjusted market capitalization and take the largest
constituents until it has reached the maximum number allowed.
At
the time of each quarterly rebalance and reconstitution of the Index, Index
constituents must meet investibility requirements, including:
•a
market capitalization of at least $300 million;
•a
3-month average daily traded value greater than or equal to $1
million;
•a
free float (i.e.,
the proportion of shares that are publicly available) of at least 20%;
and
•a
trading price of not greater than $50,000.
The
Index is reconstituted and rebalanced (i.e.,
companies are added or deleted and weights are reset based on Index rules)
quarterly, after the close of business on the third Friday of each of March,
June, September, and December (the “Rebalance Date”). For each rebalance and
reconstitution of the Index, Index constituents are determined based on data as
of the last business day in each of February, May, August, and November (the
“Selection Date”). As of each rebalance date, each constituent is market
capitalization-weighted, subject to a maximum of 7.5% weight and a minimum of
0.25%
weight
for each constituent. Any weight removed from an index’s constituents due to a
limit is combined, and the combined weight then distributed proportionately
(according to their index weighting) across the uncapped constituents of the
index.
The
Fund rebalances its portfolio in accordance with its Index, and, therefore, any
changes to the Index’s rebalance schedule will result in corresponding changes
to the Fund’s rebalance schedule.
As
of September
30, 2022, the Index had 54 constituents, 25
of which were listed on a non-U.S. exchange. The Index was established in 2021
and is owned by the Index Provider.
Under
normal circumstances, the Fund invests at least 80% of its net assets (plus
borrowings for investment purposes) in E-Commerce Companies. The foregoing
policy may be changed without shareholder approval upon 60 days’ written notice
to shareholders.
To
the extent the Index concentrates (i.e.,
holds more than 25% of its total assets) in any industry or group of related
industries, the Fund will concentrate its investments to approximately the same
extent as the Index. It is expected that the Fund will concentrate its
investments in E-Commerce
Business.
Principal Investment
Risks
You can lose money on your investment in the
Fund. The Fund is subject to the risks summarized below. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s prospectus entitled “Additional Information about the
Principal Risks of Investing in the Funds.”
•E-Commerce
Business Investing Risk.
E-commerce companies typically face intense competition and are subject to
fluctuating consumer demand. Many of these companies compete aggressively on
price, potentially affecting their long run profitability. Unlike traditional
brick and mortar retailers, online marketplaces and retailers must assume
shipping costs or pass such costs to consumers. Consumer access to price
information for the same or similar products may cause companies that operate in
the online marketplace to reduce profit margins in order to compete. Due to the
online nature of E-commerce companies and their involvement in processing,
storing, and transmitting large amounts of data, these companies are
particularly vulnerable threats to operational software and hardware, as well as
the theft of personal and transaction records and other customer data.
Technology companies and companies that rely heavily on technological advances
could have a significant effect on the value of the Fund’s investments.
E-commerce companies rely heavily on information technology products and systems
and are particularly vulnerable to rapid changes in technology product cycles,
rapid product obsolescence, government regulation and competition, both
domestically and internationally. These information technology products and
systems are dependent on suppliers and, as one example, a recent global chip
shortage can negatively impact their operations. E-commerce companies may
participate in monopolistic practices that could make them subject to higher
levels of regulatory scrutiny or potential break ups in the future, which could
severely impact the viability of these companies. Logistics and delivery
partners in e-commerce is important and increases in fuel and operating costs,
labor relations and insurance costs can adversely affect their businesses.
•Equity
Market Risk.
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 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. In addition,
local, regional or global events such as war, acts of terrorism, spread of
infectious diseases or other public health issues, recessions, or other events
could have a significant negative impact on the Fund and its investments. For
example, the global pandemic caused by COVID-19, a novel coronavirus, and the
aggressive responses taken by many governments, including closing borders,
restricting international and domestic travel, and the imposition of prolonged
quarantines or similar restrictions, has had negative impacts, and in many cases
severe impacts, on markets worldwide. The COVID-19 pandemic has caused prolonged
disruptions to the normal business operations of companies around the world and
the impact of such disruptions is hard to predict. Such events may affect
certain geographic regions, countries, sectors and industries more significantly
than others. Such events could adversely affect the prices and liquidity of the
Fund’s portfolio securities or other instruments and could result in disruptions
in the trading markets.
•Concentration
Risk.
The Fund’s investments will be concentrated in an industry or group of
industries to the extent that the Index is so concentrated. In such event, the
value of the Shares may rise and fall more than the value of shares of a fund
that invests in securities of companies in a broader range of
industries.
•Large-Capitalization
Investing Risk.
The Fund may invest in the securities of large-capitalization companies. As a
result, the Fund’s performance may be adversely affected if securities of
large-capitalization companies underperform securities of smaller-capitalization
companies or the market as a whole. 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.
•Mid-
and Small-Capitalization Investing Risk.
The Fund may invest in the securities of mid- and small-capitalization
companies. As a result, the Fund’s performance may be adversely affected if
securities of mid- and small-capitalization companies underperform securities of
other capitalization ranges or the market as a whole. Securities of smaller
companies trade in smaller volumes and are often more vulnerable to market
volatility than securities of larger companies.
•Real
Estate Companies Risk.
The Fund invests in real estate companies, including REITs and real estate
holdings companies, which will expose investors to the risks of owning real
estate directly, as well as to the risks that relate specifically to the way in
which such companies are organized and operated. Real estate is highly sensitive
to general and local economic conditions and developments. The U.S. real estate
market may, in the future, experience and has, in the past, experienced a
decline in value, with certain regions experiencing significant losses in
property values. Many real estate companies, including REITs, utilize leverage
(and some may be highly leveraged), which increases investment risk and the risk
normally associated with debt financing, and could potentially increase the
Fund’s volatility and losses. Exposure to such real estate may adversely affect
Fund performance.
Real
estate companies operating in the e-commerce marketplace may be affected by
unique supply and demand factors that do not apply to other real estate sectors.
For example, these companies may be more susceptible to changes in interest
rates, macroeconomic trends, government regulation, and tax regulation than
other real estate sectors. These real estate companies may also be concentrated
in logistics-related industries, which could expose industrial real estate
companies to the risks of a downturn affecting logistics companies.
•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. In addition, to the extent the Fund holds
interests in REITs, it is expected that investors in the Fund will bear two
layers of asset-based management fees and expenses (directly at the Fund level
and indirectly at the REIT level). The risks of investing in REITs include
certain risks associated with the direct ownership of real estate and the real
estate industry in general. These include risks related to general, regional and
local economic conditions; fluctuations in interest rates and property tax
rates; shifts in zoning laws, environmental regulations and other governmental
action such as the exercise of eminent domain; cash flow dependency; increased
operating expenses; lack of availability of mortgage funds; losses due to
natural disasters; overbuilding; losses due to casualty or condemnation; changes
in property values, vacancy, and rental rates; and other factors.
In
addition to these risks, REITs are dependent upon management skills and
generally may not be diversified. REITs are also subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. In addition, REITs could
possibly fail to qualify for the beneficial tax treatment available to REITs
under the Internal Revenue Code of 1986, or to maintain their exemptions from
registration under the Investment Company Act of 1940, as amended (the “1940
Act”). The Fund expects that dividends received from a REIT and distributed to
Fund shareholders generally will be taxable to the shareholder as ordinary
income, but may be taxable as return of capital. In the event of a default by a
borrower or lessee, the REIT may experience delays in enforcing its rights as a
mortgagee or lessor and may incur substantial costs associated with protecting
investments.
•Index
Provider Risk. There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Index Provider relies on an independent calculation
agent to calculate and disseminate the Index accurately. Any losses or costs
associated with errors made by such calculation agent generally will be borne by
the Fund and its shareholders. The
Index Provider has not previously been an index provider, which may create
additional risks for investing in the Fund.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. Investments in non-U.S. securities also
may be subject to withholding or other taxes. These and other factors can make
investments in the Fund more volatile and potentially less liquid than other
types of investments.
•Depositary
Receipt Risk.
Depositary Receipts involve risks similar to those associated with investments
in foreign securities, such as changes in political or economic conditions of
other countries and changes in the exchange rates of foreign currencies.
Depositary Receipts listed on U.S. 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.
•ETF
Risks.
The Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦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.
◦Trading. Although
Shares are listed for trading on the 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.
•Limited
Operating History Risk.
The Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•New
Adviser Risk.
The Adviser has only recently begun serving as an investment adviser to ETFs. As
a result, investors do not have a long-term track record of managing an ETF from
which to judge the Adviser, and the Adviser may not achieve the intended result
in managing the Fund.
•Non-Diversification
Risk. Although the Fund intends to
invest in a variety of securities and instruments, 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.
•Passive
Investment Risk.
The Fund is not actively managed, and its Sub-Adviser would not sell shares of
an equity security due to current or projected underperformance of a security,
industry, or sector, unless that security is removed from the Index or the
selling of shares of that security is otherwise required upon a reconstitution
or rebalancing of the Index in accordance with the Index methodology. Unlike
with an actively managed fund, the Sub-Adviser does not use techniques or
defensive strategies designed to lessen the effects of market volatility or to
reduce the impact of periods of market decline. This means that, based on market
and economic conditions, the Fund’s performance could be lower than other types
of funds that may actively shift their portfolio assets to take advantage of
market opportunities or to lessen the impact of a market decline.
•Calculation
Methodology Risk.
The Index relies directly or indirectly on various sources of information to
assess the criteria of issuers included in the Index, including information that
may be based on assumptions and estimates. Neither the Fund, the Index Provider,
the Adviser, or the Sub-Adviser (each as defined below) can offer assurances
that the Index’s calculation methodology or sources of information will provide
an accurate assessment of included issuers or a correct valuation of securities,
nor can they guarantee the availability or timeliness of the production of the
Index.
•Tracking
Error Risk.
As with all index funds, the performance of the Fund and its Index may differ
from each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
•Tax
Risk.
To qualify for the favorable tax treatment generally available to regulated
investment companies, the Fund must satisfy certain diversification
requirements. In particular, the Fund generally may not acquire a security if,
as a result of the acquisition, more than 50% of the value of the Fund’s assets
would be invested in (a) issuers in which the Fund has, in each case, invested
more than 5% of the Fund’s assets or (b) issuers more than 10% of whose
outstanding voting securities are owned by the Fund. While the weighting of the
Index is not inconsistent with these rules, given the concentration of the Index
in a relatively small number of securities, it may not always be possible for
the Fund to fully implement a replication strategy or a representative sampling
strategy while satisfying these diversification requirements. The Fund’s efforts
to satisfy the diversification requirements may affect the Fund’s execution of
its investment strategy and may cause the Fund’s return to deviate from that of
the Index, and the Fund’s efforts to replicate or represent the Index may cause
it inadvertently to fail to satisfy the diversification requirements. If the
Fund were to fail to satisfy the diversification requirements, it could incur
penalty taxes and be forced to dispose of certain assets, or it could fail to
qualify as a regulated investment company. If the Fund were to fail to qualify
as a regulated investment company, 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.
Fund Performance
Once the Fund has been in operation for a
full calendar year, performance information will be shown here.
Updated performance information will be available on the Fund’s website at
www.KellyETFs.com
or by calling the Fund toll-free at (800)
658-1070.
Portfolio
Management
Adviser Kelly
Strategic Management, LLC (d/b/a
Kelly Intelligence)
Sub-Adviser Penserra
Capital Management, LLC (“Penserra” or the “Sub-Adviser”)
Portfolio
Managers Dustin
Lewellyn, CFA, Managing Director of Penserra; Ernesto Tong, CFA, Managing
Director of Penserra; and Anand Desai, Senior Vice President of Penserra are
jointly and primarily responsible for the day-to-day management of the Fund and
have served as portfolio managers since the Fund’s inception.
Buying
and Selling Fund Shares
Shares
are listed on 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).
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 and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.KellyETFs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your 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.
Investment Objective
The Kelly Fintech &
Digital Payments Sector ETF (the “Fund”) seeks to track the total return
performance, before fees and expenses, of the Strategic Fintech & Digital
Payments Sector Index (the “Index”).
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 tables and examples
below.
|
|
|
|
|
| |
|
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
|
|
Management
Fees |
0.68% |
|
Distribution
and/or Service (12b-1) Fees |
none |
|
Other
Expenses1 |
0.00% |
| Total
Annual Fund Operating Expenses |
0.68% |
1Estimated for the current
fiscal year.
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. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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 Fund Shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. As the Fund has not yet
commenced operations, there is no portfolio turnover information to provide at
this time.
Principal Investment Strategies of the
Fund
The
Fund employs a “passive management” (or indexing) investment approach designed
to track the total return performance, before fees and expenses, of the Index.
The Index is based on a proprietary methodology developed and maintained by
Strategic Indexes, LLC (the “Index Provider”), an affiliate of Kelly Strategic
Management, LLC, the Fund’s investment adviser (the “Adviser”). Unlike many
investment companies, the Fund does not try to “beat” the Index and does not
seek temporary defensive positions when markets decline or appear overvalued
other than those indicated in the Index.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning the Fund will generally invest in all of the component
securities of the Index in the same approximate proportions as in the Index.
However, the Fund may use a “representative sampling” strategy, meaning it may
invest in a sample of the securities in the Index whose risk, return, and other
characteristics closely resemble the risk, return, and other characteristics of
the Index as a whole, when the Fund’s Sub-Adviser believes it is in the best
interests of the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
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.
The
Index
The
Index is a rules-based index that consists of the stocks or corresponding
depositary receipts of companies engaged in the creation, development,
production, operation, provision, distribution, ownership, servicing, licensing,
leasing or franchising of at least one of the following (“Fintech
Business”):
|
|
|
|
|
| |
| Fintech
Enterprise Solutions |
Cloud-based
financial services business software solutions, services, and data
analytics to vertical markets (i.e., businesses where vendors serve a
specific audience and their set of needs). |
| Fintech
Integrated Platforms |
(i)
Managed payments systems and solutions, (ii) point-of-sale and business
tools, (iii) software that is specific to vertical markets, (iv) financial
services, or (v) blockchain and alternative currency
systems. |
The
Fund will not invest in cryptocurrency assets directly or through the use of
derivatives. The Fund also will not invest in initial coin offerings. The Fund
may, however, have indirect exposure to cryptocurrency assets by virtue of its
investments in companies that use one or more cryptocurrency assets as part of
their business activities or that hold cryptocurrency assets as proprietary
investments. Because the Fund will not invest directly in any cryptocurrency or
cryptocurrency derivative, it will not track price movements of any
cryptocurrency.
Fintech
companies are defined as companies that are at the intersection of finance and
technology and are principally engaged in the development or use of software to
create or deliver financial services products and services. Digital payments
companies are defined as companies that are involved in the electronic payment
for goods and services. Such goods and services include point-of-sale hardware,
online payroll services, and invoicing technology firms. Fintech integrated
platforms include companies that provide blockchain and alternative currency
systems, which are defined as the infrastructure used to transact in
cryptocurrency and other alternative currencies. Cryptocurrencies are a form of
digital currency that can be used to purchase goods or services from certain
vendors or can be purchased or sold like an investment asset. Cryptocurrencies
generally rely on a blockchain to maintain the integrity of their transaction
histories, and new amounts of a cryptocurrency are added to the available supply
based on the completion of certain complex mathematical problems — a process
known as cryptocurrency “mining.” While the Fund may invest in companies that
provide or support blockchain activities these activities may represent a small
part of an issuer’s operations, for this reason growth of blockchain activities
may not have a material impact on the issuer’s stock price.
Construction
of the Index begins with equity securities listed on an exchange in a developed
country. Companies are then considered for inclusion in the Index based on an
analysis of the company’s source of revenues and profits. A company is eligible
for inclusion in the Index if,
according to a public filing, it generates a majority of its revenue or profits
from one of the activities described above (“Fintech Companies”). The Index
Provider screens for the source of a company’s revenues and profits using
information in regulatory filings (e.g.,
financial statements, annual reports, investor presentations), analyst reports,
and industry-specific trade publications.
Equity
securities included in the Index include common stocks, depositary receipts, and
preferred stocks. As of October 31, 2022, companies listed in the following
countries were eligible for inclusion in the Index: Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan,
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, the United Kingdom, and the United States. Eligible Companies
identified by the Index Provider are added to the Index, subject to meeting the
investibility requirements described below. The Index may include small-, mid-,
and large-capitalization companies. The Index is subject to a maximum of 80
constituents with a maximum of 40 constituents from each category described
above (i.e.,
fintech enterprise solutions, etc.). Where the number of eligible constituents
exceeds the maximum allowable, the Fund will rank the constituents by float
adjusted market capitalization and take the largest constituents until it has
reached the maximum number allowed.
At
the time of each quarterly rebalance and reconstitution of the Index, Index
constituents must meet investibility requirements, including:
•a
market capitalization of at least $300 million;
•a
3-month average daily traded value greater than or equal to $1
million;
•a
free float (i.e.,
the proportion of shares that are publicly available) of at least 20%;
and
•a
trading price of not greater than $50,000.
The
Index is reconstituted and rebalanced (i.e.,
companies are added or deleted and weights are reset based on Index rules)
quarterly, after the close of business on the third Friday of each of March,
June, September, and December (the “Rebalance Date”). For each rebalance and
reconstitution of the Index, Index constituents are determined based on data as
of the last business day in each of February, May, August, and November (the
“Selection Date”). As of each rebalance date, each constituent is market
capitalization-weighted, subject to a maximum of 7.5% weight and a minimum of
0.25% weight for each constituent. Any weight removed from an index’s
constituents due to a limit is combined, and the combined weight then
distributed proportionately (according to their index weighting) across the
uncapped constituents of the index.
The
Fund rebalances its portfolio in accordance with its Index, and, therefore, any
changes to the Index’s rebalance schedule will result in corresponding changes
to the Fund’s rebalance schedule.
As
of September
30, 2022, the Index had 44 constituents, 7
of which were listed on a non-U.S. exchange. The Index was established in 2021
and is owned by the Index Provider.
The
Fund’s Investment Strategy
Under
normal circumstances, the Fund invests at least 80% of its net assets (plus
borrowings for investment purposes) in Fintech Companies. The foregoing policy
may be changed without shareholder approval upon 60 days’ written notice to
shareholders.
To
the extent the Index concentrates (i.e., holds more than 25% of its total assets)
in any industry or group of related industries, the Fund will concentrate its
investments to approximately the same extent as the Index. It is expected that
the Fund will concentrate its investments in Fintech
Business.
Principal Investment Risks
You can lose money on your investment in the
Fund. The Fund is subject to the risks summarized below. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s prospectus entitled “Additional Information about the
Principal Risks of Investing in the Funds.”
•
Investing
Risk.
Fintech companies may be adversely impacted by government regulations, economic
conditions and deterioration in credit markets. Fintech companies may rely
heavily on technology. This can make them particularly vulnerable to rapid
changes in technology product cycles, rapid product obsolescence, government
regulation and competition, both domestically and internationally, including
competition from foreign competitors with lower production costs. These
companies may be more heavily dependent on patent and intellectual property
rights, the loss or impairment of which may adversely affect profitability.In
addition, many fintech companies store sensitive consumer information and could
be the target of cybersecurity attacks and other types of theft, which could
have a negative impact on these companies. While fintech companies provide or
support financial services currently they operate under less regulatory scrutiny
than traditional financial services companies and banks. There is a significant
risk that regulatory oversight could increase in the future. Higher levels of
regulation could increase costs and adversely impact the current business models
of some fintech companies. These companies could be negatively impacted by
disruptions in service caused by hardware or software failure, or by
interruptions or delays in service by third-party data center hosting facilities
and maintenance providers. These companies may be highly dependent on their
ability to enter into agreements with merchants and other third parties to
utilize a particular payment method, system, software or service, and such
agreements may be subject to increased regulatory scrutiny. To the extent a
fintech company uses or supports blockchain technology it can be subject to
increased risk as blockchain is new and many of its uses are untested. The
mechanics of using blockchain technology to transact in digital or other types
of assets, such as securities or derivatives, is relatively new and untested.
There is no assurance that widespread adoption will occur. A lack of expansion
in the usage of blockchain technology could adversely affect fintech companies
that use or support blockchain technology. At the same time a company may only
have limited exposure to blockchain activities, which can limit that issuer’s
ability to benefit from blockchain activities should they become more widely
accepted.
•Digital
Payment Company Investing Risk.
Companies operating in the digital payment industry, both domestically and
internationally, are subject to increasing regulatory constraints, particularly
with respect to fees, competition and anti-trust matters, cybersecurity and
privacy. These companies may be highly dependent on their ability to enter into
agreements with merchants and other third parties to utilize a particular
payment method, system, software or service, and such agreements may be subject
to increased regulatory scrutiny. Additionally, certain of these companies are
subject to potential class-action litigation challenging such agreements. Such
factors may adversely affect the profitability and value of such
companies.
•Equity
Market Risk.
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 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. In addition,
local, regional or global events such as war, acts of terrorism, spread of
infectious diseases or other public health issues, recessions, or other events
could have a significant negative impact on the Fund and its investments. For
example, the global pandemic caused by COVID-19, a novel coronavirus, and the
aggressive responses taken by many governments, including closing borders,
restricting international and domestic travel, and the imposition of prolonged
quarantines or similar restrictions, has had negative impacts, and in many cases
severe impacts, on markets worldwide. The COVID-19 pandemic has caused prolonged
disruptions to the normal business operations of companies around the world and
the impact of such disruptions is hard to predict. Such events may affect
certain geographic regions, countries, sectors and industries more significantly
than others. Such events could adversely affect the prices and liquidity of the
Fund’s portfolio securities or other instruments and could result in disruptions
in the trading markets.
•Concentration
Risk.
The Fund’s investments will be concentrated in an industry or group of
industries to the extent that the Index is so concentrated. In such event, the
value of the Shares may rise and fall more than the value of shares of a fund
that invests in securities of companies in a broader range of
industries.
•Large-Capitalization
Investing Risk.
The Fund may invest in the securities of large-capitalization companies. As a
result, the Fund’s performance may be adversely affected if securities of
large-capitalization companies underperform securities of smaller-capitalization
companies or the market as a whole. 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.
•Mid-
and Small-Capitalization Investing Risk.
The Fund may invest in the securities of mid- and small-capitalization
companies. As a result, the Fund’s performance may be adversely affected if
securities of mid- and small-capitalization companies underperform securities of
other capitalization ranges or the market as a whole. Securities of smaller
companies trade in smaller volumes and are often more vulnerable to market
volatility than securities of larger companies.
•Index
Provider Risk. There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Index Provider relies on an independent calculation
agent to calculate and disseminate the Index accurately. Any losses or costs
associated with errors made by such calculation agent generally will be borne by
the Fund and its shareholders. The
Index Provider has not previously been an index provider, which may create
additional risks for investing in the Fund.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. Investments in non-U.S. securities also
may be subject to withholding or other taxes. These and other factors can make
investments in the Fund more volatile and potentially less liquid than other
types of investments.
•Depositary
Receipt Risk.
Depositary Receipts involve risks similar to those associated with investments
in foreign securities, such as changes in political or economic conditions of
other countries and changes in the exchange rates of foreign currencies.
Depositary Receipts listed on U.S. 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.
•ETF
Risks.
The Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦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.
◦Trading. Although
Shares are listed for trading on the 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.
•Limited
Operating History Risk.
The Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•New
Adviser Risk.
The Adviser has only recently begun serving as an investment adviser to ETFs. As
a result, investors do not have a long-term track record of managing an ETF from
which to judge the Adviser, and the Adviser may not achieve the intended result
in managing the Fund.
•Non-Diversification
Risk. Although the Fund intends to invest in a
variety of securities and instruments, 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.
•Passive
Investment Risk.
The Fund is not actively managed, and its Sub-Adviser would not sell shares of
an equity security due to current or projected underperformance of a security,
industry, or sector, unless that security is removed from the Index or the
selling of shares of that security is otherwise required upon a reconstitution
or rebalancing of the Index in accordance with the Index methodology. Unlike
with an actively managed fund, the Sub-Adviser does not use techniques or
defensive strategies designed to lessen the effects of market volatility or to
reduce the impact of periods of market decline. This means that, based on market
and economic conditions, the Fund’s performance could be lower than other types
of funds that may actively shift their portfolio assets to take advantage of
market opportunities or to lessen the impact of a market
decline.
•Calculation
Methodology Risk.
The Index relies directly or indirectly on various sources of information to
assess the criteria of issuers included in the Index, including information that
may be based on assumptions and estimates. Neither the Fund, the Index Provider,
the Adviser, or the Sub-Adviser (each as defined below) can offer assurances
that the Index’s calculation methodology or sources of information will provide
an accurate assessment of included issuers or a correct valuation of securities,
nor can they guarantee the availability or timeliness of the production of the
Index.
•Tracking
Error Risk.
As with all index funds, the performance of the Fund and its Index may differ
from each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
•Tax
Risk.
To qualify for the favorable tax treatment generally available to regulated
investment companies, the Fund must satisfy certain diversification
requirements. In particular, the Fund generally may not acquire a security if,
as a result of the acquisition, more than 50% of the value of the Fund’s assets
would be invested in (a) issuers in which the Fund has, in each case, invested
more than 5% of the Fund’s assets or (b) issuers more than 10% of whose
outstanding voting securities are owned by the Fund. While the weighting of the
Index is not inconsistent with these rules, given the concentration of the Index
in a relatively small number of securities, it may not always be possible for
the Fund to fully implement a replication strategy or a representative sampling
strategy while satisfying these diversification requirements. The Fund’s efforts
to satisfy the diversification requirements may affect the Fund’s execution of
its investment strategy and may cause the Fund’s return to deviate from that of
the Index, and the Fund’s efforts to replicate or represent the Index may cause
it inadvertently to fail to satisfy the diversification requirements. If the
Fund were to fail to satisfy the diversification requirements, it could incur
penalty taxes and be forced to dispose of certain assets, or it could fail to
qualify as a regulated investment company. If the Fund were to fail to qualify
as a regulated investment company, 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.
•Third
Party Product Defects or Vulnerabilities Risk. Where
blockchain systems are built using third party products, those products may
contain technical defects or vulnerabilities beyond a company’s control.
Open-source technologies that are used to build a blockchain application, may
also introduce defects and vulnerabilities.
Fund Performance
Once the Fund has been in operation for a
full calendar year, performance information will be shown here.
Updated performance information will be available on the Fund’s website at
www.KellyETFs.com
or by calling the Fund toll-free at (800)
658-1070.
Management
Adviser Kelly
Strategic Management, LLC (d/b/a Kelly Intelligence)
Sub-Adviser Penserra
Capital Management, LLC (“Penserra” or the “Sub-Adviser”)
Portfolio
Managers Dustin
Lewellyn, CFA, Managing Director of Penserra; Ernesto Tong, CFA, Managing
Director of Penserra; and Anand Desai, Senior Vice President of Penserra are
jointly and primarily responsible for the day-to-day management of the Fund and
have served as portfolio managers since the Fund’s inception.
Buying
and Selling Fund Shares
Shares
are listed on 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).
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 and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.KellyETFs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your 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.
Investment Objective
The Kelly Internet of Things
Technology ETF (the “Fund”) seeks to track the total return performance, before
fees and expenses, of the Strategic Internet of Things Technology Index (the
“Index”).
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 tables and examples
below.
|
|
|
|
|
| |
|
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
|
|
Management
Fees |
0.68% |
|
Distribution
and/or Service (12b-1) Fees |
none |
|
Other
Expenses1 |
0.00% |
|
Total
Annual Fund Operating Expenses |
0.68% |
1Estimated for the current fiscal
year.
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. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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 Fund Shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. As the Fund has not yet
commenced operations, there is no portfolio turnover information to provide at
this time.
Principal Investment Strategies of the
Fund
The
Fund employs a “passive management” (or indexing) investment approach designed
to track the total return performance, before fees and expenses, of the Index.
The Index is based on a proprietary methodology developed and maintained by
Strategic Indexes, LLC (the “Index Provider”), an affiliate of Kelly Strategic
Management, LLC, the Fund’s investment adviser (the “Adviser”). Unlike many
investment companies, the Fund does not try to “beat” the Index and does not
seek temporary defensive positions when markets decline or appear overvalued
other than those indicated in the Index.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning the Fund will generally invest in all of the component
securities of the Index in the same approximate proportions as in the Index.
However, the Fund may use a “representative sampling” strategy, meaning it may
invest in a sample of the securities in the Index whose risk, return, and other
characteristics closely resemble the risk, return, and other characteristics of
the Index as a whole, when the Fund’s Sub-Adviser believes it is in the best
interests of the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
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.
The
Index
The
Index is a rules-based index that consists of the stocks or corresponding
depositary receipts of companies engaged in creation, development, production,
operation, provision, distribution, ownership, servicing, licensing, leasing or
franchising of at least one of the following (“IOT Business”):
|
|
|
|
|
| |
| Enterprise
Solutions |
Applications
that are responsible for data collection, device integration, real-time
analytics, and software applications and software process extensions (i.e.
processes designed to accommodate for future growth) within the Internet
of Things network. |
| Equipment,
Vehicle, Infrastructure, and Building Technology |
Infrastructure
that is connected to the Internet, such as data centers, cell towers,
fiber optic networks, and technology hardware. |
| Semiconductors
and Sensors |
Signal
processing units, network lines, and cellular network receivers and
transmitters. |
| Networking
Infrastructure and Software |
Cloud
data platforms, which includes data warehousing solutions (i.e.,
repositories for structured data), data lakes (i.e., repositories for data
in its raw format), data engineering, data science, data application
development, and data exchange. |
The
Internet of Things refers to the network of physical objects (devices, vehicles,
equipment, homes, buildings) that are connected to the internet through embedded
devices and software, which allows these physical objects to collect, analyze
and exchange data.
Construction
of the Index begins with equity securities listed on an exchange in a developed
country. Companies are then considered for inclusion in the Index based on an
analysis of the company’s source of revenues and profits. A company is eligible
for inclusion in the Index if, according to a public filing, it generates a
majority of its revenue or profits from one of the activities described above
(“IOT Companies”). The Index Provider screens for the source of a company’s
revenues and profits using information in regulatory filings (e.g.,
financial statements, annual reports, investor presentations), analyst reports,
and industry-specific trade publications.
Equity
securities included in the Index include common stocks, real estate investment
trusts (“REITs”), depositary receipts, and preferred stocks. As of October 31,
2022, companies listed in the following countries were eligible for inclusion in
the Index: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the
United States. Eligible Companies identified by the Index Provider are added to
the Index, subject to meeting the investibility requirements described below.
The Index may include small-, mid-, and large-capitalization companies. The
Index is subject to a maximum of 80 constituents. Where the number of eligible
constituents exceeds the maximum allowable, the Fund will rank the constituents
by float adjusted market capitalization and take the largest constituents until
it has reached the maximum number allowed. Investments in any one of the sectors
described above is limited to 35% of net assets, as of each rebalance date
(described below).
At
the time of each quarterly rebalance and reconstitution of the Index, Index
constituents must meet investibility requirements, including:
•a
market capitalization of at least $300 million;
•a
3-month average daily traded value greater than or equal to $1
million;
•a
free float (i.e.,
the proportion of shares that are publicly available) of at least 20%;
and
•a
trading price of not greater than $50,000.
The
Index is reconstituted and rebalanced (i.e.,
companies are added or deleted and weights are reset based on Index rules)
quarterly, after the close of business on the third Friday of each of March,
June, September, and December (the “Rebalance Date”). For each rebalance and
reconstitution of the Index, Index constituents are determined based on data as
of the last business day in each of February, May, August, and November (the
“Selection Date”). As of each rebalance date, each constituent is market
capitalization-weighted, subject to a maximum of 6% weight and a minimum of
0.25%
weight
for each constituent. Any weight removed from an index’s constituents due to a
limit is combined, and the combined weight then distributed proportionately
(according to their index weighting) across the uncapped constituents of the
index.
The
Fund rebalances its portfolio in accordance with its Index, and, therefore, any
changes to the Index’s rebalance schedule will result in corresponding changes
to the Fund’s rebalance schedule.
As
of September
30, 2022, the Index had 48 constituents, 6
of which were listed on a non-U.S. exchange. The Index was established in 2021
and is owned by the Index Provider.
The
Fund’s Investment Strategy
Under
normal circumstances, the Fund invests at least 80% of its net assets (plus
borrowings for investment purposes) in IOT Companies. The foregoing policy may
be changed without shareholder approval upon 60 days’ written notice to
shareholders.
To
the extent the Index concentrates (i.e.,
holds more than 25% of its total assets) in any industry or group of related
industries, the Fund will concentrate its investments to approximately the same
extent as the Index. It is expected that the Fund will concentrate its
investments in IOT Business.
Principal Investment Risks
You can lose money on your investment in the
Fund. The Fund is subject to the risks summarized below. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s prospectus entitled “Additional Information about the
Principal Risks of Investing in the Funds.”
•IOT
Companies Investing Risk.
Internet of Things (“IOT”) companies may have limited product lines, markets,
financial resources or personnel. These companies may rely heavily on technology
and are particularly vulnerable to rapid changes in technology product cycles,
rapid product obsolescence, government regulation and competition, both
domestically and internationally, including competition from foreign competitors
with lower production costs. Stocks of IOT companies, especially those of
smaller, less-seasoned companies, tend to be more volatile than the overall
market. In addition, many IOT companies receive sensitive consumer information
and could be the target of cybersecurity attacks and other types of theft, which
could have a negative impact on these companies. As a result, these companies
may be adversely impacted by government regulations, and may be subject to
additional regulatory oversight with regard to privacy concerns and
cybersecurity risk. Many IOT companies are exploring the possible applications
of new and increased capacity wireless connectivity (i.e. 5G). The extent of
such technologies’ versatility has not yet been fully explored. These companies
are also heavily dependent on intellectual property rights and may be adversely
affected by loss or impairment of those rights. Certain IOT companies have
limited product lines, markets, financial resources or personnel (e.g.
semiconductor companies).
•Equity
Market Risk.
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 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. In addition,
local, regional or global events such as war, acts of terrorism, spread of
infectious diseases or other public health issues, recessions, or other events
could have a significant negative impact on the Fund and its investments. For
example, the global pandemic caused by COVID-19, a novel coronavirus, and the
aggressive responses taken by many governments, including closing borders,
restricting international and domestic travel, and the imposition of prolonged
quarantines or similar restrictions, has had negative impacts, and in many cases
severe impacts, on markets worldwide. The COVID-19 pandemic has caused prolonged
disruptions to the normal business operations of companies around the world and
the impact of such disruptions is hard to predict. Such events may affect
certain geographic regions, countries, sectors and industries more significantly
than others. Such events could adversely affect the prices and liquidity of the
Fund’s portfolio securities or other instruments and could result in disruptions
in the trading markets.
•Concentration
Risk.
The Fund’s investments will be concentrated in an industry or group of
industries to the extent that the Index is so concentrated. In such event, the
value of the Shares may rise and fall more than the value of shares of a fund
that invests in securities of companies in a broader range of
industries.
•Large-Capitalization
Investing Risk.
The Fund may invest in the securities of large-capitalization companies. As a
result, the Fund’s performance may be adversely affected if securities of
large-capitalization companies underperform securities of smaller-capitalization
companies or the market as a whole. 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.
•Mid-
and Small-Capitalization Investing Risk.
The Fund may invest in the securities of mid- and small-capitalization
companies. As a result, the Fund’s performance may be adversely affected if
securities of mid- and small-capitalization companies underperform securities of
other capitalization ranges or the market as a whole. Securities of smaller
companies trade in smaller volumes and are often more vulnerable to market
volatility than securities of larger companies.
•Real
Estate Companies Risk.
The Fund invests in real estate companies, including REITs and real estate
holdings companies, which will expose investors to the risks of owning real
estate directly, as well as to the risks that relate specifically to the way in
which such companies are organized and operated. Real estate is highly sensitive
to general and local economic conditions and developments. The U.S. real estate
market may, in the future, experience and has, in the past, experienced a
decline in value, with certain regions experiencing significant losses in
property values. Many real estate companies, including REITs, utilize leverage
(and some may be highly leveraged), which increases investment risk and the risk
normally associated with debt financing, and could potentially increase the
Fund’s volatility and losses. Exposure to such real estate may adversely affect
Fund performance.Real estate companies focused on wireless and broadcast
communications real estate may be affected by unique supply and demand factors
that do not apply to other real estate companies.
•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. In addition, to the extent the Fund holds
interests in REITs, it is expected that investors in the Fund will bear two
layers of asset-based management fees and expenses (directly at the Fund level
and indirectly at the REIT level). The risks of investing in REITs include
certain risks associated with the direct ownership of real estate and the real
estate industry in general. These include risks related to general, regional and
local economic conditions; fluctuations in interest rates and property tax
rates; shifts in zoning laws, environmental regulations and other governmental
action such as the exercise of eminent domain; cash flow dependency; increased
operating expenses; lack of availability of mortgage funds; losses due to
natural disasters; overbuilding; losses due to casualty or condemnation; changes
in property values, vacancy, and rental rates; and other factors.
In
addition to these risks, REITs are dependent upon management skills and
generally may not be diversified. REITs are also subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. In addition, REITs could
possibly fail to qualify for the beneficial tax treatment available to REITs
under the Internal Revenue Code of 1986, or to maintain their exemptions from
registration under the Investment Company Act of 1940, as amended (the “1940
Act”). The Fund expects that dividends received from a REIT and distributed to
Fund shareholders generally will be taxable to the shareholder as ordinary
income, but may be taxable as return of capital. In the event of a default by a
borrower or lessee, the REIT may experience delays in enforcing its rights as a
mortgagee or lessor and may incur substantial costs associated with protecting
investments.
•Index
Provider Risk. There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Index Provider relies on an independent calculation
agent to calculate and disseminate the Index accurately. Any losses or costs
associated with errors made by such calculation agent generally will be borne by
the Fund and its shareholders. The
Index Provider has not previously been an index provider, which may create
additional risks for investing in the Fund.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. Investments in non-U.S. securities also
may
be
subject to withholding or other taxes. These and other factors can make
investments in the Fund more volatile and potentially less liquid than other
types of investments.
•Depositary
Receipt Risk.
Depositary Receipts involve risks similar to those associated with investments
in foreign securities, such as changes in political or economic conditions of
other countries and changes in the exchange rates of foreign currencies.
Depositary Receipts listed on U.S. 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.
•ETF
Risks.
The Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦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.
◦Trading. Although
Shares are listed for trading on the 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.
•Limited
Operating History Risk.
The Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•New
Adviser Risk.
The Adviser has only recently begun serving as an investment adviser to ETFs. As
a result, investors do not have a long-term track record of managing an ETF from
which to judge the Adviser, and the Adviser may not achieve the intended result
in managing the Fund.
•Non-Diversification
Risk. Although the Fund intends to invest in a
variety of securities and instruments, 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.
•Passive
Investment Risk.
The Fund is not actively managed, and its Sub-Adviser would not sell shares of
an equity security due to current or projected underperformance of a security,
industry, or sector, unless that security
is
removed from the Index or the selling of shares of that security is otherwise
required upon a reconstitution or rebalancing of the Index in accordance with
the Index methodology. Unlike with an actively managed fund, the Sub-Adviser
does not use techniques or defensive strategies designed to lessen the effects
of market volatility or to reduce the impact of periods of market decline. This
means that, based on market and economic conditions, the Fund’s performance
could be lower than other types of funds that may actively shift their portfolio
assets to take advantage of market opportunities or to lessen the impact of a
market decline.
•Calculation
Methodology Risk.
The Index relies directly or indirectly on various sources of information to
assess the criteria of issuers included in the Index, including information that
may be based on assumptions and estimates. Neither the Fund, the Index Provider,
the Adviser, or the Sub-Adviser (each as defined below) can offer assurances
that the Index’s calculation methodology or sources of information will provide
an accurate assessment of included issuers or a correct valuation of securities,
nor can they guarantee the availability or timeliness of the production of the
Index.
•Tracking
Error Risk.
As with all index funds, the performance of the Fund and its Index may differ
from each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
•Tax
Risk.
To qualify for the favorable tax treatment generally available to regulated
investment companies, the Fund must satisfy certain diversification
requirements. In particular, the Fund generally may not acquire a security if,
as a result of the acquisition, more than 50% of the value of the Fund’s assets
would be invested in (a) issuers in which the Fund has, in each case, invested
more than 5% of the Fund’s assets or (b) issuers more than 10% of whose
outstanding voting securities are owned by the Fund. While the weighting of the
Index is not inconsistent with these rules, given the concentration of the Index
in a relatively small number of securities, it may not always be possible for
the Fund to fully implement a replication strategy or a representative sampling
strategy while satisfying these diversification requirements. The Fund’s efforts
to satisfy the diversification requirements may affect the Fund’s execution of
its investment strategy and may cause the Fund’s return to deviate from that of
the Index, and the Fund’s efforts to replicate or represent the Index may cause
it inadvertently to fail to satisfy the diversification requirements. If the
Fund were to fail to satisfy the diversification requirements, it could incur
penalty taxes and be forced to dispose of certain assets, or it could fail to
qualify as a regulated investment company. If the Fund were to fail to qualify
as a regulated investment company, 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.
Fund Performance
Once the Fund has been in operation for a
full calendar year, performance information will be shown here.
Updated performance information will be available on the Fund’s website at
www.KellyETFs.com
or by calling the Fund toll-free at (800)
658-1070.
Adviser Kelly
Strategic Management, LLC (d/b/a Kelly Intelligence)
Sub-Adviser Penserra
Capital Management, LLC (“Penserra” or the “Sub-Adviser”)
Portfolio
Managers Dustin
Lewellyn, CFA, Managing Director of Penserra; Ernesto Tong, CFA, Managing
Director of Penserra; and Anand Desai, Senior Vice President of Penserra are
jointly and primarily responsible for the day-to-day management of the Fund and
have served as portfolio managers since the Fund’s inception.
Buying
and Selling Fund Shares
Shares
are listed on 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).
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 and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary
market (the “bid-ask spread”). Recent information about the Fund, including its
NAV, market price, premiums and discounts, and bid-ask spreads is available on
the Fund’s website at www.KellyETFs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your 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.
Investment Objective
The Kelly Hotel & Lodging
Sector ETF (the “Fund”) seeks to track the total return performance, before fees
and expenses, of the Strategic Hotel & Lodging Sector Index (the
“Index”).
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 tables and examples
below.
|
|
|
|
|
| |
|
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
|
| Management
Fees |
0.78% |
| Distribution
and/or Service (12b-1) Fees |
none |
| Other
Expenses |
0.00% |
| Total
Annual Fund Operating Expenses |
0.78% |
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. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
| |
| 1
Year |
3
Years |
5
Years |
10
Years |
| $80 |
$249 |
$433 |
$966 |
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 Fund
Shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund’s performance.
For the period from January 12, 2022 to August 31, 2022, the portfolio turnover
rate for the Fund was 9% of the average value of its
portfolio.
Principal Investment Strategies of the
Fund
The
Fund employs a “passive management” (or indexing) investment approach designed
to track the total return performance, before fees and expenses, of the Index.
The Index is based on a proprietary methodology developed and maintained by
Strategic Indexes, LLC (the “Index Provider”), an affiliate of Kelly Strategic
Management, LLC, the Fund’s investment adviser (the “Adviser”). Unlike many
investment companies, the Fund does not try to “beat” the Index and does not
seek temporary defensive positions when markets decline or appear overvalued
other than those indicated in the Index.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning the Fund will generally invest in all of the component
securities of the Index in the same approximate proportions as in the Index.
However, the Fund may use a “representative sampling” strategy, meaning it may
invest in a sample of the securities in the Index whose risk, return, and other
characteristics closely resemble the risk, return, and other characteristics of
the Index as a whole, when the Fund’s Sub-Adviser believes it is in the best
interests of the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
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.
The
Index
The
Index is a rules-based index that consists of the stocks or corresponding
depositary receipts of companies engaged in the creation, development,
production, operation, provision, distribution, servicing, licensing, leasing or
franchising of at least one of the following (Hotel and Lodging
Business”):
|
|
|
|
|
| |
| Hotel
& Lodging Services |
(i)
Hotel and lodging management services or operational services or (ii)
provide franchising services for hotel, motel, lodging, residential, or
timeshare properties, including lodging platform services (e.g., global
marketplaces for private accommodations including online marketplaces for
discovering and booking private or shared accommodations). |
| Hotel
& Lodging Operations |
Hotels,
motels, lodges, resorts, timeshare properties, or real
estate. |
Construction
of the Index begins with equity securities listed on an exchange in a developed
country. Companies are then considered for inclusion in the Index based on an
analysis of the company’s source of revenues and profits. A company is eligible
for inclusion in the Index if, according to a public filing, it generates a
majority of its revenue or profits from one of the activities described above
(“Hotel and Lodging Companies”). The Index Provider screens for the source of a
company’s revenues and profits using information in regulatory filings
(e.g.,
financial statements, annual reports, investor presentations), analyst reports,
and industry-specific trade publications.
Equity
securities included in the Index include common stocks, real estate investment
trusts (“REITs”), depositary receipts, and preferred stocks. As of October 31,
2022, companies listed in the following countries were eligible for inclusion in
the Index: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the
United States. Eligible Companies identified by the Index Provider are added to
the Index, subject to meeting the investibility requirements described below.
The Index may include small-, mid-, and large-capitalization companies. The
Index is subject to a maximum of 60 constituents. Where the number of eligible
constituents exceeds the maximum allowable, the Fund will rank the constituents
by float adjusted market capitalization and take the largest constituents until
it has reached the maximum number allowed.
At
the time of each quarterly rebalance and reconstitution of the Index, Index
constituents must meet investibility requirements, including:
•a
market capitalization of at least $300 million;
•a
3-month average daily traded value greater than or equal to $1
million;
•a
free float (i.e.,
the proportion of shares that are publicly available) of at least 20%;
and
•a
trading price of not greater than $50,000.
The
Index is reconstituted and rebalanced (i.e.,
companies are added or deleted and weights are reset based on Index rules)
quarterly, after the close of business on the third Friday of each of March,
June, September, and December (the “Rebalance Date”). For each rebalance and
reconstitution of the Index, Index constituents are determined based on data as
of the last business day in each of February, May, August, and November (the
“Selection Date”). As of each rebalance date, each constituent is market
capitalization-weighted, subject to a maximum of 10% weight and a minimum of
0.25% weight for each constituent. Any weight removed from an index’s
constituents due to a limit is combined, and the combined weight then
distributed proportionately (according to their index weighting) across the
uncapped constituents of the index.
The
Fund rebalances its portfolio in accordance with its Index, and, therefore, any
changes to the Index’s rebalance schedule will result in corresponding changes
to the Fund’s rebalance schedule.
As
of
September 30, 2022, the Index had 44 constituents, 7 of
which were listed on a non-U.S. exchange. The Index was established in 2021 and
is owned by the Index Provider.
The
Fund’s Investment Strategy
Under
normal circumstances, the Fund invests at least 80% of its net assets (plus
borrowings for investment purposes) in Hotel and Lodging Companies. The
foregoing policy may be changed without shareholder approval upon 60 days’
written notice to shareholders.
To the extent the Index concentrates (i.e.,
holds more than 25% of its total assets) in any industry or group of related
industries, the Fund will concentrate its investments to approximately the same
extent as the Index. As of September 30, 2022, the Index was concentrated in
companies in the hotel and lodging
industries.
Principal Investment Risks
You can lose money on your investment in the
Fund. The Fund is subject to the risks summarized below. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s prospectus entitled “Additional Information about the
Principal Risks of Investing in the Funds.”
•Hotel
and Lodging Companies Investing Risk.
The Fund invests in real estate companies, including REITs and real estate
holdings companies, which will expose investors to the risks of owning real
estate directly, as well as to the risks that relate specifically to the way in
which such companies are organized and operated. Real estate is highly sensitive
to general and local economic conditions and developments. The U.S. real estate
market may, in the future, experience and has, in the past, experienced a
decline in value, with certain regions experiencing significant losses in
property values. Many real estate companies, including REITs, utilize leverage
(and some may be highly leveraged), which increases investment risk and the risk
normally associated with debt financing, and could potentially increase the
Fund’s volatility and losses. Exposure to such real estate may adversely affect
Fund performance.
In
addition to the foregoing risks common to most real estate companies, companies
in certain real estate sectors may have additional unique risks. Companies in
the Hotel & Lodging Real Estate sector may be affected by unique supply and
demand factors that do not apply to other real estate sectors. Weak economic
conditions in some parts of the world, changes in oil prices and currency
values, political instability in some areas, and the uncertainty over how long
any of these conditions will continue, could have a negative impact on the
lodging industry. During these periods of economic uncertainty, the lodging
industry may experience weakened demand for occupancy in some
markets.
•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. In addition, to the extent the Fund holds
interests in REITs, it is expected that investors in the Fund will bear two
layers of asset-based management fees and expenses (directly at the Fund level
and indirectly at the REIT level). The risks of investing in REITs include
certain risks associated with the direct ownership of real estate and the real
estate industry in general. These include risks related to general, regional and
local economic conditions; fluctuations in interest rates and property tax
rates; shifts in zoning laws, environmental regulations and other governmental
action such as the exercise of eminent domain; cash flow dependency; increased
operating expenses; lack of availability of mortgage funds; losses due to
natural disasters; overbuilding; losses due to casualty or condemnation; changes
in property values, vacancy, and rental rates; and other factors.
In
addition to these risks, REITs are dependent upon management skills and
generally may not be diversified. REITs are also subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. In addition, REITs could
possibly fail to qualify for the beneficial tax treatment available to REITs
under the Internal Revenue Code of 1986, or to maintain their exemptions from
registration under the Investment Company Act of 1940, as amended (the “1940
Act”). The Fund expects that dividends received from a REIT and distributed to
Fund shareholders generally will be taxable to the shareholder as ordinary
income, but may be taxable as return of capital. In the event of a default by a
borrower or lessee, the REIT may experience delays in enforcing its rights as a
mortgagee or lessor and may incur substantial costs associated with protecting
investments.
•Equity
Market Risk.
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 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. In addition,
local, regional or global events such as war, acts of terrorism, spread of
infectious diseases or other public health issues, recessions, or other events
could have a significant negative impact on the Fund and its investments. For
example, the global pandemic caused by COVID-19, a novel coronavirus, and the
aggressive responses taken by many governments, including closing borders,
restricting international and domestic travel, and the imposition of
prolonged
quarantines or similar restrictions, has had negative impacts, and in many cases
severe impacts, on markets worldwide. The COVID-19 pandemic has caused prolonged
disruptions to the normal business operations of companies around the world and
the impact of such disruptions is hard to predict. Such events may affect
certain geographic regions, countries, sectors and industries more significantly
than others. Such events could adversely affect the prices and liquidity of the
Fund’s portfolio securities or other instruments and could result in disruptions
in the trading markets.
•Concentration
Risk.
The Fund’s investments will be concentrated in an industry or group of
industries to the extent that the Index is so concentrated. In such event, the
value of the Shares may rise and fall more than the value of shares of a fund
that invests in securities of companies in a broader range of
industries.
•Large-Capitalization
Investing Risk.
The Fund may invest in the securities of large-capitalization companies. As a
result, the Fund’s performance may be adversely affected if securities of
large-capitalization companies underperform securities of smaller-capitalization
companies or the market as a whole. 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.
•Mid-
and Small-Capitalization Investing Risk.
The Fund may invest in the securities of mid- and small-capitalization
companies. As a result, the Fund’s performance may be adversely affected if
securities of mid- and small-capitalization companies underperform securities of
other capitalization ranges or the market as a whole. Securities of smaller
companies trade in smaller volumes and are often more vulnerable to market
volatility than securities of larger companies.
•Index
Provider Risk. There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Index Provider relies on an independent calculation
agent to calculate and disseminate the Index accurately. Any losses or costs
associated with errors made by such calculation agent generally will be borne by
the Fund and its shareholders. The
Index Provider has not previously been an index provider, which may create
additional risks for investing in the Fund.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. Investments in non-U.S. securities also
may be subject to withholding or other taxes. These and other factors can make
investments in the Fund more volatile and potentially less liquid than other
types of investments.
•Depositary
Receipt Risk.
Depositary Receipts involve risks similar to those associated with investments
in foreign securities, such as changes in political or economic conditions of
other countries and changes in the exchange rates of foreign currencies.
Depositary Receipts listed on U.S. 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.
•ETF
Risks.
The Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦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.
◦Trading. Although
Shares are listed for trading on the 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.
•Limited
Operating History Risk.
The Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•New
Adviser Risk.
The Adviser has only recently begun serving as an investment adviser to ETFs. As
a result, investors do not have a long-term track record of managing an ETF from
which to judge the Adviser, and the Adviser may not achieve the intended result
in managing the Fund.
•Non-Diversification
Risk. Although the Fund intends to invest in a
variety of securities and instruments, 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.
•Passive
Investment Risk.
The Fund is not actively managed, and its Sub-Adviser would not sell shares of
an equity security due to current or projected underperformance of a security,
industry, or sector, unless that security is removed from the Index or the
selling of shares of that security is otherwise required upon a reconstitution
or rebalancing of the Index in accordance with the Index methodology. Unlike
with an actively managed fund, the Sub-Adviser does not use techniques or
defensive strategies designed to lessen the effects of market volatility or to
reduce the impact of periods of market decline. This means that, based on market
and economic conditions, the Fund’s performance could be lower than other types
of funds that may actively shift their portfolio assets to take advantage of
market opportunities or to lessen the impact of a market decline.
•Calculation
Methodology Risk.
The Index relies directly or indirectly on various sources of information to
assess the criteria of issuers included in the Index, including information that
may be based on assumptions and estimates. Neither the Fund, the Index Provider,
the Adviser, or the Sub-Adviser (each as defined below) can offer assurances
that the Index’s calculation methodology or sources of information will provide
an accurate assessment of included issuers or a correct valuation of securities,
nor can they guarantee the availability or timeliness of the production of the
Index.
•Tracking
Error Risk.
As with all index funds, the performance of the Fund and its Index may differ
from each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
•Tax
Risk.
To qualify for the favorable tax treatment generally available to regulated
investment companies, the Fund must satisfy certain diversification
requirements. In particular, the Fund generally may not acquire a security if,
as a result of the acquisition, more than 50% of the value of the Fund’s assets
would be invested in (a) issuers in which the Fund has, in each case, invested
more than 5% of the Fund’s assets or (b) issuers more than 10% of whose
outstanding voting securities are owned by the Fund. While the weighting of the
Index is not inconsistent with these rules, given the concentration of the Index
in a relatively small number of securities, it may not always be possible for
the Fund to fully implement a replication strategy or a representative sampling
strategy while satisfying these diversification requirements. The Fund’s efforts
to satisfy the diversification requirements may affect the Fund’s execution of
its investment strategy and may cause the Fund’s return to deviate from that of
the
Index, and the Fund’s efforts to replicate
or represent the Index may cause it inadvertently to fail to satisfy the
diversification requirements. If the Fund were to fail to satisfy the
diversification requirements, it could incur penalty taxes and be forced to
dispose of certain assets, or it could fail to qualify as a regulated investment
company. If the Fund were to fail to qualify as a regulated investment company,
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.
Fund Performance
Once the Fund has been in operation for a
full calendar year, performance information will be shown here.
Updated performance information will be available on the Fund’s website at
www.KellyETFs.com
or by calling the Fund toll-free at (800)
658-1070.
Management
Adviser Kelly
Strategic Management, LLC (d/b/a Kelly Intelligence)
Sub-Adviser Penserra
Capital Management, LLC (“Penserra” or the “Sub-Adviser”)
Portfolio
Managers Dustin
Lewellyn, CFA, Managing Director of Penserra; Ernesto Tong, CFA, Managing
Director of Penserra; and Anand Desai, Senior Vice President of Penserra are
jointly and primarily responsible for the day-to-day management of the Fund and
have served as portfolio managers since the Fund’s inception.
Buying
and Selling Fund Shares
Shares
are listed on 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).
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 and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.KellyETFs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your 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.
Investment Objective
The Kelly Residential &
Apartment Real Estate ETF (the “Fund”)seeks to track the total return
performance, before fees and expenses, of the Strategic Residential &
Apartment Real Estate Sector Index (the “Index”).
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 tables and examples
below.
|
|
|
|
|
| |
|
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
|
| Management
Fees |
0.68% |
| Distribution
and/or Service (12b-1) Fees |
none |
| Other
Expenses |
0.00% |
| Total
Annual Fund Operating Expenses |
0.68% |
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. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
| |
| 1
Year |
3
Years |
5
Years |
10
Years |
| $69 |
$218 |
$379 |
$847 |
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 Fund Shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. For the period from January
12, 2022 to August 31, 2022, the portfolio turnover rate for the Fund was
18% of the average value of its
portfolio.
Principal Investment Strategies of the
Fund
The
Fund employs a “passive management” (or indexing) investment approach designed
to track the total return performance, before fees and expenses, of the Index.
The Index is based on a proprietary methodology developed and maintained by
Strategic Indexes, LLC (the “Index Provider”), an affiliate of Kelly Strategic
Management, LLC, the Fund’s investment adviser (the “Adviser”). Unlike many
investment companies, the Fund does not try to “beat” the Index and does not
seek temporary defensive positions when markets decline or appear overvalued
other than those indicated in the Index.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning the Fund will generally invest in all of the component
securities of the Index in the same approximate proportions as in the Index.
However, the Fund may use a “representative sampling” strategy, meaning it may
invest in a sample of the securities in the Index whose risk, return, and other
characteristics closely resemble the risk, return, and other characteristics of
the Index as a whole, when the Fund’s Sub-Adviser believes it is in the best
interests of the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
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.
The
Index
The
Index is a rules-based index that consists of U.S.- and Canada-listed companies
engaged in the following (“Residential and Apartment Real Estate
Business”):
|
|
|
|
|
| |
| Apartment
Buildings |
Owning
and operating apartment buildings. |
| Single-Family
Rental Homes |
Activities
focusing on single-family rental homes. |
| Student
Housing |
Owning
and operating real estate with a focus on leasing to students.
|
| Manufactured
Homes |
Owning
and operating in the manufactured home segment. This includes companies
operating mobile home or RV parks. |
Construction
of the Index begins with equity securities listed on an exchange in a developed
country. Companies are then considered for inclusion in the Index based on an
analysis of the company’s source of revenues and profits. A company is eligible
for inclusion in the Index if, according to a public filing, it generates a
majority of its revenue or profits from one of the activities described above
(“Residential and Apartment Real Estate Companies”). The Index Provider screens
for the source of a company’s revenues and profits using information in
regulatory filings (e.g.,
financial statements, annual reports, investor presentations), analyst reports,
and industry-specific trade publications.
Equity
securities included in the Index include common stocks, real estate investment
trusts (“REITs”), depositary receipts, and preferred stocks. As of October 31,
2022, companies listed in the following countries were eligible for inclusion in
the Index: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the
United States. Eligible Companies identified by the Index Provider are added to
the Index, subject to meeting the investibility requirements described below.
The Index may include small-, mid-, and large-capitalization companies. The
Index is subject to a maximum of 60 constituents. Where the number of eligible
constituents exceeds the maximum allowable, the Fund will rank the constituents
by float adjusted market capitalization and take the largest constituents until
it has reached the maximum number allowed.
At
the time of each quarterly rebalance and reconstitution of the Index, Index
constituents must meet investibility requirements, including:
•a
market capitalization of at least $300 million;
•a
3-month average daily traded value greater than or equal to $1
million;
•a
free float (i.e.,
the proportion of shares that are publicly available) of at least 20%;
and
•a
trading price of not greater than $50,000.
The
Index is reconstituted and rebalanced (i.e.,
companies are added or deleted and weights are reset based on Index rules)
quarterly, after the close of business on the third Friday of each of March,
June, September, and December (the “Rebalance Date”). For each rebalance and
reconstitution of the Index, Index constituents are determined based on data as
of the last business day in each of February, May, August, and November (the
“Selection Date”). As of each rebalance date, each constituent is market
capitalization-weighted, subject to a maximum of 7.5% weight and a minimum of
0.25% weight for each constituent. Any weight removed from an index’s
constituents due to a limit is combined, and the combined weight then
distributed proportionately (according to their index weighting) across the
uncapped constituents of the index.
The
Fund rebalances its portfolio in accordance with its Index, and, therefore, any
changes to the Index’s rebalance schedule will result in corresponding changes
to the Fund’s rebalance schedule.
As
of September
30, 2022, the Index had 27 constituents,
6 of which were listed on a non-U.S. exchange. The Index was established in 2021
and is owned by the Index Provider.
A
significant portion of the Index is expected to be composed of real estate
investment trusts (“REITs”). The Index will include non-U.S. holdings and U.S.
holdings may have significant foreign operations.
The
Fund’s Investment Strategy
Under
normal circumstances, the Fund invests at least 80% of its net assets (plus
borrowings for investment purposes) in Residential and Apartment Real Estate
Companies.The foregoing policy may be changed without shareholder approval upon
60 days’ written notice to shareholders.
To the extent the Index concentrates
(i.e., holds more than 25% of its total assets) in any industry or group of
related industries, the Fund will concentrate its investments to approximately
the same extent as the Index. As of September 30, 2022, the Index was
concentrated in companies in the residential & apartment (“multifamily”)
management and operational services
industries.
Principal Investment Risks
You can lose money on your investment in the
Fund. The Fund is subject to the risks summarized below. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s prospectus entitled “Additional Information about the
Principal Risks of Investing in the Funds.”
•Residential
and Apartment Real Estate Companies
Investing Risk.
The Fund invests in real estate companies, including REITs and real estate
holdings companies, which will expose investors to the risks of owning real
estate directly, as well as to the risks that relate specifically to the way in
which such companies are organized and operated. Real estate is highly sensitive
to general and local economic conditions and developments. The U.S. real estate
market may, in the future, experience and has, in the past, experienced a
decline in value, with certain regions experiencing significant losses in
property values. Many real estate companies, including REITs, utilize leverage
(and some may be highly leveraged), which increases investment risk and the risk
normally associated with debt financing, and could potentially increase the
Fund’s volatility and losses. Exposure to such real estate may adversely affect
Fund performance.
In
addition to the foregoing risks common to most real estate companies, companies
in certain real estate sectors may have additional unique risks. Companies in
the Apartments & Residential Real Estate sector may be affected by unique
supply and demand factors that do not apply to other real estate sectors.
Residential real estate development is particularly subject to changes in
financing costs, occupancy rates, the ability to obtain zoning or other permits
or government approvals, labor costs, and scheduling delays. Additionally, such
companies may face significant costs associated with compliance (or failure to
comply with) the accessibility provisions of federal, state or local
requirements.
•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. In addition, to the extent the Fund holds
interests in REITs, it is expected that investors in the Fund will bear two
layers of asset-based management fees and expenses (directly at the Fund level
and indirectly at the REIT level). The risks of investing in REITs include
certain risks associated with the direct ownership of real estate and the real
estate industry in general. These include risks related to general, regional and
local economic conditions; fluctuations in interest rates and property tax
rates; shifts in zoning laws, environmental regulations and other governmental
action such as the exercise of eminent domain; cash flow dependency; increased
operating expenses; lack of availability of mortgage funds; losses due to
natural disasters; overbuilding; losses due to casualty or condemnation; changes
in property values, vacancy, and rental rates; and other factors.
In
addition to these risks, REITs are dependent upon management skills and
generally may not be diversified. REITs are also subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. In addition, REITs could
possibly fail to qualify for the beneficial tax treatment available to REITs
under the Internal Revenue Code of 1986, or to maintain their exemptions from
registration under the Investment Company Act of 1940, as amended (the “1940
Act”). The Fund expects that dividends received from a REIT and distributed to
Fund shareholders generally will be taxable to the shareholder as ordinary
income, but may be taxable as return of capital. In the event of a default by a
borrower or lessee, the REIT may experience delays in enforcing its rights as a
mortgagee or lessor and may incur substantial costs associated with protecting
investments.
•Equity
Market Risk.
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 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. In addition,
local, regional or global events such as war, acts of terrorism, spread of
infectious diseases or other public health issues, recessions, or other events
could have a significant negative impact on the Fund and its investments. For
example, the global pandemic caused by COVID-19, a novel coronavirus, and the
aggressive responses taken by many governments, including closing borders,
restricting international and domestic travel, and the imposition of prolonged
quarantines or similar restrictions, has had negative impacts, and in many cases
severe impacts, on markets worldwide. The COVID-19 pandemic has caused prolonged
disruptions to the normal business operations of companies around the world and
the impact of such disruptions is hard to predict. Such events may affect
certain geographic regions, countries, sectors and industries more significantly
than others. Such events could adversely affect the prices and liquidity of the
Fund’s portfolio securities or other instruments and could result in disruptions
in the trading markets.
•Concentration
Risk.
The Fund’s investments will be concentrated in an industry or group of
industries to the extent that the Index is so concentrated. In such event, the
value of the Shares may rise and fall more than the value of shares of a fund
that invests in securities of companies in a broader range of
industries.
•Large-Capitalization
Investing Risk.
The Fund may invest in the securities of large-capitalization companies. As a
result, the Fund’s performance may be adversely affected if securities of
large-capitalization companies underperform securities of smaller-capitalization
companies or the market as a whole. 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.
•Mid-
and Small-Capitalization Investing Risk.
The Fund may invest in the securities of mid- and small-capitalization
companies. As a result, the Fund’s performance may be adversely affected if
securities of mid- and small-capitalization companies underperform securities of
other capitalization ranges or the market as a whole. Securities of smaller
companies trade in smaller volumes and are often more vulnerable to market
volatility than securities of larger companies.
•Index
Provider Risk. There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Index Provider relies on an independent calculation
agent to calculate and disseminate the Index accurately. Any losses or costs
associated with errors made by such calculation agent generally will be borne by
the Fund and its shareholders. The
Index Provider has not previously been an index provider, which may create
additional risks for investing in the Fund.
•Depositary
Receipt Risk.
Depositary Receipts involve risks similar to those associated with investments
in foreign securities, such as changes in political or economic conditions of
other countries and changes in the exchange rates of foreign currencies.
Depositary Receipts listed on U.S. 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.
•ETF
Risks.
The Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦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.
◦Trading. Although
Shares are listed for trading on the 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.
•Limited
Operating History Risk.
The Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•New
Adviser Risk.
The Adviser has only recently begun serving as an investment adviser to ETFs. As
a result, investors do not have a long-term track record of managing an ETF from
which to judge the Adviser, and the Adviser may not achieve the intended result
in managing the Fund.
•Non-Diversification
Risk. Although the Fund intends to invest in a
variety of securities and instruments, 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.
•Passive
Investment Risk.
The Fund is not actively managed, and its Sub-Adviser would not sell shares of
an equity security due to current or projected underperformance of a security,
industry, or sector, unless that security is removed from the Index or the
selling of shares of that security is otherwise required upon a reconstitution
or rebalancing of the Index in accordance with the Index methodology. Unlike
with an actively managed fund, the Sub-Adviser does not use techniques or
defensive strategies designed to lessen the effects of market volatility or to
reduce the impact of periods of market decline. This means that, based on market
and economic conditions, the Fund’s performance could be lower than other types
of funds that may actively shift their portfolio assets to take advantage of
market opportunities or to lessen the impact of a market decline.
•Calculation
Methodology Risk.
The Index relies directly or indirectly on various sources of information to
assess the criteria of issuers included in the Index, including information that
may be based on assumptions and estimates. Neither the Fund, the Index Provider,
the Adviser, or the Sub-Adviser (each as defined below) can offer assurances
that the Index’s calculation methodology or sources of information will provide
an accurate assessment of included issuers or a correct valuation of securities,
nor can they guarantee the availability or timeliness of the production of the
Index.
•Tracking
Error Risk.
As with all index funds, the performance of the Fund and its Index may differ
from each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
•Tax
Risk.
To qualify for the favorable tax treatment generally available to regulated
investment companies, the Fund must satisfy certain diversification
requirements. In particular, the Fund generally may not acquire a security if,
as a result of the acquisition, more than 50% of the value of the Fund’s assets
would be invested in
(a) issuers in which the Fund has, in each
case, invested more than 5% of the Fund’s assets or (b) issuers more than 10% of
whose outstanding voting securities are owned by the Fund. While the weighting
of the Index is not inconsistent with these rules, given the concentration of
the Index in a relatively small number of securities, it may not always be
possible for the Fund to fully implement a replication strategy or a
representative sampling strategy while satisfying these diversification
requirements. The Fund’s efforts to satisfy the diversification requirements may
affect the Fund’s execution of its investment strategy and may cause the Fund’s
return to deviate from that of the Index, and the Fund’s efforts to replicate or
represent the Index may cause it inadvertently to fail to satisfy the
diversification requirements. If the Fund were to fail to satisfy the
diversification requirements, it could incur penalty taxes and be forced to
dispose of certain assets, or it could fail to qualify as a regulated investment
company. If the Fund were to fail to qualify as a regulated investment company,
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.
Fund Performance
Once the Fund has been in operation for a
full calendar year, performance information will be shown here.
Updated performance information will be available on the Fund’s website at
www.KellyETFs.com
or by calling the Fund toll-free at (800)
658-1070.
Management
Adviser Kelly
Strategic Management, LLC (d/b/a Kelly Intelligence)
Sub-Adviser Penserra
Capital Management, LLC (“Penserra” or the “Sub-Adviser”)
Portfolio
Managers Dustin
Lewellyn, CFA, Managing Director of Penserra; Ernesto Tong, CFA, Managing
Director of Penserra; and Anand Desai, Senior Vice President of Penserra are
jointly and primarily responsible for the day-to-day management of the Fund and
have served as portfolio managers since the Fund’s inception.
Buying
and Selling Fund Shares
Shares
are listed on 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).
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 and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.KellyETFs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your 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.
Investment Objective
The
Kelly
Technology & E-Commerce Real Estate ETF (the “Fund”) seeks to track the
total return performance, before fees and expenses, of the Strategic Technology
& E-Commerce Real Estate Index (the “Index”).
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 tables and examples
below.
|
|
|
|
|
| |
|
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
|
| Management
Fees |
0.58% |
| Distribution
and/or Service (12b-1) Fees |
none |
|
Other
Expenses1 |
0.00% |
| Total
Annual Fund Operating Expenses |
0.58% |
1Estimated for the current
fiscal year.
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. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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 Fund Shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. As the Fund has not yet
commenced operations, there is no portfolio turnover information to provide at
this time.
Principal Investment Strategies of the
Fund
The
Fund employs a “passive management” (or indexing) investment approach designed
to track the total return performance, before fees and expenses, of the Index.
The Index is based on a proprietary methodology developed and maintained by
Strategic Indexes, LLC (the “Index Provider”), an affiliate of Kelly Strategic
Management, LLC, the Fund’s investment adviser (the “Adviser”). Unlike many
investment companies, the Fund does not try to “beat” the Index and does not
seek temporary defensive positions when markets decline or appear overvalued
other than those indicated in the Index.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning the Fund will generally invest in all of the component
securities of the Index in the same approximate proportions as in the Index.
However, the Fund may use a “representative sampling” strategy, meaning it may
invest in a sample of the securities in the Index whose risk, return, and other
characteristics closely resemble the risk, return, and other characteristics of
the Index as a whole, when the Fund’s Sub-Adviser believes it is in the best
interests of the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
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.
The
Index
The
Index is a rules-based index that consists of publicly traded equity securities
of companies, primarily real estate investment trusts (“REITs”), engaged in the
creation, development, production, operation, ownership, or servicing of at
least one of the following (“Technology and E-Commerce Real Estate Business”):
|
|
|
|
|
| |
| Technology
Real Estate |
Telecommunications
infrastructure including cellular towers and fiber optic networks,
internet and cloud infrastructure including data centers, and life science
and biotechnology infrastructure including lab space |
| E-Commerce
Real Estate |
E-commerce
and logistics infrastructure including distribution centers and industrial
properties |
Construction
of the Index begins with equity securities listed on an exchange in a developed
market according to the Nasdaq eligible exchange list. Companies are then
considered for inclusion in the Index based on an analysis of the company’s
source of revenues and profits. A company is eligible for inclusion in the Index
if, according to a public filing, it generates a majority of its revenue or
profits from one of the activities described above (“Technology and E-Commerce
Real Estate Companies”). The Index Provider screens for the source of a
company’s revenues and profits using information in regulatory filings
(e.g.,
financial statements, annual reports, investor presentations), analyst reports,
and industry-specific trade publications.
Equity
securities included in the Index include common stocks, shares of REITs,
American Depositary Receipts, limited partnership interests, shares of limited
liability companies, and other shares or units representing a beneficial
interest. As of October 31, 2022, companies listed in the following countries
were eligible for inclusion in the Index: Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, Netherlands,
New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United
Kingdom, and the United States. Eligible Companies identified by the Index
Provider are added to the Index, subject to meeting the investibility
requirements described below. The Index may include small-, mid-, and
large-capitalization companies. The Index is subject to a maximum of 30
constituents. Where the number of eligible constituents exceeds the maximum
allowable, the Fund will rank the constituents by float adjusted market
capitalization and take the largest constituents until it has reached the
maximum number allowed.
At
the time of each quarterly rebalance and reconstitution of the Index, Index
constituents must meet investibility requirements, including:
•a
market capitalization of at least $500 million;
•a
3-month average daily traded value greater than or equal to $1 million;
and
•a
free float (i.e.,
the proportion of shares that are publicly available) of at least
20%.
The
Index is reconstituted and rebalanced (i.e.,
companies are added or deleted and weights are reset based on Index rules)
quarterly, after the close of business on the third Friday of each of January,
April, July, and October (the “Rebalance Date”). For each rebalance and
reconstitution of the Index, Index constituents are determined based on data as
of the last business day in each of December, March, June, and September (the
“Selection Date”). As of each rebalance date, each constituent is market
capitalization-weighted, subject to a maximum of 8% weight. For each Index
constituent that is not among the five largest by market capitalization, the
maximum weighting may not exceed 4%. The Fund rebalances its portfolio in
accordance with its Index, and, therefore, any changes to the Index’s rebalance
schedule will result in corresponding changes to the Fund’s rebalance schedule.
As
of September
30, 2022, the Index had 49 constituents, 22
of which were listed on a non-U.S. exchange. The Index was established in 2021
and is owned by the Index Provider.
A
significant portion of the Index is expected to be composed of real estate
investment trusts (“REITs”).
The
Fund’s Investment Strategy
Under
normal circumstances, the Fund invests at least 80% of its net assets (plus
borrowings for investment purposes) in Technology and E-Commerce Real Estate
Companies. The foregoing policy may be changed without shareholder approval upon
60 days’ written notice to shareholders.
To
the extent the Index concentrates (i.e.,
holds more than 25% of its total assets) in any industry or group of related
industries, the Fund will concentrate its investments to approximately the same
extent as the Index. It is expected that the Fund will concentrate its
investments in Technology and E-Commerce Real Estate
Business.
Principal Investment Risks
You can lose money on your investment in the
Fund. The Fund is subject to the risks summarized below. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s prospectus entitled “Additional Information about the
Principal Risks of Investing in the Funds.”
•Technology
and E-Commerce Real Estate Companies Investing Risk. The
Fund invests in real estate companies, including REITs and real estate holdings
companies, which will expose investors to the risks of owning real estate
directly, as well as to the risks that relate specifically to the way in which
such companies are organized and operated. Real estate is highly sensitive to
general and local economic conditions and developments. The U.S. real estate
market may, in the future, experience and has, in the past, experienced a
decline in value, with certain regions experiencing significant losses in
property values. Many real estate companies, including REITs, utilize leverage
(and some may be highly leveraged), which increases investment risk and the risk
normally associated with debt financing, and could potentially increase the
Fund’s volatility and losses. Exposure to such real estate may adversely affect
Fund performance.
In
addition to the foregoing risks common to most real estate companies, companies
in certain real estate industries may have additional unique risks. Technology
and e-commerce real estate companies typically face intense competition and are
subject to fluctuating demand. Due to the online nature of e-commerce, real
estate companies face risks involved with processing, storing, and transmitting
large amounts of data, these companies are particularly vulnerable threats to
operational software and hardware, as well as the theft of personal and
transaction records and other customer data. E-commerce companies rely heavily
on information technology products and systems and are particularly vulnerable
to rapid changes in technology product cycles, rapid product obsolescence,
government regulation and competition, both domestically and internationally.
E-commerce companies may participate in monopolistic practices that could make
them subject to higher levels of regulatory scrutiny or potential break ups in
the future, which could severely impact the viability of these companies.
•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. In addition, to the extent the Fund holds
interests in REITs, it is expected that investors in the Fund will bear two
layers of asset-based management fees and expenses (directly at the Fund level
and indirectly at the REIT level). The risks of investing in REITs include
certain risks associated with the direct ownership of real estate and the real
estate industry in general. These include risks related to general, regional and
local economic conditions; fluctuations in interest rates and property tax
rates; shifts in zoning laws, environmental regulations and other governmental
action such as the exercise of eminent domain; cash flow dependency; increased
operating expenses; lack of availability of mortgage funds; losses due to
natural disasters; overbuilding; losses due to casualty or condemnation; changes
in property values, vacancy, and rental rates; and other factors.
In
addition to these risks, REITs are dependent upon management skills and
generally may not be diversified. REITs are also subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. In addition, REITs could
possibly fail to qualify for the beneficial tax treatment available to REITs
under the Internal Revenue Code of 1986, or to maintain their exemptions from
registration under the Investment Company Act of 1940, as amended (the “1940
Act”). The Fund expects that dividends received from a REIT and distributed to
Fund shareholders generally will be taxable to the shareholder as ordinary
income, but may be taxable as return of capital. In the event of a default by a
borrower or lessee, the REIT may experience delays in enforcing its rights as a
mortgagee or lessor and may incur substantial costs associated with protecting
investments.
•Equity
Market Risk.
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 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. In addition,
local, regional or global events such as war, acts of terrorism, spread of
infectious diseases or other public health issues,
recessions,
or other events could have a significant negative impact on the Fund and its
investments. For example, the global pandemic caused by COVID-19, a novel
coronavirus, and the aggressive responses taken by many governments, including
closing borders, restricting international and domestic travel, and the
imposition of prolonged quarantines or similar restrictions, has had negative
impacts, and in many cases severe impacts, on markets worldwide. The COVID-19
pandemic has caused prolonged disruptions to the normal business operations of
companies around the world and the impact of such disruptions is hard to
predict. Such events may affect certain geographic regions, countries, sectors
and industries more significantly than others. Such events could adversely
affect the prices and liquidity of the Fund’s portfolio securities or other
instruments and could result in disruptions in the trading markets.
•Concentration
Risk.
The Fund’s investments will be concentrated in an industry or group of
industries to the extent that the Index is so concentrated. In such event, the
value of the Shares may rise and fall more than the value of shares of a fund
that invests in securities of companies in a broader range of
industries.
•Large-Capitalization
Investing Risk.
The Fund may invest in the securities of large-capitalization companies. As a
result, the Fund’s performance may be adversely affected if securities of
large-capitalization companies underperform securities of smaller-capitalization
companies or the market as a whole. 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.
•Mid-
and Small-Capitalization Investing Risk.
The Fund may invest in the securities of mid- and small-capitalization
companies. As a result, the Fund’s performance may be adversely affected if
securities of mid- and small-capitalization companies underperform securities of
other capitalization ranges or the market as a whole. Securities of smaller
companies trade in smaller volumes and are often more vulnerable to market
volatility than securities of larger companies.
•Index
Provider Risk. There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Index Provider relies on an independent calculation
agent to calculate and disseminate the Index accurately. Any losses or costs
associated with errors made by such calculation agent generally will be borne by
the Fund and its shareholders. The
Index Provider has not previously been an index provider, which may create
additional risks for investing in the Fund.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. Investments in non-U.S. securities also
may be subject to withholding or other taxes. These and other factors can make
investments in the Fund more volatile and potentially less liquid than other
types of investments.
•Depositary
Receipt Risk.
Depositary Receipts involve risks similar to those associated with investments
in foreign securities, such as changes in political or economic conditions of
other countries and changes in the exchange rates of foreign currencies.
Depositary Receipts listed on U.S. 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.
•ETF
Risks.
The Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦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.
◦Trading. Although
Shares are listed for trading on the 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.
•Limited
Operating History Risk.
The Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•New
Adviser Risk.
The Adviser has only recently begun serving as an investment adviser to ETFs. As
a result, investors do not have a long-term track record of managing an ETF from
which to judge the Adviser, and the Adviser may not achieve the intended result
in managing the Fund.
•Non-Diversification
Risk. Although the Fund intends to invest in a
variety of securities and instruments, 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.
•Passive
Investment Risk.
The Fund is not actively managed, and its Sub-Adviser would not sell shares of
an equity security due to current or projected underperformance of a security,
industry, or sector, unless that security is removed from the Index or the
selling of shares of that security is otherwise required upon a reconstitution
or rebalancing of the Index in accordance with the Index methodology. Unlike
with an actively managed fund, the Sub-Adviser does not use techniques or
defensive strategies designed to lessen the effects of market volatility or to
reduce the impact of periods of market decline. This means that, based on market
and economic conditions, the Fund’s performance could be lower than other types
of funds that may actively shift their portfolio assets to take advantage of
market opportunities or to lessen the impact of a market decline.
•Calculation
Methodology Risk.
The Index relies directly or indirectly on various sources of information to
assess the criteria of issuers included in the Index, including information that
may be based on assumptions and estimates. Neither the Fund, the Index Provider,
the Adviser, or the Sub-Adviser (each as defined below) can offer assurances
that the Index’s calculation methodology or sources of information will provide
an accurate assessment of included issuers or a correct valuation of securities,
nor can they guarantee the availability or timeliness of the production of the
Index.
•Tracking
Error Risk.
As with all index funds, the performance of the Fund and its Index may differ
from each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
•Tax
Risk.
To qualify for the favorable tax treatment generally available to regulated
investment companies, the Fund must satisfy certain diversification
requirements. In particular, the Fund generally may not acquire a security if,
as a result of the acquisition, more than 50% of the value of the Fund’s assets
would be invested in (a) issuers in which the Fund has, in each case, invested
more than 5% of the Fund’s assets or (b) issuers more than 10% of
whose outstanding voting securities are
owned by the Fund. While the weighting of the Index is not inconsistent with
these rules, given the concentration of the Index in a relatively small number
of securities, it may not always be possible for the Fund to fully implement a
replication strategy or a representative sampling strategy while satisfying
these diversification requirements. The Fund’s efforts to satisfy the
diversification requirements may affect the Fund’s execution of its investment
strategy and may cause the Fund’s return to deviate from that of the Index, and
the Fund’s efforts to replicate or represent the Index may cause it
inadvertently to fail to satisfy the diversification requirements. If the Fund
were to fail to satisfy the diversification requirements, it could incur penalty
taxes and be forced to dispose of certain assets, or it could fail to qualify as
a regulated investment company. If the Fund were to fail to qualify as a
regulated investment company, 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.
Fund Performance
Once the Fund has been in operation for a
full calendar year, performance information will be shown here.
Updated performance information will be available on the Fund’s website at
www.KellyETFs.com
or by calling the Fund toll-free at (800)
658-1070.
Management
Adviser Kelly
Strategic Management, LLC (d/b/a Kelly Intelligence)
Sub-Adviser Penserra
Capital Management, LLC (“Penserra” or the “Sub-Adviser”)
Portfolio
Managers Dustin
Lewellyn, CFA, Managing Director of Penserra; Ernesto Tong, CFA, Managing
Director of Penserra; and Anand Desai, Senior Vice President of Penserra are
jointly and primarily responsible for the day-to-day management of the Fund and
have served as portfolio managers since the Fund’s inception.
Buying
and Selling Fund Shares
Shares
are listed on 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).
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 and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.KellyETFs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your 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.
Investment Objective
The
Kelly CRISPR & Gene Editing Technology ETF (the “Fund”) seeks to track the
total return performance, before fees and expenses, of the Strategic CRISPR
& Gene Editing Technology Index (the “Index”).
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 tables and examples
below.
|
|
|
|
|
| |
|
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
|
| Management
Fees |
0.78% |
| Distribution
and/or Service (12b-1) Fees |
none |
| Other
Expenses |
0.00% |
| Total
Annual Fund Operating Expenses |
0.78% |
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. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
| |
| 1
Year |
3
Years |
5
Years |
10
Years |
| $80 |
$249 |
$433 |
$966 |
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 Fund Shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. For the period from January
12, 2022 to August 31, 2022, the portfolio turnover rate for the Fund was
23% of the average value of its
portfolio.
Principal Investment Strategies of the
Fund
The
Fund employs a “passive management” (or indexing) investment approach designed
to track the total return performance, before fees and expenses, of the Index.
The Index is based on a proprietary methodology developed and maintained by
Strategic Indexes, LLC (the “Index Provider”), an affiliate of Kelly Strategic
Management, LLC, the Fund’s investment adviser (the “Adviser”). Unlike many
investment companies, the Fund does not try to “beat” the Index and does not
seek temporary defensive positions when markets decline or appear overvalued
other than those indicated in the Index.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning the Fund will generally invest in all of the component
securities of the Index in the same approximate proportions as in the Index.
However, the Fund may use a “representative sampling” strategy, meaning it may
invest in a sample of the securities in the Index whose risk, return, and other
characteristics closely resemble the risk, return, and other characteristics of
the Index as a whole, when the Fund’s Sub-Adviser believes it is in the best
interests of the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
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.
The
Index
The
Index is a rules-based index that consists of the stocks or corresponding
depositary receipts of companies engaged in the creation, development,
production, operation, provision, distribution, ownership, servicing, licensing,
leasing or franchising of at least one of the following (“DNA Modification
Technology Business”):
|
|
|
|
|
| |
| CRISPR
& Gene Editing Technology |
DNA
modification technologies for a variety of applications including basic
biological research, development of biotechnological products, and for the
treatment of diseases. CRISPR (Clustered Regularly Interspaced Short
Palindromic Repeats) and gene editing technology refers to those methods
that allow a scientist to change the DNA of an organism. CRISPR & gene
editing technology enables genetic elements to be mutated, silenced,
induced ore replaced. The most common use of DNA modification technology
is the targeting of cells within the body to treat genetic
disease. |
| Gene
Editing Development Solutions |
Deep
scientific, technical and clinical development experience, potentially
along with an intellectual property portfolio. Such companies shall have
rights to develop CRISPR or gene-editing based therapeutic products or
targets and/or jointly develop potential products with CRISPR & gene
editing technology companies to create a new class of therapeutic
products. |
| Gene
Editing Sequencing Solutions |
Next-generation
sequencing that may be used at various stages of a genome editing
workflow. These companies provide sequencing methods to determine the
impact of an edited sequence on the structured function of genes and
analysis tools for CRISPR and gene splicing and editing.
|
Construction
of the Index begins with equity securities listed on an exchange in a developed
country. Companies are then considered for inclusion in the Index based on an
analysis of the company’s source of revenues and profits. A company is eligible
for inclusion in the Index if, according to a public filing, it generates a
majority of its revenue or profits from one of the activities described above
(“DNA Modification Technology Companies”). The Index Provider screens for the
source of a company’s revenues and profits using information in regulatory
filings (e.g.,
financial statements, annual reports, investor presentations), analyst reports,
and industry-specific trade publications.
Equity
securities included in the Index include common stocks, real estate investment
trusts (“REITs”), depositary receipts, and preferred stocks. As of October 31,
2022, companies listed in the following countries were eligible for inclusion in
the Index: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the
United States. Eligible Companies identified by the Index Provider are added to
the Index, subject to meeting the investibility requirements described below.
The Index may include small-, mid-, and large-capitalization companies. The
Index is subject to a maximum of 60 constituents, with a maximum of 42
constituents from the Gene Editing and Technology sub-sector and 9 constituents
from each of the Gene Editing and Development Solutions and Gene Editing
Sequencing Solutions sub-sectors. Where the number of eligible constituents
exceeds the maximum allowable, the Fund will rank the constituents by float
adjusted market capitalization and take the largest constituents until it has
reached the maximum number allowed.
At
the time of each quarterly rebalance and reconstitution of the Index, Index
constituents must meet investibility requirements, including:
•a
market capitalization of at least $300 million;
•a
3-month average daily traded value greater than or equal to $1
million;
•a
free float (i.e.,
the proportion of shares that are publicly available) of at least 20%;
and
•a
trading price of not greater than $50,000.
The
Index is reconstituted and rebalanced (i.e.,
companies are added or deleted and weights are reset based on Index rules)
quarterly, after the close of business on the third Friday of each of March,
June, September, and December (the “Rebalance Date”). For each rebalance and
reconstitution of the Index, Index constituents are determined based on data as
of the last business day in each of February, May, August, and November (the
“Selection Date”). As of each rebalance date, each constituent is market
capitalization-weighted, subject to a maximum of 10.00% weight and a minimum of
0.25% weight for each constituent. Any weight removed from an index’s
constituents due to a limit is combined, and the
combined
weight then distributed proportionately (according to their index weighting)
across the uncapped constituents of the index.
The
Fund rebalances its portfolio in accordance with its Index, and, therefore, any
changes to the Index’s rebalance schedule will result in corresponding changes
to the Fund’s rebalance schedule.
As
of September
30, 2022,
the Index had 23 constituents, 2 of which were listed on a non-U.S. exchange.
The Index was established in 2021 and is owned by the Index
Provider.
The
Fund’s Investment Strategy
Under
normal circumstances, the Fund invests at least 80% of its net assets (plus
borrowings for investment purposes) in DNA Modification Technology Companies.The
foregoing policy may be changed without shareholder approval upon 60 days’
written notice to shareholders.
To the extent the Index concentrates
(i.e., holds more than 25% of its total assets) in any industry or group of
related industries, the Fund will concentrate its investments to approximately
the same extent as the Index. As of September 30, 2022, the Index was
concentrated in companies in the genomics and biotechnology
industries.
Principal Investment Risks
You can lose money on your investment in the
Fund. The Fund is subject to the risks summarized below. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s prospectus entitled “Additional Information about the
Principal Risks of Investing in the Funds.”
•DNA
Modification Technology Company Risk.
DNA modification technology companies face intense competition, and products and
services with a potentially short product life. These companies will generally
require large amounts of capital expenditures on research and development, with
no guarantee that the product or service would be successful. They may be
heavily dependent on intellectual property rights. The laws related to these
rights can vary and there is no guarantee that a company will be able to
successfully protect their intellectual property rights. Similarly, as these
companies face intense competition it is possible that competitors could produce
services or products that are superior to theirs. These companies, like other
health care companies, are subject to various government and regulator oversight
that could hamper or impede their operations. There is the possibility that in
the future this oversight could increase in a way that could limit the success
of a company or a specific product or service offered by the company.
•Equity
Market Risk.
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 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. In addition,
local, regional or global events such as war, acts of terrorism, spread of
infectious diseases or other public health issues, recessions, or other events
could have a significant negative impact on the Fund and its investments. For
example, the global pandemic caused by COVID-19, a novel coronavirus, and the
aggressive responses taken by many governments, including closing borders,
restricting international and domestic travel, and the imposition of prolonged
quarantines or similar restrictions, has had negative impacts, and in many cases
severe impacts, on markets worldwide. The COVID-19 pandemic has caused prolonged
disruptions to the normal business operations of companies around the world and
the impact of such disruptions is hard to predict. Such events may affect
certain geographic regions, countries, sectors and industries more significantly
than others. Such events could adversely affect the prices and liquidity of the
Fund’s portfolio securities or other instruments and could result in disruptions
in the trading markets.
•Concentration
Risk.
The Fund’s investments will be concentrated in an industry or group of
industries to the extent that the Index is so concentrated. In such event, the
value of the Shares may rise and fall more than the value of shares of a fund
that invests in securities of companies in a broader range of
industries.
•Large-Capitalization
Investing Risk.
The Fund may invest in the securities of large-capitalization companies. As a
result, the Fund’s performance may be adversely affected if securities of
large-capitalization companies underperform securities of smaller-capitalization
companies or the market as a whole. 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.
•Mid-
and Small-Capitalization Investing Risk.
The Fund may invest in the securities of mid- and small-capitalization
companies. As a result, the Fund’s performance may be adversely affected if
securities of mid- and small-capitalization companies underperform securities of
other capitalization ranges or the market as a whole. Securities of smaller
companies trade in smaller volumes and are often more vulnerable to market
volatility than securities of larger companies.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. Investments in non-U.S. securities also
may be subject to withholding or other taxes. These and other factors can make
investments in the Fund more volatile and potentially less liquid than other
types of investments.
•Depositary
Receipt Risk.
Depositary Receipts involve risks similar to those associated with investments
in foreign securities, such as changes in political or economic conditions of
other countries and changes in the exchange rates of foreign currencies.
Depositary Receipts listed on U.S. 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.
•Index
Provider Risk. There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Index Provider relies on an independent calculation
agent to calculate and disseminate the Index accurately. Any losses or costs
associated with errors made by such calculation agent generally will be borne by
the Fund and its shareholders. The
Index Provider has not previously been an index provider, which may create
additional risks for investing in the Fund.
•ETF
Risks.
The Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦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.
◦Trading. Although
Shares are listed for trading on the Nasdaq (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.
•Limited
Operating History Risk.
The Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•New
Adviser Risk.
The Adviser has only recently begun serving as an investment adviser to ETFs. As
a result, investors do not have a long-term track record of managing an ETF from
which to judge the Adviser, and the Adviser may not achieve the intended result
in managing the Fund.
•Non-Diversification
Risk. Although the Fund intends to invest in a
variety of securities and instruments, 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.
•Passive
Investment Risk.
The Fund is not actively managed, and its Sub-Adviser would not sell shares of
an equity security due to current or projected underperformance of a security,
industry, or sector, unless that security is removed from the Index or the
selling of shares of that security is otherwise required upon a reconstitution
or rebalancing of the Index in accordance with the Index methodology. Unlike
with an actively managed fund, the Sub-Adviser does not use techniques or
defensive strategies designed to lessen the effects of market volatility or to
reduce the impact of periods of market decline. This means that, based on market
and economic conditions, the Fund’s performance could be lower than other types
of funds that may actively shift their portfolio assets to take advantage of
market opportunities or to lessen the impact of a market decline.
•Calculation
Methodology Risk.
The Index relies directly or indirectly on various sources of information to
assess the criteria of issuers included in the Index, including information that
may be based on assumptions and estimates. Neither the Fund, the Index Provider,
the Adviser, or the Sub-Adviser (each as defined below) can offer assurances
that the Index’s calculation methodology or sources of information will provide
an accurate assessment of included issuers or a correct valuation of securities,
nor can they guarantee the availability or timeliness of the production of the
Index.
•Tracking
Error Risk.
As with all index funds, the performance of the Fund and its Index may differ
from each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
•Tax
Risk.
To qualify for the favorable tax treatment generally available to regulated
investment companies, the Fund must satisfy certain diversification
requirements. In particular, the Fund generally may not acquire a security if,
as a result of the acquisition, more than 50% of the value of the Fund’s assets
would be invested in (a) issuers in which the Fund has, in each case, invested
more than 5% of the Fund’s assets or (b) issuers more than 10% of whose
outstanding voting securities are owned by the Fund. While the weighting of the
Index is not inconsistent with these rules, given the concentration of the Index
in a relatively small number of securities, it may not always be possible for
the Fund to fully implement a replication strategy or a representative sampling
strategy while satisfying these diversification requirements. The Fund’s efforts
to satisfy the diversification requirements may affect the Fund’s execution of
its investment strategy and may cause the Fund’s return to deviate from that of
the Index, and the Fund’s efforts to replicate or represent the Index may cause
it inadvertently to fail to satisfy the diversification requirements. If the
Fund were to fail to satisfy the diversification requirements, it could incur
penalty taxes and be forced to dispose of certain assets, or it could fail to
qualify as a regulated investment company. If the Fund were to fail to qualify
as a regulated investment company, 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.
Fund Performance
Once the Fund has been in operation for a
full calendar year, performance information will be shown here.
Updated performance information will be available on the Fund’s website at
www.KellyETFs.com
or by calling the Fund toll-free at (800)
658-1070.
Management
Adviser Kelly
Strategic Management, LLC (d/b/a Kelly Intelligence)
Sub-Adviser Penserra
Capital Management, LLC (“Penserra” or the “Sub-Adviser”)
Portfolio
Managers Dustin
Lewellyn, CFA, Managing Director of Penserra; Ernesto Tong, CFA, Managing
Director of Penserra; and Anand Desai, Senior Vice President of Penserra are
jointly and primarily responsible for the day-to-day management of the Fund and
have served as portfolio managers since the Fund’s inception.
Buying
and Selling Fund Shares
Shares
are listed on 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).
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 and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.KellyETFs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your 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.
Each
Fund’s ticker symbol appears on the cover of this Prospectus, and references to
specific Funds in the sections below will refer to such Funds by their ticker
symbol.
Additional
Information About Each Fund’s Investment Objective
Each
Fund’s investment objective is that it seeks to track the total return
performance, before fees and expenses, of the relevant Index, as described
above. Each Fund’s investment objective has been adopted as a non-fundamental
investment policy and may be changed without a vote of shareholders upon written
notice to shareholders.
Additional
Information About Each Index
and
the Underlying Indices
Index
Calculation and Trademark Ownership
Strategic
Indexes, LLC, an affiliate of the Adviser, is the index provider and owner of
the Strategic Investments Index Family. Each Index, but the Strategic Technology
& E-Commerce Real Estate Index, is calculated by Moorgate Benchmarks, Ltd.,
which is not an affiliate of the Funds, the Adviser, or the index
provider.
The Strategic Technology & E-Commerce Real Estate Index is calculated by
Nasdaq, Inc., which is not an affiliate of the Fund, the Adviser, or the index
provider.
Additional
Information about the Principal Risks of Investing in the Funds
This
section provides additional information regarding the principal risks described
in each Fund Summary. Before investing in the Fund, you should carefully
consider your own investment goals, the amount of time you are willing to leave
your money invested, and the amount of risk you are willing to take. Remember,
in addition to possibly not achieving your investment goals, you could lose all
or a portion of your investment in the Fund. The following principal risks are
applicable to investments in the Fund. Each of the factors below could have a
negative impact on the applicable Fund’s performance and trading prices. In the
disclosure following this table where a Fund ticker is identified in the title
of a risk it indicates that the risk is a principal risk of that Fund or those
Funds identified. If no ticker is identified the risk is applicable to each
Fund.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
E-Commerce
& Logistics (“ECMM”) |
Fintech
& Digital Payments (“XPAY”) |
Internet
of Things Technology (“INET”) |
Hotel
& Lodging (“HOTL”) |
Residential
& Apartment Real Estate (“RESI”) |
Technology
&
E-Commerce
Real Estate (“TRE”) |
CRISPR
& Gene Editing Technology (“XDNA”) |
| Calculation
Methodology Risk |
X |
X |
X |
X |
X |
X |
X |
| Concentration
Risk |
X |
X |
X |
X |
X |
X |
X |
| Depositary
Receipt Risk |
X |
X |
X |
X |
X |
X |
X |
| Digital
Payments Company Risk |
| X |
|
|
|
| |
| DNA
Modification Technology Company Risk |
|
|
|
|
|
| X |
|
E-Commerce
Business Investing Risk |
X |
|
|
|
|
| |
|
Equity
Market Risk |
X |
X |
X |
X |
X |
X |
X |
|
ETF
Risks |
X |
X |
X |
X |
X |
X |
X |
| Fintech
Companies Investing Risk |
| X |
|
|
|
| |
|
Foreign
Securities Risk |
X |
X |
X |
X |
| X |
X |
| Hotel
& Lodging Companies Investing Risk |
|
|
| X |
|
| |
| Index
Provider Risk |
X |
X |
X |
X |
X |
X |
X |
| IOT
Companies Investing Risk |
|
| X |
|
|
| |
|
Large-Capitalization
Investing Risk |
X |
X |
X |
X |
X |
X |
X |
| Limited
Operating History Risk |
X |
X |
X |
X |
X |
X |
X |
|
Mid-
and Small-Capitalization Investing Risk |
X |
X |
X |
X |
X |
X |
X |
| New
Adviser Risk |
X |
X |
X |
X |
X |
X |
X |
|
Non-Diversification
Risk |
X |
X |
X |
X |
X |
X |
X |
|
Passive
Investment Risk |
X |
X |
X |
X |
X |
X |
X |
| Real
Estate Companies Risk |
X |
| X |
| X |
X |
|
| REIT
Investment Risk |
X |
| X |
X |
X |
X |
|
| Residential
and Apartment Real Estate Companies Investing Risk |
|
|
|
| X |
| |
| Tax
Risk |
X |
X |
X |
X |
X |
X |
X |
| Technology
and E-Commerce Real Estate Companies Investing Risk |
|
|
|
|
| X |
|
| Third
Party Product Defects or Vulnerabilities Risk |
| X |
|
|
|
| |
|
Tracking
Error Risk |
X |
X |
X |
X |
X |
X |
X |
Calculation
Methodology Risk
Each
Fund’s Index relies directly or indirectly on various sources of information to
assess the criteria of issuers included in the Index, including information that
may be based on assumptions and estimates. Neither the Fund, the Index Provider,
the Adviser, or the Sub-Adviser can offer assurances that the Index’s
calculation methodology or sources of information will provide an accurate
assessment of included issuers or a correct valuation of securities, nor can
they guarantee the availability or timeliness of the production of the
Index.
Concentration
Risk.
A Fund’s investments may be concentrated in an industry or group of industries
to the extent that the applicable Index is so concentrated. In such event, the
value of the Shares may rise and fall more than the value of shares of a fund
that invests in securities of companies in a broader range of
industries.
Depositary
Receipt Risk
The
Fund may hold the securities of non-U.S. companies in the form of American
Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”). ADRs are
negotiable certificates issued by a U.S. financial institution that represent a
specified number of shares in a foreign stock and trade on a U.S. national
securities exchange, such as the New York Stock Exchange (“NYSE”). Sponsored
ADRs are issued with the support of the issuer of the foreign stock underlying
the ADRs and carry all of the rights of common shares, including voting rights.
GDRs are similar to ADRs, but may be issued in bearer form and are typically
offered for sale globally and held by a foreign branch of an international bank.
The underlying issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through
to them any voting rights with respect to the deposited securities. Issuers of
unsponsored depositary receipts are not contractually obligated to disclose
material information in the U.S. and, therefore, such information may not
correlate to the market value of the unsponsored depositary receipt. The
underlying securities of the ADRs and GDRs in a Fund’s portfolio are usually
denominated or quoted in currencies other than the U.S. Dollar. As a result,
changes in foreign currency exchange rates may affect the value of a Fund’s
portfolio. In addition, because the underlying securities of ADRs and 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 and 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 the shares.
Digital
Payments Company Risk (XPAY)
Companies
operating in the digital payment industry face intense competition, both
domestically and internationally, which may have an adverse effect on profit
margins. These companies are also subject to increasing regulatory constraints,
particularly with respect to fees, competition and anti-trust matters,
cybersecurity and privacy. In addition to the costs of complying with such
constraints, the unintended disclosure of confidential information, whether
because of an error or a cybersecurity event, could adversely affect the
profitability and value of these companies. Digital payments companies may be
highly dependent on their ability to enter into agreements with merchants and
other third parties to utilize a particular payment method, system, software or
service, and such agreements may be subject to increased regulatory scrutiny.
Additionally, certain digital payments companies have recently faced increased
costs related to class-action litigation challenging such agreements, and the
cost of such litigation, particularly for a company losing such litigation,
could significantly affect the profitability and value of the company. Digital
payments companies may also be active in acquiring other companies, and their
ability to successfully integrate such acquisitions would negatively affect the
profitability and value of such digital payments companies.
DNA
Modification Technology Company Risk (XDNA)
DNA
modification technology companies face intense competition, and products and
services with a potentially short product life. These companies will generally
require large amounts of capital expenditures on research and development, with
no guarantee that the product or service would be successful. They may be
heavily dependent on intellectual property rights. The laws related to these
rights can vary and there is no guarantee that a company will be able to
successfully protect their intellectual property rights. Similarly, as these
companies face intense competition it is possible that competitors could produce
services or products that are superior to theirs. These companies, like other
health care companies, are subject to various government and regulator oversight
that could hamper or impede their operations. There
is
the possibility that in the future this oversight could increase in a way that
could limit the success of a company or a specific product or service offered by
the company.
E-Commerce
Business Investing Risk
(ECMM)
E-commerce
companies typically face intense competition and are subject to fluctuating
consumer demand. Many of these companies compete aggressively on price,
potentially affecting their long run profitability. Unlike traditional brick and
mortar retailers, online marketplaces and retailers must assume shipping costs
or pass such costs to consumers. Consumer access to price information for the
same or similar products may cause companies that operate in the online
marketplace to reduce profit margins in order to compete. Due to the online
nature of E-commerce companies and their involvement in processing, storing, and
transmitting large amounts of data, these companies are particularly vulnerable
threats to operational software and hardware, as well as the theft of personal
and transaction records and other customer data. Technology companies and
companies that rely heavily on technological advances could have a significant
effect on the value of the Fund’s investments. E-commerce companies rely heavily
on information technology products and systems and are particularly vulnerable
to rapid changes in technology product cycles, rapid product obsolescence,
government regulation and competition, both domestically and internationally.
These information technology products and systems are dependent on suppliers
and, as one example, a recent global chip shortage can negatively impact their
operations. E-commerce companies may participate in monopolistic practices that
could make them subject to higher levels of regulatory scrutiny or potential
break ups in the future, which could severely impact the viability of these
companies. Logistics and delivery partners in e-commerce is important and
increases in fuel and operating costs, labor relations and insurance costs can
adversely affect their businesses.
Equity
Market Risk
Common
stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of
their issuers change. These investor perceptions are based on various and
unpredictable factors including: expectations regarding government, economic,
monetary and fiscal policies; inflation and interest rates; economic expansion
or contraction; and global or regional political, economic and banking crises.
If you held common stock, or common stock equivalents, of any given issuer, you
would generally be exposed to greater risk than if you held preferred stocks and
debt obligations of the issuer because common stockholders, or holders of
equivalent interests, generally have inferior rights to receive payments from
issuers in comparison with the rights of preferred stockholders, bondholders,
and other creditors of such issuers.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and, in many cases, unprecedented volatility and
severe losses due to the global pandemic caused by COVID-19, a novel
coronavirus. The pandemic resulted in a wide range of social and economic
disruptions, including closed borders, voluntary or compelled quarantines of
large populations, stressed healthcare systems, reduced or prohibited domestic
or international travel, and supply chain disruptions affecting the United
States and many other countries. Some sectors of the economy and individual
issuers have experienced particularly large losses as a result of these
disruptions, and such disruptions may continue for an extended period of time or
reoccur in the future to a similar or greater extent. In response, the U.S.
government and the Federal Reserve have taken extraordinary actions to support
the domestic economy and financial markets. Many countries, including the U.S.,
are subject to few restrictions related to the spread of COVID-19. It is unknown
how long circumstances related to the pandemic will persist, whether they will
reoccur in the future, whether efforts to support the economy and financial
markets will be successful, and what additional implications may follow from the
pandemic. The impact of these events and other epidemics or pandemics in the
future could adversely affect Fund performance.
ETF
Risks
Each
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
Authorized
Participants, Market Makers, and Liquidity Providers Concentration Risk.
Each
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.
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 difference
between the price at which an investor is willing to buy Shares (the “bid”
price) and the price at which an investor is willing to sell Shares (the “ask”
price). This difference in bid and ask prices is often referred to as the
“spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, a relatively small investor base
in a Fund, asset swings in a 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 a Fund’s NAV, there may be times when the market price and the NAV
vary significantly, including due to supply and demand of a Fund’s Shares and/or
during periods of market volatility. Thus, you may pay more (or less) than NAV
intra-day when you buy Shares in the secondary market, and you may receive more
(or less) than NAV when you sell those Shares in the secondary market. 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. To the
extent securities held by a Fund may trade on foreign exchanges that are closed
when the Fund’s primary listing exchange is open, such Fund is likely to
experience premiums and discounts greater than those of domestic
ETFs.
Trading. Although
Shares are listed for trading on the applicable 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 a Fund’s underlying
portfolio holdings, which can be significantly less liquid than
Shares.
Fintech
Companies Investing Risk (XPAY)
Fintech
companies may be adversely impacted by government regulations, economic
conditions and deterioration in credit markets. These companies may have
significant exposure to consumers and businesses (especially small businesses)
in the form of loans and other financial products or services. Fintech companies
typically face intense competition and potentially rapid product obsolescence.
In addition, many fintech companies store sensitive consumer information and
could be the target of cybersecurity attacks and other types of theft, which
could have a negative impact on these companies. Many fintech companies
currently operate under less regulatory scrutiny than traditional financial
services companies and banks, but there is significant risk that regulatory
oversight could increase in the future. Higher levels of regulation could
increase costs and adversely impact the current business models of some fintech
companies. These companies could be negatively impacted by disruptions in
service caused by hardware or software failure, or by interruptions or delays in
service by third-party data center hosting facilities and maintenance providers.
Fintech companies involved in alternative currencies may face slow adoption
rates and be subject to higher levels of regulatory scrutiny in the future,
which could severely impact the viability of these companies. Fintech companies,
especially smaller companies, tend to be more volatile than companies that do
not rely heavily on technology.
Foreign
Securities Risk (ECMM, XPAY, INET, HOTL, TRE, and XDNA)
Investments
in non-U.S. securities involve certain risks that may not be present with
investments in U.S. securities. For example, investments in non-U.S. securities
may be subject to risk of loss due to foreign currency fluctuations or to
political or economic instability. There may be less information publicly
available about a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may be
subject to different accounting, auditing, financial reporting and investor
protection standards than U.S. issuers. Investments in non-U.S. securities may
be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. With respect to certain
countries, there is the
possibility
of government intervention and expropriation or nationalization of assets.
Because legal systems differ, there is also the possibility that it will be
difficult to obtain or enforce legal judgments in certain countries. Since
foreign exchanges may be open on days when the Fund does not price its shares,
the value of the securities in the Fund’s portfolio may change on days when
shareholders will not be able to purchase or sell the Fund’s Shares. Conversely,
Fund Shares may trade on days when foreign exchanges are close. Each of these
factors can make investments in the Fund more volatile and potentially less
liquid than other types of investments.
Hotel
and Lodging Companies Investing Risk (HOTL)
The
Fund invests in real estate companies, including REITs and real estate holdings
companies, which will expose investors to the risks of owning real estate
directly, as well as to the risks that relate specifically to the way in which
such companies are organized and operated. Real estate is highly sensitive to
general and local economic conditions and developments. The U.S. real estate
market may, in the future, experience and has, in the past, experienced a
decline in value, with certain regions experiencing significant losses in
property values. Many real estate companies, including REITs, utilize leverage
(and some may be highly leveraged), which increases investment risk and the risk
normally associated with debt financing, and could potentially increase the
Fund’s volatility and losses. Exposure to such real estate may adversely affect
Fund performance.In addition to the foregoing risks common to most real estate
companies, companies in certain real estate sectors may have additional unique
risks. Companies in the Hotel & Lodging Real Estate sector may be affected
by unique supply and demand factors that do not apply to other real estate
sectors. Weak economic conditions in some parts of the world, changes in oil
prices and currency values, political instability in some areas, and the
uncertainty over how long any of these conditions will continue, could have a
negative impact on the lodging industry. During these periods of economic
uncertainty, the lodging industry may experience weakened demand for occupancy
in some markets.
Index
Provider Risk.
There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile an Index accurately, or that an Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Index Provider relies on an independent calculation
agent to calculate and disseminate the Index accurately. Any losses or costs
associated with errors made by such calculation agent generally will be borne by
the relevant Fund and its shareholders. To correct any such error, the Index
Provider or its agents may carry out an unscheduled rebalance of the Index or
other modification of Index constituents or weightings. When a Fund in turn
rebalances its portfolio, any transaction costs and market exposure arising from
such portfolio rebalancing will be borne by that Fund and its shareholders.
Unscheduled rebalances also expose a Fund to additional tracking error risk.
Errors in respect of the quality, accuracy, and completeness of the data used to
compile the Index may occur from time to time and may not be identified and
corrected by the Index Provider for a period of time or at all, particularly
where the Index is less commonly used as a benchmark by funds or advisors. For
example, during a period where the Index contains incorrect constituents, a Fund
tracking the Index would have market exposure to such constituents and would be
underexposed to the Index’s other constituents. Such errors may negatively
impact the Fund and its shareholders. The Index Provider and its agents rely on
various sources of information to assess the criteria of issuers included in the
Index, including information that may be based on assumptions and estimates.
Neither a Fund nor the Adviser can offer assurances that the Index’s calculation
methodology or sources of information will provide an accurate assessment of
included issuers. The
Index Provider has not previously been an index provider, which may create
additional risks for investing in the Fund.
Internet
of Things Companies Investing Risk (INET)
Internet
of Things companies may have limited product lines, markets, financial resources
or personnel. These companies typically face intense competition and potentially
rapid product obsolescence. In addition, many Internet of Things companies store
sensitive consumer information and could be the target of cybersecurity attacks
and other types of theft, which could have a negative impact on these companies.
As a result, these companies may be adversely impacted by government
regulations, and may be subject to additional regulatory oversight with regard
to privacy concerns and cybersecurity risk. These companies are also heavily
dependent on intellectual property rights and may be adversely affected by loss
or impairment of those rights. Internet of Things companies could be negatively
impacted by disruptions in service caused by hardware or software failure, or by
interruptions or delays in service by third-party data center hosting facilities
and maintenance providers. Internet of Things companies, especially smaller
companies, tend to be more volatile than companies that do not rely heavily on
technology.
Many
of IOT companies can be considered information technology companies, and
therefore the performance of the Fund could be negatively impacted by events
affecting this sector. Market or economic factors impacting information
technology companies and companies that rely heavily on technological advances
could have a significant effect on the value of the Fund’s investments. The
value of stocks of information technology companies and companies that rely
heavily on technology is particularly vulnerable to rapid changes in technology
product cycles, rapid product obsolescence, government regulation and
competition, both domestically and internationally, including competition from
foreign competitors with lower production costs. Stocks of information
technology companies and companies that rely heavily on technology, especially
those of smaller, less-seasoned companies, tend to be more volatile than the
overall market. Information technology companies are heavily dependent on patent
and intellectual property rights, the loss or impairment of which may adversely
affect profitability. Additionally, companies in the information technology
sector may face dramatic and often unpredictable changes in growth rates and
competition for the services of qualified personnel.
Large-Capitalization
Investing
Risk
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.
Limited
Operating History
The
Funds are each a recently organized, management investment company with limited
operating history. As a result, prospective investors have a limited track
record on which to base their investment decision. An investment in the Funds
may therefore involve greater uncertainty than an investment in a fund with a
more established record of performance. In addition, there can be no assurance
that the Funds will grow to or maintain an economically viable size, in which
case a Fund may experience greater tracking error to its Index than it otherwise
would at higher asset levels, or it could ultimately liquidate. The Funds’
distributor does not maintain an active market in Fund Shares.
Mid-
and Small-Capitalization Investing Risk
The
securities of mid- and small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid- and small-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 smaller 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.
New
Adviser Risk
The
Adviser has only recently begun serving as an investment adviser to ETFs. As a
result, investors do not have a long-term track record of managing an ETF from
which to judge the Adviser, and the Adviser may not achieve the intended result
in managing the Fund.
Non-Diversification
Risk
Although
the Funds intend to invest in a variety of securities and instruments, the Funds
are considered to be non-diversified. This means that a Fund may invest more of
its assets in the securities of a single issuer or a smaller number of issuers
than if it was 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.
Passive
Investment Risk
Each
Fund invests in the securities included in, or representative of, its Index
regardless of their investment merit. Each Fund does not attempt to outperform
its Index or take defensive positions in declining markets. As a result, a
Fund’s performance may be adversely affected by a general decline in the market
segments relating to its Index. The returns from the types of securities in
which a Fund invests may underperform returns from the various general
securities markets or different asset classes. This may cause a Fund to
underperform other investment vehicles that invest in different asset classes.
Different types of securities (for example, large-, mid- and
small-capitalization stocks) tend to go through cycles of doing better – or
worse – than the general securities markets. In the past, these periods have
lasted for as long as several years. Unlike with an actively managed fund, the
Sub-Adviser does not use techniques or defensive strategies designed to lessen
the effects of market volatility or to reduce the impact of periods of market
decline. This means that, based on
market
and economic conditions, the Fund’s performance could be lower than other types
of funds that may actively shift their portfolio assets to take advantage of
market opportunities or to lessen the impact of a market decline.
Real
Estate Companies Risk (ECMM, INET, RESI, and TRE)
The
Fund invests in real estate companies, including REITs and real estate holdings
companies, which will expose investors to the risks of owning real estate
directly, as well as to the risks that relate specifically to the way in which
such companies are organized and operated. Real estate is highly sensitive to
general and local economic conditions and developments and is characterized by
intense competition and periodic overbuilding. Many real estate companies,
including REITs, utilize leverage (and some may be highly leveraged), which
increases investment risk and the risk normally associated with debt financing,
and could potentially increase a Fund’s volatility and losses. The U.S. real
estate market may, in the future, experience and has, in the past, experienced a
decline in value, with certain regions experiencing significant losses in
property values. Exposure to such real estate may adversely affect Fund
performance. In addition, many investors may already have exposure to
residential real estate through ownership of a home. So called “Acts of God,”
such as hurricanes, earthquakes, tsunamis, and other natural disasters, as well
as the effects of climate change, terrorist activity, political unrest, or civil
strife may result in physical damage to properties or a decrease in demand,
which can affect profits.
In
addition to the foregoing risks common to most real estate companies, companies
in certain real estate sectors may have additional unique risks.
Risks
of Investing in the Apartments & Residential Real Estate Sector.
Companies in the Apartments & Residential Real Estate sector may be affected
by unique supply and demand factors that do not apply to other real estate
sectors. Residential real estate development is particularly subject to changes
in financing costs, occupancy rates, the ability to obtain zoning or other
permits or government approvals, labor costs, and scheduling delays. Residential
real estate companies may be more dependent on short-term leases (e.g., one year
or less), which may expose such companies to the effects of declining market
rents more than other types of real estate companies. Additionally, such
companies may face significant costs associated with compliance (or failure to
comply with) the accessibility provisions of the Americans with Disabilities
Acts, the Fair Housing Act or other federal, state or local
requirements.
Risks
of Investing in the Wireless and Broadband Real Estate Sector.
Wireless and broadband real estate companies may be affected by unique supply
and demand factors that do not apply to other real estate sectors, such as
changes in demand for communications infrastructure, consolidation of tower
sites, and new technologies that may affect demand for communications towers.
These real estate companies are particularly affected by changes in demand for
wireless infrastructure and wireless connectivity. Such demand is affected by
numerous factors, including consumer demand for wireless connectivity;
availability or capacity of wireless infrastructure or associated land
interests; location of wireless infrastructure; financial condition of
customers, including their profitability and availability or cost of capital;
availability and cost of spectrum for commercial use; increased use of network
sharing, roaming, joint development, or resale agreements by customers; mergers
or consolidations by and among customers; governmental regulations, including
local or state restrictions on the proliferation of wireless infrastructure;
cost of constructing wireless infrastructure; and technological changes,
including those affecting the number or type of wireless infrastructure needed
to provide wireless connectivity to a given geographic area or resulting in the
obsolescence or decommissioning of certain existing wireless
networks.
Risks
of Investing in the Hotel & Lodging Real Estate Sector.
Companies in the hotel and lodging real sector may be affected by unique supply
and demand factors that do not apply to other real estate sectors. Weak economic
conditions in some parts of the world, the strength or continuation of recovery
in countries that have experienced improved economic conditions, changes in oil
prices and currency values, potential disruptions in the U.S. economy that might
result from the new U.S. administration’s policies in such areas as trade,
immigration, healthcare, and related issues, political instability in some
areas, and the uncertainty over how long any of these conditions will continue,
could continue to have a negative impact on the lodging industry. U.S.
government travel is also a significant part of the lodging industry, and this
aspect of the industry may continue to suffer due to U.S. federal spending cuts
or government hiring freezes and any further limitations that may result from
presidential or congressional action or inaction. As a result of such current
economic conditions and uncertainty, the lodging industry may continue to
experience weakened demand for occupancy in some markets.
REIT
Investment Risk (ECMM, INET, HOTL, RESI, and TRE)
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. In addition, to the extent the Fund holds interests in REITs, it is
expected that investors in the Fund will bear two layers of asset-based
management fees and expenses (directly at the Fund level and indirectly at the
REIT level). The risks of investing in REITs include certain risks associated
with the direct ownership of real estate and the real estate industry in
general. These include risks related to general, regional and local economic
conditions; fluctuations in interest rates and property tax rates; shifts in
zoning laws, environmental regulations and other governmental action such as the
exercise of eminent domain; cash flow dependency; increased operating expenses;
lack of availability of mortgage funds; losses due to natural disasters;
overbuilding; losses due to casualty or condemnation; changes in property values
and rental rates; and other factors.
In
addition to these risks, residential/diversified REITs and commercial equity
REITs may be affected by changes in the value of the underlying property owned
by the trusts, while mortgage REITs may be affected by the quality of any credit
extended. Further, REITs are dependent upon management skills and generally may
not be diversified. REITs are also subject to heavy cash flow dependency,
defaults by borrowers and self-liquidation. In addition, REITs could possibly
fail to qualify for the beneficial tax treatment available to REITs under the
Code, or to maintain their exemptions from registration under the Investment
Company Act of 1940, as amended (the “1940 Act”). The Fund expects that
dividends received from a REIT and distributed to Fund shareholders generally
will be taxable to the shareholder as ordinary income. The above factors may
also adversely affect a borrower’s or a lessee’s ability to meet its obligations
to the REIT. In the event of a default by a borrower or lessee, the REIT may
experience delays in enforcing its rights as a mortgagee or lessor and may incur
substantial costs associated with protecting investments.
Residential
and Apartment Real Estate Companies Investing Risk (RESI)
The
Fund invests in real estate companies, including REITs and real estate holdings
companies, which will expose investors to the risks of owning real estate
directly, as well as to the risks that relate specifically to the way in which
such companies are organized and operated. Real estate is highly sensitive to
general and local economic conditions and developments. The U.S. real estate
market may, in the future, experience and has, in the past, experienced a
decline in value, with certain regions experiencing significant losses in
property values. Many real estate companies, including REITs, utilize leverage
(and some may be highly leveraged), which increases investment risk and the risk
normally associated with debt financing, and could potentially increase the
Fund’s volatility and losses. Exposure to such real estate may adversely affect
Fund performance.In addition to the foregoing risks common to most real estate
companies, companies in certain real estate sectors may have additional unique
risks. Companies in the Apartments & Residential Real Estate sector may be
affected by unique supply and demand factors that do not apply to other real
estate sectors. Residential real estate development is particularly subject to
changes in financing costs, occupancy rates, the ability to obtain zoning or
other permits or government approvals, labor costs, and scheduling delays.
Additionally, such companies may face significant costs associated with
compliance (or failure to comply with) the accessibility provisions of federal,
state or local requirements.
Tax
Risk
To
qualify for the favorable tax treatment generally available to regulated
investment companies, a Fund must satisfy certain diversification requirements.
In particular, a Fund generally may not acquire a security if, as a result of
the acquisition, more than 50% of the value of such Fund’s assets would be
invested in (a) issuers in which such Fund has, in each case, invested more than
5% of its assets or (b) issuers more than 10% of whose outstanding voting
securities are owned by the Fund. While the weighting of the Index is not
inconsistent with these rules, given the concentration of the Index in a
relatively small number of securities, it may not always be possible for a Fund
to fully implement a replication strategy or a representative sampling strategy
while satisfying these diversification requirements. A Fund’s efforts to satisfy
the diversification requirements may affect such Fund’s execution of its
investment strategy and may cause the Fund’s return to deviate from that of the
Index, and a Fund’s efforts to replicate or represent the Index may cause it
inadvertently to fail to satisfy the diversification requirements. If a Fund
were to fail to satisfy the diversification requirements, it could incur penalty
taxes and be forced to dispose of certain assets, or it could fail to qualify as
a regulated investment company. If a Fund were to fail to qualify as a regulated
investment company, it would be taxed in the same manner as an ordinary
corporation, and distributions to its shareholders would not be deductible by
such Fund in computing its taxable income.
Technology
and E-Commerce Real Estate Companies Investing Risk (TRE)
The
Fund invests in real estate companies, including REITs and real estate holdings
companies, which will expose investors to the risks of owning real estate
directly, as well as to the risks that relate specifically to the way in which
such companies are organized and operated. Real estate is highly sensitive to
general and local economic conditions and developments. The U.S. real estate
market may, in the future, experience and has, in the past, experienced a
decline in value, with certain regions experiencing significant losses in
property values. Many real estate companies, including REITs, utilize leverage
(and some may be highly leveraged), which increases investment risk and the risk
normally associated with debt financing, and could potentially increase the
Fund’s volatility and losses. Exposure to such real estate may adversely affect
Fund performance.In addition to the foregoing risks common to most real estate
companies, companies in certain real estate industries may have additional
unique risks. Technology and e-commerce real estate companies typically face
intense competition and are subject to fluctuating demand. Due to the online
nature of e-commerce, real estate companies face risks involved with processing,
storing, and transmitting large amounts of data, these companies are
particularly vulnerable threats to operational software and hardware, as well as
the theft of personal and transaction records and other customer data.
E-commerce companies rely heavily on information technology products and systems
and are particularly vulnerable to rapid changes in technology product cycles,
rapid product obsolescence, government regulation and competition, both
domestically and internationally. E-commerce companies may participate in
monopolistic practices that could make them subject to higher levels of
regulatory scrutiny or potential break ups in the future, which could severely
impact the viability of these companies.
Third
Party Product Defects or Vulnerabilities Risk (XPAY)
Where
blockchain systems are built using third party products, those products may
contain technical defects or vulnerabilities beyond a company’s control.
Open-source technologies that are used to build a blockchain application, may
also introduce defects and vulnerabilities.
Tracking
Error Risk
Each
Fund seeks to track the performance of its underlying index. Under normal market
conditions, the Adviser expects that the performance of the Funds over time,
before expenses, will track the performance of their underlying index within a
0.95 correlation coefficient. The Funds are subject to the risk of tracking
variance. Tracking variance may result from share purchases and redemptions,
transaction costs, expenses and other factors. Tracking variance may prevent the
Fund from achieving its investment objective. Additionally, a Fund’s return may
not track the return of the Index if the Fund is not able to replicate the
holdings of the Index due to the diversification requirements described above
under “Tax Risk,” which apply to the Fund but not the Index.
Information
about each Fund’s daily portfolio holdings is available at www.KellyETFs.com. A
summarized description of each Fund’s policies and procedures with respect to
the disclosure of each Fund’s portfolio holdings is available in each Fund’s
Statement of Additional Information (“SAI”).
The
Funds are series of Kelly Strategic ETF Trust (the “Trust”), a Delaware
statutory trust, which is overseen by a board of trustees.
Manager
of Managers Structure
Section
15(a) of the 1940 Act requires that all contracts pursuant to which persons
serve as investment advisers to investment companies be approved by
shareholders. This requirement also applies to the appointment of sub-advisers
to the Funds. The Trust and the Adviser have applied for exemptive relief from
the SEC (the “Order”), which will permit the Adviser, on behalf of the Funds and
subject to the approval of the Board, including a majority of the independent
members of the Board, to hire, and to modify any existing or future subadvisory
agreement with, unaffiliated sub-advisers and affiliated sub-advisers, including
sub-advisers that are wholly-owned subsidiaries (as defined in the 1940 Act) of
the Adviser or its parent company and sub-advisers that are partially-owned by,
or otherwise affiliated with, the Adviser or its parent company (the
“Manager-of-Managers Structure”). The Adviser has the ultimate responsibility
for overseeing a Funds’ sub-advisers and recommending their hiring, termination
and replacement, subject to oversight by the Board. Assuming the Order is
granted, it will also provide relief from certain disclosure obligations with
regard to sub-advisory
fees.
With this relief, the Funds may elect to disclose the aggregate fees payable to
the Adviser and wholly-owned sub-advisers and the aggregate fees payable to
unaffiliated sub-advisers and sub-advisers affiliated with Adviser or its parent
company, other than wholly-owned sub-advisers. The Order will be subject to
various conditions, including that the Funds will notify shareholders and
provide them with certain information required by the exemptive order within 90
days of hiring a new sub-adviser. The Funds may also rely on any other current
or future laws, rules or regulatory guidance from the SEC or its staff
applicable to the Manager-of-Managers Structure. The sole initial shareholder of
the Funds has approved the operation of the Funds under a Manager-of-Managers
Structure with respect to any affiliated or unaffiliated subadviser, including
in the manner that is permitted by the Order.
The
Manager-of-Managers Structure will enable the Trust to operate with greater
efficiency by not incurring the expense and delays associated with obtaining
shareholder approvals for matters relating to sub-advisers or sub-advisory
agreements. Operation of the Funds under the Manager-of-Managers Structure will
not permit management fees paid by the Funds to the Adviser to be increased
without shareholder approval. Shareholders will be notified of any changes made
to the Sub-Adviser or material changes to sub-advisory agreements within 90 days
of the change. There is no assurance the Order will be granted.
Investment
Adviser
The
Adviser has overall responsibility for the general management and administration
of the Trust and each of its separate investment portfolios. The Adviser is a
registered investment adviser with offices located at 7887 East Belleview
Avenue, Suite 1100, Denver, Colorado 80111. The Adviser has managed ETFs since
2021. The Adviser also arranges for transfer agency, custody, fund
administration, securities lending and all other related services necessary for
each Fund to operate. For its services, the Adviser receives,
and, with respect to the Kelly Hotel & Lodging Sector ETF, Kelly Residential
& Apartment Real Estate ETF and Kelly CRISPR & Gene Editing Technology
ETF, except as otherwise noted, did receive
a fee from each Fund, calculated daily and paid monthly, based on a percentage
of each Fund’s average daily net assets, as shown in the following
table:
|
|
|
|
|
| |
| Name
of Fund |
Management Fee |
|
Kelly
E-Commerce & Logistics Sector ETF |
0.68% |
|
Kelly
Fintech & Digital Payments Sector ETF |
0.68% |
|
Kelly
Internet of Things Technology ETF |
0.68% |
|
Kelly
Hotel & Lodging Sector ETF |
0.78% |
|
Kelly
Residential & Apartment Real Estate ETF |
0.68%(1) |
|
Kelly
Technology & E-Commerce Real Estate ETF |
0.58% |
|
Kelly
CRISPR & Gene Editing Technology ETF |
0.78% |
(1)
For
the period from January 12, 2022 through August 31, 2022, the Kelly Residential
& Apartment Real Estate ETF paid management fees of 0.23% of the Fund’s
average daily net assets. Effective May 1, 2022, the Adviser agreed to reduce
its unitary management fee to 0.00% of the Fund’s average daily net assets
through April 30, 2023.
Under
the Investment Advisory Agreement between the Adviser and the Trust (the
“Investment Advisory Agreement”), the Adviser has agreed to pay all expenses of
each Fund, except for: (i) the fees paid to the Adviser pursuant to the
Investment Advisory Agreement, (ii) payments under each Fund's 12b-1 plan, (iii)
brokerage expenses, (iv) acquired fund fees and expenses, (v) taxes, (vi)
interest (including borrowing costs and dividend expenses on securities sold
short), and (vii) litigation expenses and other extraordinary expenses
(including litigation to which the Trust or a Fund may be a party and
indemnification of the Trustees and officers with respect thereto) (collectively,
“Excluded Expenses”).
With
respect to the Kelly Residential & Apartment Real Estate ETF, the Adviser
has agreed to reduce its unitary management fee to 0.00% of the Fund’s average
daily net assets through April 30, 2023. This agreement may be terminated only
by, or with the consent of, the Fund’s Board of Trustees, on behalf of the Fund,
upon sixty (60) days’ written notice to the Adviser. The Adviser has determined
not to renew the management fee waiver after April 30, 2023.
The
basis for the Board of Trustees’ approval of the Investment Advisory Agreement
for each Fund is available in the Funds’ Semi-Annual Report to Shareholders for
the reporting period ended February 28, 2022.
Sub-Adviser
Penserra
Capital Management, LLC
The
Adviser has retained Penserra Capital Management, LLC to serve as Sub-Adviser
for the Funds. The Sub-Adviser is responsible for the day-to-day management of
the Funds. The Sub-Adviser is a registered investment adviser and New York
limited liability company whose principal office is located at 4 Orinda Way,
Suite 100-A, Orinda, California 94563. The Sub-Adviser provides investment
management services to investment companies and other investment advisers. The
Sub-Adviser is responsible for trading portfolio securities for the Funds,
including selecting broker-dealers to execute purchase and sale transactions or
in connection with any rebalancing or reconstitution of the Index, subject to
the supervision of the Adviser and the Board.
For
its services, the Sub-Adviser is paid a fee by the Adviser, which fee is
calculated daily and paid monthly, at an annual rate based on the aggregate
average daily net assets for each fund advised by the Sub-Adviser, including the
Funds, and for which the Sub-Adviser serves as sub-adviser, as follows: 0.05% on
the first $500 million aggregate AUM, 0.04% on the next $500 million aggregate
AUM, and 0.03% on aggregate AUM over $1 billion subject to a minimum $15,000
annual fee.
The
basis for the Board of Trustees’ approval of the Sub-Investment Advisory
Agreement for each Fund is
available
in the
Funds’ Semi-Annual Report to Shareholders for
the reporting period ended February 28, 2022.
Portfolio
Managers
The
Funds are managed by Penserra’s portfolio management team. The individual
members of the team responsible for the day to day management of the Funds’
portfolios are listed below.
Dustin
Lewellyn, CFA, Managing Director of the Sub-Adviser, Ernesto Tong, CFA, Managing
Director of the Sub-Adviser and Anand Desai, Associate of the Sub-Adviser, are
the Funds’ portfolio managers (the “Portfolio Managers”) and are jointly
responsible for the day to day management of the Funds. The Portfolio Managers
are responsible for various functions related to portfolio management,
including, but not limited to, investing cash inflows, implementing investment
strategy, researching and reviewing investment strategy, and overseeing members
of their portfolio management team with more limited
responsibilities.
Mr.
Lewellyn has been a Managing Director with the Sub-Adviser since 2012. He was
President and Founder of Golden Gate Investment Consulting LLC from 2011 through
2015. Prior to that, Mr. Lewellyn was a managing director at Charles Schwab
Investment Management, Inc. (“CSIM”), which he joined in 2009, and head of
portfolio management for Schwab ETFs. Prior to joining CSIM, he worked for two
years as director of ETF product management and development at a major financial
institution focused on asset and wealth management. Prior to that, he was a
portfolio manager for institutional clients at a financial services firm for
three years. In addition, he held roles in portfolio accounting and portfolio
management at a large asset management firm for more than 6 years.
Mr.
Tong has been a Managing Director with the Sub-Adviser since 2015. Prior to
joining Penserra, Mr. Tong spent seven years as a vice president at Blackrock,
where he was a portfolio manager for a number of the iShares ETFs, and prior to
that, he spent two years in the firm’s index research group.
Mr.
Desai has been a Senior Vice President with the Sub-Adviser since 2021 and was
previously an Associate since 2015. Prior to joining Penserra, Mr. Desai spent
five years as a portfolio fund accountant at State Street.
The
SAI provides additional information about each Portfolio Manager’s compensation
structure, other accounts managed by the Portfolio Managers, and the Portfolio
Managers’ ownership of Shares of each Fund for which they are a portfolio
manager.
Each
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from a 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.
Each
Fund’s shares are listed for secondary trading on the Exchange. When you buy or
sell a Fund’s shares on the secondary market, you will pay or receive the market
price. You may incur customary brokerage commissions and charges and may pay
some or all of the spread between the bid and the offered price in the secondary
market on each leg of a round trip (purchase and sale) transaction. The shares
will trade on the Exchange at prices that may differ to varying degrees from the
daily NAV of the shares. The Exchange is generally open Monday through Friday
and is closed weekends and the following holidays: New Year’s Day, Martin Luther
King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
NAV
per share for a Fund is computed by dividing the value of the net assets of the
Fund (i.e., the value of its total assets less total liabilities) by its total
number of shares outstanding. Expenses and fees, including management and
distribution fees, if any, are accrued daily and taken into account for purposes
of determining NAV. NAV is determined each business day, normally as of the
close of regular trading of the New York Stock Exchange (ordinarily 4:00 p.m.,
Eastern time).
When
determining NAV, the value of a Fund’s portfolio securities is based on market
prices of the securities, which generally means a valuation obtained from an
exchange or other market (or based on a price quotation or other equivalent
indication of the value supplied by an exchange or other market) or a valuation
obtained from an independent pricing service. If a security’s market price is
not readily available or does not otherwise accurately reflect the fair value of
the security, the security will be valued by another method that the Board
believes will better reflect fair value in accordance with the Trust’s valuation
policies and procedures. Fair value pricing may be used in a variety of
circumstances, including, but not limited to, situations when the value of a
security in a Fund’s portfolio has been materially affected by events occurring
after the close of the market on which the security is principally traded but
prior to the close of the Exchange (such as in the case of a corporate action or
other news that may materially affect the price of a security) or trading in a
security has been suspended or halted. Accordingly, the Fund’s NAV may reflect
certain portfolio securities’ fair values rather than their market
prices.
Fair
value pricing involves subjective judgments and it is possible that a fair value
determination for a security will materially differ from the value that could be
realized upon the sale of the security. In addition, fair value pricing could
result in a difference between the prices used to calculate a Fund’s NAV and the
prices used by the Fund’s Index. This may result in a difference between a
Fund’s performance and the performance of the Fund’s Index.
The
Funds invest in non-U.S. securities. Non-U.S. securities held by a Fund may
trade on weekends or other days when the Fund does not price its shares. As a
result, the Fund’s NAV may change on days when Authorized Participants will not
be able to purchase or redeem Fund shares.
Determination
of Net Asset Value
The
NAV of each Fund’s Shares is calculated each day the New York Stock Exchange
(the “NYSE”) is open for trading as of the close of regular trading on the NYSE,
generally 4:00 p.m. Eastern Time (the “NAV Calculation Time”). If the NYSE
closes before 4:00 p.m. Eastern Time, as it occasionally does, the NAV
Calculation Time will be the time the NYSE closes. Each Fund’s NAV per share is
calculated by dividing the Fund’s net assets by the number of Fund Shares
outstanding.
In
calculating its NAV, each 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. Debt
obligations with maturities of 60 days or less are valued at amortized
cost.
Fair
Value Pricing
The
Board designated the Adviser as the “valuation designee” for the Funds under
Rule 2a-5 of the 1940 Act subject to its oversight. The Adviser and the Trust
have adopted procedures and methodologies fair value of 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 de-listed 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 valuation
designee 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 Adviser-approved
valuation procedures. Due to the subjective and variable nature of fair value
pricing, there can be no assurance that the Adviser will be able to obtain the
fair value assigned to the security upon the sale of such security.
Dividends
and Distributions
Each
Fund, except for HOTL and RESI, expects to pay out dividends, if any, on an
annual basis. HOTL and RESI expect to pay out dividends, if any, on a quarterly
basis. Nonetheless, each Fund may make more frequent dividend payments. Each
Fund expects to distribute its net realized capital gains to investors annually.
Each Fund occasionally may be required to make supplemental distributions at
some other time during the year. Distributions in cash may be reinvested
automatically in additional whole Shares only if the broker through whom you
purchased Shares makes such option available. Your broker is responsible for
distributing the income and capital gain distributions to you.
Book
Entry
Shares
of each Fund are held in book-entry form, which means that no stock certificates
are issued. The Depository Trust Company (“DTC”) or its nominee is the record
owner of all outstanding shares of each Fund.
Investors
owning shares of each Fund are beneficial owners as shown on the records of DTC
or its participants. DTC serves as the securities depository for all shares of
each Fund. Participants include DTC, securities brokers and dealers, banks,
trust companies, clearing corporations, and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
Shares, you are not entitled to receive physical delivery of stock certificates
or to have Shares registered in your name, and you are not considered a
registered owner of Shares. Therefore, to exercise any right as an owner of
Shares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any securities that you hold in
book-entry or “street name” form. Your broker will provide you with account
statements, confirmations of your purchases and sales, and tax
information.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of each 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 each 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.
Frequent
Purchases and Redemptions of Fund Shares
Each
Fund imposes no restrictions on the frequency of purchases and redemptions of
Fund Shares. In determining not to impose such restrictions, 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 a Fund, are an essential part of the ETF process and help keep
Fund share trading prices in line with NAV. As such, each 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, each Fund imposes transaction fees on purchases and redemptions
of Creation Units to cover the custodial and other costs incurred by the Fund in
effective trades. In addition, each Fund and the Adviser reserves the right to
reject any purchase order at any time.
Investments
by Registered Investment Companies
Section 12
of the 1940 Act restricts investments by registered investment companies in the
securities of other investment companies, including shares of each Fund.
However, registered investment companies are permitted to invest in each Fund
beyond the limits set forth in section 12 when they comply with rules adopted by
the SEC and comply with the necessary conditions.
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Funds. Your investment
in a 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.
This summary does not apply to Shares held in an IRA or other tax-qualified
plans, which are generally not subject to current tax. Transactions relating to
Shares held in such accounts may, however, be taxable at some time in the
future. This summary is based on current tax laws, which may change.
Each
Fund will elect and intends to continue to qualify each year for treatment as a
RIC. If a Fund 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, a 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 a Fund makes distributions, when you sell your Shares listed
on the Exchange; and when you purchase or redeem Creation Units (APs
only).
Taxes
on Distributions Each
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long a Fund owned the investments that generated them, rather
than how long a shareholder has owned his or her Shares. Sales of assets held by
a Fund for more than one year generally result in long-term capital gains and
losses, and sales of assets held by a Fund for one year or less generally result
in short-term capital gains and losses. Distributions of a Fund’s net capital
gain (the excess of net long-term capital gains over net short-term capital
losses) that are reported by such Fund as capital gain dividends (“Capital Gain
Dividends”) will be taxable as long-term capital gains, which for non-corporate
shareholders are subject to tax at reduced rates of up to 20% (lower rates apply
to individuals in lower tax brackets). Distributions of short-term capital gain
will generally be taxable 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 Funds as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided 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 Funds received 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 a Fund that are attributable to dividends received by the Fund from
U.S. corporations, subject to certain limitations. A Fund’s investment strategy
may limit the amount of distributions eligible for treatment as qualified
dividend income in the hands of non-corporate shareholders or eligible for the
dividends received deduction for corporate shareholders.
For
the taxable years beginning after 2017 and before 2025, non-corporate taxpayers
generally may deduct 20% of “qualified business income” derived either directly
or through partnerships or S corporations. For this purpose, “qualified business
income” generally includes ordinary dividends paid by a real estate investment
trust (“REIT”) and certain income from publicly traded partnerships. Regulations
recently adopted by the United States Treasury allow non-corporate shareholders
of a Fund to benefit from the 20% deduction with respect to net REIT dividends
received by the Fund if the Fund meets certain reporting requirements, but do
not permit any such deduction with respect to publicly traded partnerships.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from a Fund.
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
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 even if they are paid from income or gains earned by a Fund before your
investment (and thus were included in the Shares’ NAV when you purchased your
Shares).
You
may wish to avoid investing in a Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable 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
a Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares generally are not subject to U.S. taxation, unless you are a
nonresident alien individual who is physically present in the U.S. for 183 days
or more per year. A 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. Different tax consequences may
result if you are a foreign shareholder engaged in a trade or business within
the United States or if a tax treaty applies.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act),
a Fund is required to withhold 30% of certain ordinary dividends it pays to
shareholders that are foreign entities and that fail to meet prescribed
information reporting or certification requirements.
Each
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 (currently 24%) of the taxable distributions and sale 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 the shareholder is not subject to such withholding.
Taxes
When Fund Shares Are Sold
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 of a Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of Shares. The ability to deduct capital
losses may be limited.
The
cost basis of Shares of a Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your
account.
A
foreign shareholder will generally not be subject to U.S. tax on gains realized
on sales or exchange of Fund Shares unless the investment in the Fund is
connected to a trade or business of the investor in the United States or if the
shareholder is present in the United States for 183 days or more in a year and
certain other conditions are met. All foreign shareholders should consult their
own tax advisors regarding the tax consequences in their country of residence of
an investment in the Fund.
Creation
and Redemption Units
An
Authorized Participant who exchanges securities for Creation Units generally
will recognize a gain or a loss. The gain or loss will be equal to the
difference between the market value of the Creation Units at the time and the
sum of the exchanger’s aggregate basis in the securities surrendered plus the
amount of cash paid for such Creation Units. A person who redeems Creation Units
will generally recognize a gain or loss equal to the difference between the
exchanger’s basis in the Creation Units and the sum of the aggregate market
value of any securities received plus the amount of any cash received for such
Creation Units. The Internal Revenue Service, however, may assert that a loss
realized upon an exchange of securities for Creation Units cannot be deducted
currently under the rules governing “wash sales” (for an AP that does not
mark-to-market its holdings), or on the basis that there has been no significant
change in economic position.
Any
capital gain or loss realized upon the creation of Creation Units will generally
be treated as long-term capital gain or loss if the securities exchanged for
such Creation Units have been held for more than one year. Any capital gain or
loss realized upon the redemption of Creation Units will generally be treated as
long-term capital gain or loss if the Shares comprising the Creation Units have
been held for more than one year. Otherwise, such capital gains or losses will
be treated as short-term capital gains or losses. Persons purchasing or
redeeming Creation Units should consult their own tax advisors with respect to
the tax treatment of any creation or redemption transaction.
A
Fund has the right to reject an order for Creation Units if the purchaser (or
group of purchasers) would, upon obtaining the Shares so ordered, own 80% or
more of the outstanding Shares of the Fund and if, pursuant to section 351 of
the Internal Revenue Code, the respective Fund would have a basis in the deposit
securities different from the market value of such securities on the date of
deposit. A Fund also has the right to require information necessary to determine
beneficial Share ownership for purposes of the 80% determination.
A
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. A 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, a 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 Funds
Interest
and other income received by the Funds with respect to foreign securities may
give rise to withholding and other taxes imposed by foreign countries. Tax
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 a Fund’s assets consists of certain foreign stock or securities, each
such Fund will be eligible to elect to “pass through” to investors the amount of
foreign income and similar taxes (including withholding taxes) paid by such 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 a Fund does not so elect, each such Fund will be entitled to
claim a deduction for certain foreign taxes incurred by such Fund. A Fund (or
your broker) 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.
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 state and local tax on Fund
distributions and sales of Fund Shares. Consult your personal tax advisor about
the potential tax consequences of an investment in Fund Shares
under
all applicable tax laws. For more information, please see the section entitled
“Federal Income Taxes” in the SAI.
State
and Local Taxes
Shareholders
may also be subject to state and local taxes on income and gain attributable to
your ownership of Fund Shares. State income taxes may not apply, however, to the
portions of a Fund’s distributions, if any, that are attributable to interest
earned by the Fund on U.S. government securities. You should consult your tax
professional regarding the tax status of distributions in your state and
locality.
The
Distributor, Foreside Fund Services, LLC, is a broker-dealer registered with the
U.S. Securities and Exchange Commission. The Distributor distributes Creation
Units for each Fund on an agency basis and does not maintain a secondary market
in Shares. The Distributor has no role in determining the policies of each Fund
or the securities that are purchased or sold by each Fund. The Distributor’s
principal address is 500 Chesterfield Parkway, Malvern, Pennsylvania, 19355. The
Distributor is an affiliate of the Adviser.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, each Fund is authorized
to pay an amount up to 0.25% of its average daily net assets each year for
certain distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Funds, 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 a Fund’s assets, over time these fees
will increase the cost of your investment and may cost you more than certain
other types of sales charges.
When
available, information regarding how often Shares of the Funds traded on the
Exchange at a price above (i.e.,
at a premium) or below (i.e.,
at a discount) the NAV of the applicable Fund can be found on the Funds’ website
at www.KellyETFs.com.
STRATEGIC
INDEXES, LLC (“STRATEGIC INDEXES”) DOES NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN AND THEY SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. STRATEGIC INDEXES
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE
ADVISER, OWNERS OR USERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE
OF THE INDEX OR ANY DATA INCLUDED THEREIN. STRATEGIC INDEXES MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
STRATEGIC INDEXES HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES. The Fund is not sponsored, endorsed, sold or
promoted by Strategic Indexes. Strategic Indexes makes no representation or
warranty, express or implied, to the owners of the Fund or any member of the
public regarding the advisability of investing in securities generally or in the
Fund in particular or the ability of the Index to track general stock market
performance. The Index is determined, composed and calculated without regard to
the Adviser or the Fund. Strategic Indexes has no obligation to take the needs
of the Adviser or the owners of the Fund into consideration in determining,
composing or calculating the Index. Strategic Indexes is not responsible for and
has not participated in the determination of the prices and amount of the Fund
or the timing of the issuance or sale of the Fund or in the determination or
calculation of the equation by which the Fund is converted into cash. Strategic
Indexes has no obligation or liability in connection with the administration,
marketing or trading of the Fund.
Shares
of each Fund are not sponsored, endorsed, or promoted by the Exchange. The
Exchange makes no representation or warranty, express or implied, to the owners
of the shares of the Funds or any member of the public regarding the ability of
the Funds to track the total return performance of the Indexes or the ability of
the Indexes identified herein to track stock market performance. The Exchange is
not responsible for, nor has it participated in, the determination of the
compilation or the calculation of the Indexes, nor in the determination of the
timing of, prices of, or quantities of the shares of each Fund to be issued, nor
in the determination or calculation of the equation by which the Shares are
redeemable. The Exchange has no obligation or liability to owners of the shares
of each Fund in connection with the administration, marketing, or trading of the
shares of each Fund.
The
Exchange does not guarantee the accuracy and/or the completeness of the Indexes
or the data included therein. The Exchange makes no warranty, express or
implied, as to results to be obtained by the Trust on behalf of each Fund,
owners of the Shares, or any other person or entity from the use of the Index or
the data included therein. The Exchange makes no express or implied warranties,
and hereby expressly disclaims all warranties of merchantability or fitness for
a particular purpose with respect to the Indexes or the data included therein.
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, the Sub-Adviser, and each Fund make no representation or warranty,
express or implied, to the owners of Shares of each Fund or any member of the
public regarding the advisability of investing in securities generally or in
each Fund particularly. The Adviser and Sub-Adviser have no obligation to take
the needs of each Fund or the owners of Shares of each Fund into consideration
in determining, composing, or calculating each Index.
SHAREHOLDER
ACTIONS
The
Declaration of Trust provides a detailed process for the bringing of derivative
or direct actions by shareholders in order to permit legitimate inquiries and
claims while avoiding the time, expense, distraction, and other harm that can be
caused to a Fund or its shareholders as a result of spurious shareholder demands
and derivative actions. Prior to bringing a derivative action, a demand by three
unrelated shareholders must first be made on a Fund’s Trustees. The Declaration
of Trust details various information, certifications, undertakings and
acknowledgments that must be included in the demand. Following receipt of the
demand, the trustees have a period of 90 days, which may be extended by an
additional 60 days, to consider the demand. If a majority of the Trustees who
are considered independent for the purposes of considering the demand determine
that maintaining the suit would not be in the best interests of the Fund, the
Trustees are required to reject the demand and the complaining shareholders may
not proceed with the derivative action unless the shareholders
are
able to sustain the burden of proof to a court that the decision of the Trustees
not to pursue the requested action was not a good faith exercise of their
business judgment on behalf of the Fund. The Declaration of Trust further
provides that shareholders owning Shares representing no less than a majority of
a Fund’s outstanding shares must join in bringing the derivative action. If a
demand is rejected, the complaining shareholders will be responsible for the
costs and expenses (including attorneys’ fees) incurred by the Fund in
connection with the consideration of the demand, if a court determines that the
demand was made without reasonable cause or for an improper purpose. If a
derivative action is brought in violation of the Declaration of Trust, the
shareholders bringing the action may be responsible for the Fund’s costs,
including attorneys’ fees, if a court determines that the action was brought
without reasonable cause or for an improper purpose. The Declaration of Trust
provides that no shareholder may bring a direct action claiming injury as a
shareholder of the Trust, or any Fund, where the matters alleged (if true) would
give rise to a claim by the Trust or by the Trust on behalf of a Fund, unless
the shareholder has suffered an injury distinct from that suffered by the
shareholders of the Trust, or the Fund, generally. Under the Declaration of
Trust, a shareholder bringing a direct claim must be a shareholder of the Fund
with respect to which the direct action is brought at the time of the injury
complained of, or have acquired the shares afterwards by operation of law from a
person who was a shareholder at that time. The Declaration of Trust further
provides that a Fund shall be responsible for payment of attorneys’ fees and
legal expenses incurred by a complaining shareholder only if required by law,
and any attorneys’ fees that the Fund is obligated to pay shall be calculated
using reasonable hourly rates. These provisions do not apply to claims brought
under the federal securities laws.
The
Declaration of Trust also requires that actions by shareholders against a Fund
be brought exclusively in a federal or state court located within the State of
Delaware. Limiting shareholders’ ability to bring actions only in courts located
in Delaware may cause shareholders economic hardship to litigate the action in
those courts, including paying for traveling expenses of witnesses and counsel,
requiring retaining local counsel, and may limit shareholders’ ability to bring
a claim in a judicial forum that shareholders find favorable for disputes, which
may discourage such actions.
The
following financial highlights table shows the financial performance information
for HOTL, RESI, and XDNA for the period from January 12, 2022 (commencement of
operations) to August 31, 2022. The total return in the table represents the
rate that you would have earned or lost on an investment in the Fund (assuming
you reinvested all dividends). This information has been audited by Cohen &
Company, Ltd., the independent registered public accounting firm of the Funds,
whose report along with the Funds’ Annual Financial Statements, is included in
the Fund’s 2022 Annual Report to Shareholders, which is available upon request.
Because ECMM, XPAY, INET, and TRE have not yet commenced operations, there are
no financial highlights for these Funds at this time.
|
|
|
|
|
|
|
|
|
|
|
|
| |
| KELLY
HOTEL & LODGING SECTOR ETF |
|
|
FINANCIAL
HIGHLIGHTS For
a capital share outstanding throughout the period |
|
|
|
Period
Ended
August 31, 2022(1) |
|
| |
| |
|
|
| |
|
|
| Net
asset value, beginning of period |
| $ |
15.17 |
| |
|
|
|
|
|
| |
| INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
|
|
|
|
Net
investment income(2) |
| 0.02 |
| |
|
| Net
realized and unrealized loss on investments |
| (1.89) |
| |
|
| Total
Loss from Investment Operations |
| (1.87) |
| |
|
|
|
|
| |
|
| LESS
DISTRIBUTIONS: |
| |
|
|
| From
net investment income |
| (0.02) |
| |
|
| From
return of capital |
| (0.01) |
|
| |
| Total
Distributions |
| (0.03) |
| |
|
|
|
|
|
| |
| Net
Asset Value, End of Period |
| $13.27 |
| |
|
|
|
|
| |
| Total
Return |
|
|
| |
|
Net
Asset Value (3) |
| (12.29)
% |
(5) |
|
|
Market
Value (4) |
| (12.33)
% |
(5) |
|
|
|
|
|
| |
| SUPPLEMENTAL
DATA AND RATIOS: |
| |
|
|
| Net
assets, end of period (in thousands) |
| $ |
1,327 |
| |
|
| Ratio
of expenses to average net assets |
| 0.78 |
% |
(6) |
|
| Ratio
of net investment income to average net assets |
| 0.23 |
% |
(6) |
|
|
Portfolio
turnover rate(7)
|
| 9 |
% |
(5) |
|
1.Commencement
of investment operations on January 12, 2022
2.Net
investment income per share represents net investment income divided by the
average shares outstanding throughout the period.
3.Net
asset value total return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period and redemption
on the last day of the period at net asset value.
4.Market
value total return is calculated assuming an initial investment made at market
value at the beginning of the period, reinvestment of all dividends and
distributions at net asset value during the period and redemption on the last
day of the period at market value. The market value is determined by the
midpoint of the bid/ask spread at 4:00 p.m. from the NYSE Arca, Inc. Market
value returns may vary from net asset value returns.
5.Not
annualized.
6.Annualized.
7.Portfolio
turnover rate excludes in-kind transactions.
|
|
|
|
|
|
|
|
|
|
|
|
| |
| KELLY
RESIDENTIAL & APARTMENT REAL ESTATE ETF |
|
|
FINANCIAL
HIGHLIGHTS For
a capital share outstanding throughout the period |
|
|
|
Period
Ended
August 31, 2022(1) |
|
| |
| |
|
|
| |
|
|
| Net
asset value, beginning of period |
| $ |
14.63 |
| |
|
|
|
|
|
| |
| INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
|
|
|
|
Net
investment income(2) |
| 0.08 |
| |
|
| Net
realized and unrealized loss on investments |
| (2.77) |
| |
|
| Total
Loss from Investment Operations |
| (2.69) |
| |
|
|
|
|
| |
|
| LESS
DISTRIBUTIONS: |
| |
|
|
| From
net investment income |
| (0.03) |
| |
|
| Total
Distributions |
| (0.03) |
| |
|
|
|
|
|
| |
| Net
Asset Value, End of Period |
| $11.91 |
| |
|
|
|
|
| |
| Total
Return |
|
|
| |
|
Net
Asset Value (3) |
| (18.36)
% |
(5) |
|
|
Market
Value (4) |
| (18.30)
% |
(5) |
|
|
|
|
|
| |
| SUPPLEMENTAL
DATA AND RATIOS: |
| |
|
|
| Net
assets, end of period (in thousands) |
| $ |
298 |
| |
|
| Ratio
of expenses to average net assets: |
|
|
| |
| Gross |
| 0.68 |
% |
(6) |
|
| Net |
| 0.36 |
% |
(6)(7) |
|
| Ratio
of net investment income to average net assets: |
|
|
| |
| Gross |
| 0.63 |
% |
(6) |
|
| Net |
| 0.95 |
% |
(6)(7) |
|
|
Portfolio
turnover rate(8)
|
| 18 |
% |
(5) |
|
1.Commencement
of investment operations on January 12, 2022
2.Net
investment income per share represents net investment income divided by the
average shares outstanding throughout the period.
3.Net
asset value total return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period and redemption
on the last day of the period at net asset value.
4.Market
value total return is calculated assuming an initial investment made at market
value at the beginning of the period, reinvestment of all dividends and
distributions at net asset value during the period and redemption on the last
day of the period at market value. The market value is determined by the
midpoint of the bid/ask spread at 4:00 p.m. from the NYSE Arca, Inc. Market
value returns may vary from net asset value returns.
5.Not
annualized.
6.Annualized.
7.The
contractual fee waiver is reflected in both the net expense and net investment
income ratios (See Note 4 in the 2022 Annual Report).
8.Portfolio
turnover rate excludes in-kind transactions.
|
|
|
|
|
|
|
|
|
|
|
|
| |
| KELLY
CRISPR & GENE EDITING TECHNOLOGY ETF |
|
|
FINANCIAL
HIGHLIGHTS For
a capital share outstanding throughout the period |
|
|
|
Period
Ended
August 31, 2022(1) |
|
| |
| |
|
|
| |
|
|
| Net
asset value, beginning of period |
| $ |
14.70 |
| |
|
|
|
|
|
| |
| LOSS
FROM INVESTMENT OPERATIONS: |
|
|
|
|
Net
investment loss(2) |
| (0.01) |
| |
|
| Net
realized and unrealized loss on investments |
| (2.25) |
| |
|
| Total
Loss from Investment Operations |
| (2.26) |
| |
|
|
|
|
| |
|
| Net
Asset Value, End of Period |
| $12.44 |
| |
|
|
|
|
| |
| Total
Return |
|
|
| |
|
Net
Asset Value (3) |
| (15.39)
% |
(5) |
|
|
Market
Value (4) |
| (14.49)
% |
(5) |
|
|
|
|
|
| |
| SUPPLEMENTAL
DATA AND RATIOS: |
| |
|
|
| Net
assets, end of period (in thousands) |
| $ |
5,286 |
| |
|
| Ratio
of expenses to average net assets |
| 0.78 |
% |
(6) |
|
| Ratio
of net investment income to average net assets |
| (0.13) |
% |
(6) |
|
|
Portfolio
turnover rate(7)
|
| 23 |
% |
(5) |
|
1.Commencement
of investment operations on January 12, 2022
2.Net
investment loss per share represents net investment income divided by the
average shares outstanding throughout the period.
3.Net
asset value total return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period and redemption
on the last day of the period at net asset value.
4.Market
value total return is calculated assuming an initial investment made at market
value at the beginning of the period, reinvestment of all dividends and
distributions at net asset value during the period and redemption on the last
day of the period at market value. The market value is determined by the
midpoint of the bid/ask spread at 4:00 p.m. from the NYSE Arca, Inc. Market
value returns may vary from net asset value returns.
5.Not
annualized.
6.Annualized.
7.Portfolio
turnover rate excludes in-kind transactions.
|
|
|
|
|
|
|
|
|
|
|
| |
|
Adviser |
Kelly
Strategic Management, LLC
7887
East Belleview Avenue, Suite 1100
Denver,
Colorado 80111 |
Distributor |
Foreside
Fund Services, LLC
3
Canal Plaza, Suite 100 Portland, Maine 04101 |
|
Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Drive
Milwaukee,
Wisconsin 53212 |
Fund
Accountant, Administrator, Index Receipt Agent, and Transfer
Agent |
U.S.
Bancorp Fund Services, LLC
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
|
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115 |
Legal
Counsel |
Eversheds
Sutherland (US) LLP
700
6th Street, N.W. Washington, DC
20001 |
The
Trust’s current SAI provides additional detailed information about each Fund. A
current SAI dated December
29, 2022,
as supplemented from time to time, is on file with the SEC and is herein
incorporated by reference into this Prospectus.
Additional
information about each Fund’s investments is available in the Funds’ annual and
semi-annual reports to shareholders (when available). In the annual report you
will find a discussion of the market conditions and investment strategies that
significantly affected each Fund’s performance after the first fiscal year each
Fund is in operation. To make shareholder inquiries, please:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Call: |
(800)
658-1070
Monday
through Friday
8:00
a.m. – 5:00 p.m. (Central time) |
|
Write: |
Kelly
Strategic ETF Trust (Name of Fund)
c/o
U.S. Bank Global Fund Services, LLC
P.O.
Box 701
Milwaukee,
Wisconsin 53202 |
|
Visit: |
www.KellyETFs.com
|
|
| |
Shareholder
reports and other information about the Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
No
person is authorized to give any information or to make any representations
about each Fund and its Shares not contained in this Prospectus and you should
not rely on any other information. Read and keep this Prospectus for future
reference.
(The
Trust’s SEC Investment Company Act file number is 811-23723)
