ck0001467831-20220930
Etho Climate Leadership U.S.
ETF
(ETHO)
Listed
on NYSE Arca, Inc.
PROSPECTUS
January 31,
2023
Fund
shares are not individually redeemable by the Fund
but
trade on the NYSE Arca in individual share lots.
THE
SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
About
This Prospectus
This
prospectus has been arranged into different sections so that you can easily
review this important information. For detailed information about the Fund,
please see:
Etho
Climate Leadership U.S. ETF—Fund Summary
Investment Objective
The Etho Climate Leadership
U.S. ETF (the “Fund”) seeks to provide investment results that, before fees and
expenses, correspond generally to the total return performance of the Etho
Climate Leadership Index – US (the “Index”).
Fees and Expenses
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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| Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
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| Management
Fee |
0.45 |
% |
| Distribution
and Service (12b-1) Fees |
None |
| Other
Expenses |
0.00 |
% |
| Total
Annual Fund Operating Expenses |
0.45 |
% |
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. This
Example does not take into account the 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 cost would be:
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| 1
Year |
3
Years |
5
Years |
10
Years |
| $46 |
$144 |
$252 |
$567 |
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 the 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 fiscal year ended
September 30, 2022, the Fund’s portfolio turnover rate was 30% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund uses a “passive” or indexing approach to try to achieve the Fund’s
investment objective. 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.
The
Etho Climate Leadership Index – US
The
Index was created by Etho Capital, LLC (the “Index Provider”) and tracks the
performance of the equity securities of a diversified set of U.S. companies that
are leaders in their industry with respect to their carbon impact. “Carbon
impact” is calculated based on the total greenhouse gas (“GHG”) emissions from a
company’s operations, fuel use, supply chain and business activities, divided by
the company’s market capitalization. The Index primarily includes each company
with a carbon impact at least 50% better (i.e.,
lower) than the average carbon impact for a given company’s industry (“Carbon
Leaders”). The Index generally excludes companies in industries or
sub-industries or specific companies that are broadly associated with negative
environmental, social, or corporate governance (“ESG”) profiles, as described
below. The Index Provider created the Index to seek to identify a diverse
portfolio of companies with a carbon impact at least 50% better than commonly
used broad-based securities indices.
Construction
of the Index begins with the universe of U.S. companies with a minimum market
capitalization of $100 million. “U.S. companies” are defined as companies whose
equity securities are principally listed and traded on a U.S. securities
exchange and who either have their headquarters located in the U.S. or who
derive at least 30% of their revenues from sales in the U.S. The carbon impact
of each such company and its industry average is calculated by the Index
Provider based on proprietary and third-party data. The universe of U.S.-listed
companies is then screened by the Index Provider to include only companies that
are Carbon Leaders.
The
Index universe is further screened to generally exclude (i) all companies in the
fossil fuel energy sector, (ii) all companies in the tobacco industry, the
aerospace and defense industry that produce weapons, and (iii) all companies in
the gambling, gold and silver sub-industries. Additionally, the Index excludes
certain companies generally considered by certain non-governmental organizations
(“NGOs”) as having a negative environmental sustainability impact (e.g.,
due to deforestation activities) and includes certain
companies
identified by the Index Provider whose products produce sufficient downstream
sustainability benefits to outweigh the companies’ exclusion based on the above
criteria (e.g.,
solar panel manufacturers).
The
Index is reconstituted annually in April. At the time of each reconstitution,
the companies in the Index are equal weighted.
The
Index is calculated and maintained by Solactive AG, which is independent of the
Index Provider, the Fund, its adviser, and distributor.
The
Index is not limited to a minimum or maximum number of constituents; rather, it
includes all companies meeting the eligibility criteria for inclusion in the
Index. The Index may include companies of any market capitalization, including
small capitalization companies, subject to the previously referenced minimum
market capitalization of $100 million. The Index Provider anticipates that the
Index will generally include between 250 and 450 companies. As of January 10,
2023, the Index included the securities of 271 companies.
The
Fund’s Principal Investment Strategies
The
Fund uses a replication strategy. A replication strategy is an indexing strategy
that involves investing in the securities of the Index in approximately the same
proportions as in the Index. However, the Fund may utilize a representative
sampling strategy with respect to the Index when a replication strategy might be
detrimental to shareholders, such as when there are practical difficulties or
substantial costs involved in compiling a portfolio of equity securities to
follow the Index, in instances in which a security in the Index becomes
temporarily illiquid, unavailable or less liquid, or as a result of legal
restrictions or limitations (such as tax diversification requirements) that
apply to the Fund but not the Index.
The
Fund will invest at least 80% of its total assets in the component securities of
the Index. As a result, under normal circumstances, the Fund will invest at
least 80% of its total assets in U.S. companies that are leaders in their
industry with respect to their carbon impact (the “80% Policy”).
The
Fund may lend its portfolio securities to brokers, dealers, and other financial
organizations. These loans, if and when made, may not exceed 33 1/3% of the
total asset value of the Fund (including the loan collateral). By lending its
securities, the Fund may increase its income by receiving payments from the
borrower.
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.
Correlation:
Correlation
is the extent to which the values of different types of investments move in
tandem with one another in response to changing economic and market conditions.
An index is a theoretical financial calculation, while the Fund is an actual
investment portfolio. The performance of the Fund and the Index may vary
somewhat due to transaction costs, asset valuations, foreign currency
valuations, market impact, corporate actions (such as mergers and spin-offs),
legal restrictions or limitations, illiquid or unavailable securities, and
timing variances.
The
Fund’s investment adviser expects that, over time, the correlation between the
Fund’s performance and that of the Index, before fees and expenses, will exceed
95%. A correlation percentage of 100% would indicate perfect correlation. If the
Fund uses a replication strategy, it can be expected to have greater correlation
to the Index than if it uses a representative sampling strategy.
Industry
Concentration: The
Fund will concentrate its investments (i.e.,
hold 25% or more of its net assets) in a particular industry or group of related
industries to approximately the same extent that the Index is
concentrated.
Principal Risks
As with all funds, a shareholder is subject to the risk
that his or her investment could lose money. The principal risks
affecting shareholders’ investments in the Fund are set forth below.
An investment in the Fund is not a
bank deposit and is not insured or guaranteed by the FDIC or any government
agency.
ESG
Risk: Because
the Fund generally does not invest in (i) companies in the energy sector, (ii)
companies in the tobacco, aerospace and defense industries, and (iii) companies
in the gambling, gold and silver sub-industries, the Fund may underperform the
broader equity market to the extent that such companies have above-average
performance.
Concentration
Risk: The
Fund’s investments will be concentrated in an industry or group of industries to
the extent the Index is so concentrated. To the extent the Fund invests more
heavily in particular industries, groups of industries, or sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those industries, groups of industries, or sectors of the
economy, and the value of Fund shares may rise and fall more than the value of
shares that invest in securities of companies in a broader range of industries
or sectors.
Smaller
Companies Risk:
The Fund’s Index may be composed primarily of, or have significant exposure to,
securities of smaller companies. Smaller companies may be more vulnerable to
adverse business or economic events than larger, more established companies, and
may underperform other segments of the market or the equity market as a whole.
The securities of smaller companies also are often traded in the
over-the-counter market and tend to be bought and sold less frequently and at
significantly lower trading volumes than the securities of larger companies. As
a result, it may be more difficult for the Fund to buy or sell a significant
amount of
the
securities of a smaller company without an adverse impact on the price of the
company’s securities, or the Fund may have to sell such securities in smaller
quantities over a longer period of time, which may increase the Fund’s tracking
error.
The
remaining risks are presented in alphabetical order. Each risk summarized below
is considered a “principal risk” of investing in the Fund, regardless of the
order in which it appears.
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 such as
political, market and economic developments, as well as events that impact
specific issuers. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, acts of terrorism or other events
could result in increased premiums or discounts to the Fund’s NAV.
ETF
Risks:
Absence
of an Active Market: Although
the Fund’s shares are approved for listing on the NYSE Arca, Inc. (the
“Exchange”), there can be no assurance that an active trading market will
develop and be maintained for Fund shares. There can be no assurance that the
Fund will grow to or maintain an economically viable size, in which case the
Fund may experience greater tracking error to its Index than it otherwise would
at higher asset levels or the Fund may ultimately liquidate.
Authorized
Participants (“APs”), Market Makers, and Liquidity Providers
Concentration: The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to net asset value (“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 Fund 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.
Fluctuation
of NAV: The
NAV of Fund shares will generally fluctuate with changes in the market value of
the Fund’s securities holdings. The market prices of shares will generally
fluctuate in accordance with changes in the Fund’s NAV and supply and demand of
shares on the Exchange. It cannot be predicted whether Fund shares will trade
below, at or above their NAV. During periods of unusual volatility or market
disruptions, market prices of Fund shares may deviate significantly from the
market value of the Fund’s securities holdings or the NAV of Fund shares. As a
result, investors in the Fund may pay significantly more or receive
significantly less for Fund shares than the value of the Fund’s underlying
securities or the NAV of Fund shares.
Market
Trading:
An investment in the Fund faces numerous market trading risks, including the
potential lack of an active market for Fund shares, losses from trading in
secondary markets, periods of high volatility and disruption in the
creation/redemption process of the Fund. Any of these factors, among others, may
lead to the Fund’s shares trading at a premium or discount to NAV.
Trading
Issues:
Although
Fund shares are listed for trading on the Exchange, there can be no assurance
that an active trading market for such shares will develop or be maintained.
Trading in Fund shares may be halted due to market conditions or for reasons
that, in the view of the Exchange, make trading in shares inadvisable. There can
be no assurance that the requirements of the Exchange necessary to maintain the
listing of any Fund will continue to be met or will remain unchanged or that the
shares will trade with any volume, or at all. Further, secondary markets may be
subject to erratic trading activity, wide bid/ask spreads and extended trade
settlement periods in times of market stress because market makers and APs may
step away from making a market in Fund shares and in executing creation and
redemption orders, which could cause a material deviation in the Fund’s market
price from its NAV.
Natural
Disaster/Epidemic Risk:
Natural or environmental disasters, such as earthquakes, fires, floods,
hurricanes, tsunamis and other severe weather-related phenomena generally, and
widespread disease, including pandemics and epidemics, have been and may be
highly disruptive to economies and markets, adversely impacting individual
companies, sectors, industries, markets, currencies, interest and inflation
rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Given the increasing interdependence among global
economies and markets, conditions in one country, market, or region are
increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have
a significant adverse impact on the value of the Fund’s investments.
Passive
Investment Risk:
The Fund is not actively managed and therefore would not sell an equity security
due to current or projected underperformance of a security, industry or sector,
unless that security is removed from the Index. Unlike with an actively managed
fund, the Fund’s investment 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.
Securities
Lending Risk:
The Fund may engage in securities lending. The Fund may lose money if the
borrower of the loaned securities delays returning in a timely manner or fails
to return the loaned securities. Securities lending involves the risk that the
Fund could lose money in the event of a decline in the value of collateral
provided for loaned securities. In addition, the Fund bears the risk of loss in
connection with its investment of the cash collateral it receives from a
borrower. To the extent that the value or return of the Fund’s investment of the
cash collateral declines below the amount owed to the borrower, the Fund may
incur losses that exceed the amount it earned on lending the security.
Tracking Error
Risk: The Fund’s return may not match or
achieve a high degree of correlation with the return of the Index. To the extent
the Fund utilizes a sampling approach, it may experience tracking error to a
greater extent than if the Fund sought to replicate the Index. In addition, in
order to minimize the market impact of an Index rebalance, the Fund may begin
trading to effect the rebalance in advance of the effective date of the
rebalance and continue trading after the effective date of the rebalance, which
may contribute to tracking error.
Performance
Information
The following
information provides some indication of the risks of investing in the
Fund. The bar chart shows the annual return for the Fund. The
table shows how the Fund’s average annual returns for one year, five years, and
since inception compare with those of the Index and a broad measure of market
performance. The Fund’s past performance,
before and after taxes, is not necessarily an indication of how the Fund will
perform in the future. Updated performance information is
available on the Fund’s website at www.ethoetf.com.
Calendar Year Total Returns as of December
31
During the period of time shown
in the bar chart, the Fund’s highest return for a calendar
quarter was 25.19% (quarter ended June 30, 2020) and the
Fund’s lowest return for a calendar
quarter was -22.85% (quarter ended March 31,
2020).
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Average
Annual Total Returns (for
the period ended
December 31, 2022) |
1
Year |
5
Years |
Since
Inception
11/18/2015 |
| Etho
Climate Leadership U.S. ETF |
|
| |
| Return Before
Taxes |
-22.00% |
8.78% |
11.02% |
| Return After Taxes on
Distributions |
-22.20% |
8.55% |
10.77% |
| Return After Taxes on Distributions and
Sale of Fund Shares |
-12.88% |
6.92% |
8.90% |
|
Etho
Climate Leadership Index – US
(reflects no deduction for fees, expenses or
taxes) |
-22.52% |
8.31% |
10.48% |
|
S&P
500 Index
(reflects no deduction for
fees, expenses or taxes) |
-18.11% |
9.42% |
11.02% |
After-tax returns are
calculated using the highest historical individual U.S. federal marginal income
tax rates and do not reflect the impact of state and local
taxes.
Actual after-tax returns
depend on your tax situation and may differ from those shown and are not
relevant if you hold your shares through tax-advantaged arrangements, such as
401(k) plans or individual retirement
accounts. In some cases, the return
after taxes may exceed the return before taxes due to an assumed tax benefit
from any losses on a sale of Fund shares at the end of the measurement
period.
Investment
Adviser
ETF
Managers Group LLC (the “Adviser”) serves as the investment adviser to the Fund.
Portfolio
Managers
Samuel
R. Masucci, III, Chief Executive Officer of the Adviser, has been the Fund’s
portfolio manager since January 2018. Frank Vallario, Chief Investment Officer
of the Adviser has been the Fund's portfolio manager since September 2019.
Purchase
and Sale of 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 (the “Deposit 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.ethoetf.com.
Except
when aggregated in Creation Units, the Fund’s shares are not redeemable
securities.
Tax
Information
The
distributions made by the Fund generally are taxable to the Fund’s shareholders,
and will be taxed as ordinary income, qualified dividend income, or capital
gains (or a combination thereof), unless your investment is in an IRA or other
tax-advantaged account. However, subsequent withdrawals from such IRA or other
tax-advantaged account may be subject to U.S. federal income tax. You should
consult your tax advisor about your specific tax situation.
Financial
Intermediary Compensation
If
you purchase shares of the Fund 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 the Fund’s shares. These payments may create a
conflict of interest by influencing the Intermediary and your salesperson to
recommend the Fund over another investment. Any such arrangements do not result
in increased Fund expenses. Ask your salesperson or visit the Intermediary’s
website for more information.
Additional
Information about the Index
The
Index was created in 2015 by Etho Capital, LLC to serve as an index for
investors seeking to build a diversified portfolio of U.S. equity securities
with significantly less carbon impact than traditional indices.
In
calculating the carbon impact of a company or industry, the Index Provider
relies on propriety and third-party company-level data, which calculates company
emissions in the following three categories, known as “Scopes”:
Scope 1 Emissions. Emissions
from sources owned or controlled by the applicable company, e.g.
vehicles, blast furnaces, generators, refrigeration, air-conditioning units.
Scope 2 Emissions.
Emissions resulting from consumption of electricity, heat or steam purchased by
the applicable company.
Scope 3 Emissions. Scope
3 covers all other indirect emissions (excluding Scope 2). Scope 3 emissions are
caused by business activities, but are released from sources not owned or
controlled by the applicable company. Examples of Scope 3 activities upstream in
supply chains include business travel such as flights and car rentals; freight
transport services; and the extraction and production of purchased materials.
Scope 3 also includes emissions from sold products and services, as well as from
investment portfolios.
Each
company with a carbon impact more than ten times (1,000%) that of its industry
average is excluded from the Index universe and the applicable industry average
is recalculated excluding such company(ies). The remaining companies are
screened to keep only those companies determined to be Carbon Leaders in their
industry.
The
Index is further screened to generally exclude (i) all companies in the energy
sector, (ii) all companies in the tobacco industry, companies in the
aerospace and defense industry, that produce weapons, and (iii) all companies in
the gambling, gold and silver sub-industries. Additionally, the Index Provider
considers information from certain NGOs and other sources to identify and
exclude from the Index companies that are considered to have a particularly
negative environmental sustainability impact despite otherwise qualifying for
inclusion in the Index, e.g.,
from deforestation related to palm oil plantations. The Index Provider also
reviews the remaining companies to identify and exclude any companies that it
believes were included due to incorrect data about the company (e.g.,
assigned to an incorrect industry).
The
Index Provider may include certain companies that would otherwise be excluded
from the Index based on quantitative or qualitative information in the following
additional category of emissions not calculated by Etho Capital:
Scope
4 (Downstream Carbon Negative) Emissions.
Scope 4 considers downstream carbon negative emissions or emission reductions
directly related to the use of a product, but that do not occur during the
product’s production. Examples of products (and consequently companies) that may
generate avoided emissions or emission reductions include solar panels and wind
turbines.
The
Index Provider then eliminates the top five companies by carbon impact,
regardless of their industry, and the remaining companies are equal weighted to
constitute the Index.
Additional
Information about the Fund’s Investment Objective and Strategies
The
Fund uses an “indexing” investment approach, and seeks to provide investment
results that, before fees and expenses, corresponds generally to the price and
yield performance of the Index. A number of factors may affect the Fund’s
ability to achieve a high correlation with the Index, including the degree to
which the Fund utilizes a sampling methodology. There can be no guarantee that
the Fund will achieve a high degree of correlation. The Fund’s investment
adviser (“Adviser”) may sell securities that are represented in the Index or
purchase securities not yet represented in the Index, in anticipation of their
removal from or addition to the Index. There may also be instances in which the
Adviser may choose to overweight securities in the Index, thus causing the Fund
to purchase or sell securities not in the Index, but which the Adviser believes
are appropriate to substitute for certain securities in the Index. The Fund will
not take defensive positions.
The
Fund will invest at least 80% of its total assets in the component securities of
the Index and in depositary receipts representing such securities. The Fund may
invest up to 20% of its total assets in securities that are not in the Index to
the extent that the Adviser believes such investments should help the Fund’s
overall portfolio track the Index.
The
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed without shareholder approval upon reasonable notice to
shareholders. Additionally, in accordance with rules under the Investment
Company Act of 1940, as amended (the “1940 Act”), the Fund’s 80% Policy has been
adopted as a non-fundamental investment policy and may be changed without
shareholder approval upon 60 days’ written notice to shareholders.
The
Fund, as part of its securities lending program, may invest collateral in other
investment companies. Other investment companies, in which a Fund may invest
cash collateral can be expected to incur fees and expenses for operations, such
as investment advisory and administration fees, which would be in addition to
those incurred by the Fund.
Additional
Risk Information
The
following section provides additional information regarding the principal risks
identified under “Principal Risks” in the Fund’s summary.
ESG
Risk: Because
the Fund generally does not invest in (i) all companies in the energy sector,
(ii) all companies in the tobacco, aerospace and defense industries, and (iii)
all companies in the gambling, gold and silver sub-industries, the Fund may
underperform the broader equity market to the extent that such companies have
above-average performance.
Concentration
Risk: The
Fund’s investments will be concentrated in an industry or group of industries to
the extent the Index is so concentrated. To the extent the Fund invests more
heavily in particular industries, groups of industries, or sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those industries, groups of industries, or sectors of the
economy, and the value of Shares may rise and fall more than the value of shares
that invest in securities of companies in a broader range of industries or
sectors.
Smaller
Companies Risk:
The Fund’s Index may be composed primarily of, or have significant exposure to,
securities of smaller companies. As a result, the Fund may be subject to the
risk that securities of smaller companies represented in the Index may
underperform securities of larger companies or the equity market as a whole. In
addition, in comparison to securities of companies with larger capitalizations,
securities of smaller-capitalization companies may experience more price
volatility, greater spreads between their bid and ask prices, less frequent
trading, significantly lower trading volumes, and cyclical or static growth
prospects. As a result of the differences between the securities of smaller
companies and those of companies with larger capitalizations, it may be more
difficult for the Fund to buy or sell a significant amount of the securities of
a smaller company without an adverse impact on the price of the company’s
securities, or the Fund may have to sell such securities in smaller quantities
over a longer period of time, which may increase the Fund’s tracking error.
Smaller-capitalization companies often have limited product lines, markets or
financial resources, and may therefore be more vulnerable to adverse
developments than larger capitalization companies. These securities may or may
not pay dividends.
The
remaining risks are presented in alphabetical order. Each risk summarized below
is considered a “principal risk” of investing in the Fund, regardless of the
order in which it appears.
Equity
Market Risk:
An investment in the Fund involves risks of investing in equity securities, such
as market fluctuations caused by such factors as economic and political
developments, changes in interest rates and perceived trends in securities
prices. The values of
equity
securities could decline generally or could underperform other investments.
Different types of equity securities tend to go through cycles of
out-performance and under-performance in comparison to the general securities
markets. In addition, securities may decline in value due to factors affecting a
specific issuer, market or securities markets generally. Holders of common
stocks incur more risk than holders of preferred stocks and debt obligations
because common stockholders, as owners of the issuer, have generally inferior
rights to receive payments from the issuer in comparison with the rights of
creditors of, or holders of debt obligations or preferred stocks issued by, the
issuer. Additionally, natural or environmental disasters, widespread disease or
other public health issues, war, acts of terrorism or other events could result
in increased premiums or discounts to the Fund’s NAV.
ETF
Risks:
Absence
of an Active Market Risk: Although
the Fund’s shares are approved for listing on the Exchange, there can be no
assurance that an active trading market will develop and be maintained for Fund
shares. There can be no assurance that the Fund will grow to or maintain an
economically viable size, in which case the Fund may experience greater tracking
error to its Index than it otherwise would at higher asset levels or the Fund
may ultimately liquidate.
APs,
Market Makers and Liquidity Providers Concentration Risk:
The Fund has a limited number of financial institutions that may act as APs,
none of which are obligated to engage in creation and/or redemption
transactions. 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, there may be a significantly diminished trading market for Fund
shares and 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. The risks associated with limited APs may be
heightened in scenarios where APs have limited or diminished access to the
capital required to post collateral.
Costs
of Buying or Selling Shares Risk: Investors
buying or selling the Fund’s shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers as determined by the applicable
broker. Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of shares. In addition, secondary market investors will also incur the cost of
the difference between the price that an investor is willing to pay for shares
(the “bid” price) and the price at which an investor is willing to sell shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid/ask spread.” The bid/ask spread varies over time for shares
based on trading volume and market liquidity, and is generally lower if the
Fund’s shares have more trading volume and market liquidity and higher if the
Fund’s shares have little trading volume and market liquidity. Further,
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.
Fluctuation
of NAV Risk: The
NAV of the Fund’s shares will generally fluctuate with changes in the market
value of the Fund’s securities holdings. The market prices of shares will
generally fluctuate in accordance with changes in the Fund’s NAV and supply and
demand of shares on the Exchange. It cannot be predicted whether the Fund’s
shares will trade below, at or above their NAV. Price differences may be due, in
large part, to the fact that supply and demand forces at work in the secondary
trading market for shares will be closely related to, but not identical to, the
same forces influencing the prices of the securities of the Index trading
individually or in the aggregate at any point in time. The market prices of the
Fund’s shares may deviate significantly from the NAV of the shares during
periods of market volatility. While the creation/redemption feature is designed
to make it likely that the Fund’s shares normally will trade close to the Fund’s
NAV, disruptions to creations and redemptions may result in trading prices that
differ significantly from the Fund’s NAV. As a result, investors in the Fund may
pay significantly more or receive significantly less for Fund shares than the
value of the Fund’s underlying securities or the NAV of Fund shares. If an
investor purchases the Fund’s shares at a time when the market price is at a
premium to the NAV of the shares or sells at a time when the market price is at
a discount to the NAV of the shares, then the investor may sustain losses.
Market
Trading Risk:
An investment in the Fund faces numerous market trading risks, including the
potential lack of an active market for Fund shares, losses from trading in
secondary markets, periods of high volatility and disruption in the
creation/redemption process of the Fund. Any of these
factors, among others, may lead to the Fund’s shares
trading at a premium or discount to NAV.
Trading
Issues Risk:
Although
the Fund’s shares are listed for trading on the Exchange, there can be no
assurance that an active trading market for such shares will be maintained.
Trading in the Fund’s 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 is subject to trading halts caused by
extraordinary market volatility pursuant to the 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 Fund shares when extraordinary volatility causes sudden, significant swings
in the market price of Fund shares. There can be no assurance that the
requirements of the Exchange necessary to maintain the listing of the Fund will
continue to be met or will remain unchanged or that the shares will trade with
any volume, or at all. In stressed market conditions, the liquidity of the
Fund’s shares may begin to mirror the liquidity of the Fund’s
underlying
portfolio holdings, which can be significantly less liquid than the Fund’s
shares, potentially causing the market price of the Fund’s shares to deviate
from their NAV.
Further,
secondary markets may be subject to erratic trading activity, wide bid/ask
spreads and extended trade settlement periods in times of market stress because
market makers and APs may step away from making a market in Fund shares and in
executing creation and redemption orders, which could cause a material deviation
in the Fund’s market price from its NAV. Decisions by market makers or APs
to reduce their role or step away from these activities in times of market
stress could inhibit the effectiveness of the arbitrage process in maintaining
the relationship between the underlying value of the Fund’s portfolio securities
and the Fund’s market price. This reduced effectiveness could result in Fund
shares trading at a price which differs materially from NAV and also in greater
than normal intraday bid/ask spreads for Fund shares. During a “flash crash,”
the market prices of the Fund’s shares may decline suddenly and significantly.
Such a decline may not reflect the performance of the portfolio securities held
by the Fund. Flash crashes may cause APs and other market makers to limit or
cease trading in the Fund’s shares for temporary or longer periods. Shareholders
could suffer significant losses to the extent that they sell shares at these
temporarily low market prices.
Natural
Disaster/Epidemic Risk:
Natural
or environmental disasters, such as earthquakes, fires, floods, hurricanes,
tsunamis and other severe weather-related phenomena generally, and widespread
disease, including pandemics and epidemics, have been and may be highly
disruptive to economies and markets, adversely impacting individual companies,
sectors, industries, markets, currencies, interest and inflation rates, credit
ratings, investor sentiment, and other factors affecting the value of the Fund’s
investments. Given the increasing interdependence among global economies and
markets, conditions in one country, market, or region are increasingly likely to
adversely affect markets, issuers, and/or foreign exchange rates in other
countries, including the U.S. Any such events could have a significant adverse
impact on the value of the Fund’s investments.
Passive
Investment Risk:
The Fund is not actively managed. Therefore, unless a specific security is
removed from the Fund’s Index, the Fund generally would not sell a security
because the security’s issuer was in financial trouble. If a specific security
is removed from the Fund’s Index, the Fund may be forced to sell such security
at an inopportune time or for a price other than the security’s current market
value. An investment in the Fund involves risks similar to those of investing in
any equity securities traded on an exchange, such as market fluctuations caused
by such factors as economic and political developments, changes in interest
rates and perceived trends in security prices. It is anticipated that the value
of the Fund’s shares will decline, more or less, in correspondence with any
decline in value of the Fund’s Index. The Index may not contain the appropriate
mix of securities for any particular economic cycle, and the timing of movements
from one type of security to another in seeking to replicate the Index could
have a negative effect on the Fund. Unlike with an actively managed fund, the
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.
Securities
Lending Risk:
The Fund may engage in securities lending. The Fund may lose money if the
borrower of the loaned securities delays returning in a timely manner or fails
to return the loaned securities. Securities lending involves the risk that the
Fund could lose money in the event of a decline in the value of collateral
provided for loaned securities. In addition, the Fund bears the risk of loss in
connection with its investment of the cash collateral it receives from a
borrower. When the Fund invests cash collateral in other investment companies,
such investments of cash collateral will be subject to substantially the same
risks as those associated with the direct ownership of securities held by such
investment companies. To the extent that the value or return of the Fund’s
investment of the cash collateral declines below the amount owed to the
borrower, the Fund may incur losses that exceed the amount it earned on lending
the security. The Fund may borrow money to repay the applicable borrower the
amount of cash collateral owed to the borrower upon return of the loaned
securities. This will result in financial leverage, which may cause the Fund to
be more volatile because financial leverage tends to exaggerate the effect of
any increase or decrease in the value of the Fund’s portfolio securities.
Tracking
Error Risk :
Tracking error refers to the risk that the Adviser may not be able to cause the
Fund’s performance to match or correlate to that of the Fund’s Index, either on
a daily or aggregate basis. There are a number of factors that may contribute to
the Fund’s tracking error, such as Fund expenses, imperfect correlation between
the Fund’s investments and those of the Index, rounding of share prices, changes
to the composition of the Index, regulatory policies, and high portfolio
turnover rate. In addition, mathematical compounding may prevent the Fund from
correlating with the monthly, quarterly, annual or other period performance of
the Index. In addition, in order to minimize the market impact of the Index
rebalance, the Fund may begin trading to effect the rebalance in advance of the
effective date of the rebalance and continue trading after the effective date of
the rebalance. This may contribute to tracking error if the weights of the
Fund’s portfolio securities diverge from the weights of the securities in the
Index during the rebalancing. Tracking error in such circumstances may be
greater if the Fund is trading in securities that are less liquid or lightly
traded. Tracking error may cause the Fund’s performance to be less than
expected.
Portfolio
Holdings
Information
about the Fund’s daily portfolio holdings will be available at www.ethoetf.com.
A summarized description of the Fund’s policies and procedures with respect to
the disclosure of the Fund’s portfolio holdings is available in the Fund’s
Statement of Additional Information (“SAI”).
Fund
Management
Adviser.
ETF
Managers Group LLC, the investment adviser to the Fund, is a Delaware
limited liability company located at 30 Maple Street, 2nd
Floor, Summit, New Jersey 07901. The Adviser provides investment advisory
services to exchange-traded funds. The Adviser serves as investment adviser to
the Fund with overall responsibility for the day-to-day portfolio management of
the Fund, subject to the supervision of the Board. For its services, the Adviser
receives, and did receive for the Fund’s most recent fiscal year, a fee that is
equal to 0.45% per annum of the average daily net assets of the Fund, calculated
daily and paid monthly.
Under
the Investment Advisory Agreement, the Adviser has overall responsibility for
the general management and administration of the Fund and arranges for transfer
agency, custody, fund administration, securities lending, and all other
non-distribution related services necessary for the Fund to operate.
Additionally, under the Investment Advisory Agreement, the Adviser has agreed to
pay all expenses of the Fund, except for: the fee paid to the Adviser pursuant
to the Investment Advisory Agreement, interest charges on any borrowings, taxes,
brokerage commissions and other expenses incurred in placing orders for the
purchase and sale of securities and other investment instruments, acquired fund
fees and expenses, accrued deferred tax liability, extraordinary expenses (such
as, among other things and subject to Board approval, certain proxy solicitation
costs and non-standard Board-related expenses and litigation against the Board,
Trustees, Fund, Adviser, and officers of the Adviser), and distribution (12b-1)
fees and expenses (collectively, “Excluded Expenses”).
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement is available in the Fund’s Semi-Annual
Report
for the reporting period ended March 31, 2022.
Manager
of Managers Structure.
The Adviser and the Trust have received an exemptive order (the “Order”) from
the SEC that permits the Adviser to enter into investment sub-advisory
agreements with sub-advisers without obtaining shareholder approval. The
Adviser, subject to the review and approval of the Board, may select one or more
sub-advisers for the Fund and supervise, monitor and evaluate the performance of
each sub-adviser.
The
Order also permits the Adviser, subject to the approval of the Board, to replace
sub-advisers and amend investment sub-advisory agreements, including fees,
without shareholder approval whenever the Adviser and the Board believe such
action will benefit the Fund and its shareholders. The Adviser thus has the
ultimate responsibility (subject to the ultimate oversight of the Board) to
recommend the hiring and replacement of sub-advisers as well as the discretion
to terminate any sub-adviser and reallocate the Fund’s assets for management
among any other sub-adviser(s) and itself. This means that the Adviser may be
able to reduce the sub-advisory fees and retain a larger portion of the
management fee, or increase the sub-advisory fees and retain a smaller portion
of the management fee. The Adviser will compensate each sub-adviser out of its
management fee. The Fund is required to provide shareholders with certain
information regarding any new sub-adviser within 90 days of the hiring of any
new sub-adviser. Such information generally includes the information that would
have been provided to shareholders in the form of a proxy statement in the
absence of the Order.
The
Adviser’s reliance on such Order with respect to the Fund is contingent on the
holders of a majority of the Fund’s outstanding voting securities approving the
Fund’s use of a manager of managers structure and the Adviser’s reliance on such
Order. Prior to the date of this Prospectus, shareholders of the Fund approved
the use by the Fund of a manager of managers structure and the Adviser’s
reliance on such Order.
The
Index Provider
Etho
Capital is an index provider mainstreaming sustainable investing by building
best-in-class fossil free, diversified investment products that combine
quantitative climate performance data with qualitative ESG expert feedback
mechanisms. Etho Capital specializes in building diversified indices of the most
greenhouse gas efficient companies in each industry. The Index Provider is not
affiliated with the Fund, the Adviser, the Fund’s distributor, the Index
Calculation Agent or any of their respective affiliates. The Index Provider has
licensed the use of the Index to Exchange Traded Managers Group, LLC, the parent
company of the Adviser, for use by the Fund. Additionally, the Index Provider
and its affiliates will also provide marketing support for the Fund, including
distributing marketing materials related to the Fund. None of the Index Provider
or any of its respective affiliates make investment decisions, provide
investment advice, or otherwise act in the capacity of an investment adviser to
the Fund, nor are they involved in the calculation of the Index.
Etho
Climate Leadership U.S. Index, “Etho Capital”and “Climate Leadership Index” are
trademarks of Etho Capital LLC.
Portfolio
Managers
The
Fund’s portfolio managers are primarily responsible for the day-to-day
management of the Fund. 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.
The
Fund is managed by Samuel R. Masucci, III, Chief Executive Officer of the
Adviser, and Frank Vallario, Chief Investment Officer of the Adviser.
Samuel
Masucci, III has more than 25 years’ experience in investment banking,
structured product development, sales and trading. He founded ETF Managers Group
(ETFMG) in 2014. Prior to ETFMG he has held senior positions at Bear Stearns,
UBS, SBC Warburg, and Merrill Lynch and has experience in creating, building and
managing businesses for the issuance, sales and trading of: ETFs, index
products, commodity products, hedge funds, ABS, and OTC structured products in
the U.S. and Europe.
Frank
Vallario serves in the role of Chief Investment Officer for the Adviser. Mr.
Vallario is responsible for the portfolio construction, trading, risk management
and portfolio analysis processes associated with ETF strategies. Prior to his
current role at the Adviser, Mr. Vallario has had a variety of senior roles
over his 25-year career in financial services. He joined Oppenheimer Funds in
2017 where he was Head of Equity Portfolio Management for Smart Beta ETFs. Prior
to that he was a Senior Portfolio Manager at Columbia Threadneedle from
September 2015 to June 2017 where he was responsible for the day to day
management of the firm’s ETF business, which was acquired from his previous
firm, Emerging Global Advisors (EGA). From September 2010 to September 2015, he
was relationship manager at MSCI responsible for providing investment solutions
to complex problems using MSCI Barra’s fundamental models and portfolio
construction tools. Previously, he was a partner in a start-up asset management
firm where he served as the director of portfolio management. Mr. Vallario
began his career at UBS Global Asset Management where he spent over a decade in
various quantitative portfolio management equity roles including equity market
neutral, tactical asset allocation, structured active equities, enhanced index,
passive management and factor research. Mr. Vallario served on the
Investment Committee for the Girl Scouts of Connecticut and was a University
Affiliate at the University of Utah – David Eccles School of Business. He
received a B.S. in Finance from Lehigh University and a M.B.A. with a
concentration in Finance from Rutgers University.
The
SAI provides additional information about each Portfolio Manager’s compensation,
other accounts managed, and ownership of the Fund’s shares.
Buying
and Selling the Fund
The
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from the Fund, and only APs may tender their Shares for
redemption directly to the Fund, at NAV. APs must be a member or participant of
a clearing agency registered with the SEC and must execute a Participant
Agreement that has been agreed to by the Distributor (defined below), and that
has been accepted by the Fund’s transfer agent, with respect to purchases and
redemptions of Creation Units. Once created, Shares trade in the secondary
market in quantities less than a Creation Unit.
The
Fund’s shares are listed for secondary trading on the Exchange. When you buy or
sell the 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,
Juneteenth Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day.
NAV
per share for the 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 the 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 Adviser
believes will better reflect fair value in accordance with the Adviser’s
valuation policies and procedures. The Board has designated the Adviser as the
“valuation designee” for the Fund under Rule 2a-5 of the 1940 Act, subject to
its oversight. Fair value pricing may be used in a variety of circumstances,
including, but not limited to, situations when the value of a security in the
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 the Fund’s NAV and
the prices used by the Index. This may result in a difference between the Fund’s
performance and the performance of the Index.
Frequent
Purchases and Redemptions of the Fund’s Shares
Unlike
frequent trading of shares of a traditional open-end mutual fund’s (i.e.,
not exchange-traded) shares, frequent trading of shares of the Fund on the
secondary market does not disrupt portfolio management, increase the Fund’s
trading costs, lead to realization of capitalization gains, or otherwise harm
the Fund’s shareholders because these trades do not involve the Fund directly.
Certain
institutional
investors are authorized to purchase and redeem the Fund’s shares directly with
the Fund. Because these trades are effected in-kind (i.e.,
for securities, and not for cash), they do not cause any of the harmful effects
noted above that may result from frequent cash trades. Moreover, the Fund
imposes transaction fees on in-kind purchases and redemptions of Creation Units
to cover the custodial and other costs incurred by the Fund in effecting in-kind
trades. These fees increase if an investor substitutes cash in part or in whole
for Creation Units, reflecting the fact that the Fund’s trading costs increase
in those circumstances. For these reasons, the Board has determined that it is
not necessary to adopt policies and procedures to detect and deter frequent
trading and market-timing in shares of the Fund.
Dividends,
Distributions and Taxes
Fund
Distributions
The
Fund intends to pay out dividends, if any, quarterly and distribute any net
realized capital gains to its shareholders annually.
Dividend
Reinvestment Service
Brokers
may make available to their customers who own the Fund’s shares the DTC
book-entry dividend reinvestment service. If this service is available and used,
dividend distributions of both income and capital gains will automatically be
reinvested in additional whole shares of the Fund. Without this service,
investors would receive their distributions in cash. In order to achieve the
maximum total return on their investments, investors are encouraged to use the
dividend reinvestment service. To determine whether the dividend reinvestment
service is available and whether there is a commission or other charge for using
this service, consult your broker. Brokers may require the Fund’s shareholders
to adhere to specific procedures and timetables. If this service is available
and used, dividend distributions of both income and realized gains will be
automatically reinvested in additional whole shares issued by the Fund at NAV
per share.
Tax
Information
The
following is a summary of some important tax issues that affect the Funds and
their respective shareholders. The summary is based on current tax laws, which
may be changed by legislative, judicial or administrative action. You should not
consider this summary to be a detailed explanation of the tax treatment of the
Funds, or the tax consequences of an investment in the Funds. The summary is
very general, and does not address investors subject to special rules, such as
investors who hold shares through an IRA, 401(k) or other tax-advantaged
account. The following summary describes the U.S. federal income tax
consequences to shareholders that are U.S. persons, as defined in the Code, and
that are not partnerships for U.S. federal income tax purposes, unless otherwise
provided. More information about taxes, including a detailed description of the
U.S. federal income tax consequences to shareholders that are not U.S. persons,
as defined in the Code, is located in the SAI. You are urged to consult your tax
adviser regarding specific questions as to U.S. federal, state and local income
taxes. .
Tax
Status of the Fund
Each
Fund is treated as a separate entity for U.S. federal tax purposes, and intends
to qualify for the special tax treatment afforded to RIC under the Code. As long
as each Fund qualifies as a RIC, it generally will not be subject to U.S.
federal income tax on any ordinary income or capital gain that it timely
distributes to its shareholders as dividends. .
Tax
Status of Distributions
•The
Fund intends, for each year, to distribute substantially all of its income and
net capital gains.
•The
Fund’s distributions from income will generally be taxed to you as ordinary
income, qualified dividend income, or capital gain (or a combination thereof).
For non-corporate shareholders, dividends reported by the Fund as qualified
dividend income are generally eligible for reduced tax rates.
•Corporate
shareholders may be entitled to a dividends-received deduction for the portion
of dividends they receive that are attributable to dividends received by the
Fund from U.S. corporations, subject to certain limitations. The Fund’s
strategies may limit its ability to distribute dividends eligible for the
dividends-received deduction for corporate shareholders.
•Any
distributions of net capital gain (the excess of the Fund’s net long-term
capital gains over its net short-term capital losses) properly reported by the
Fund as “capital gain dividends” that you receive from the Fund are taxable as
long-term capital gains regardless of how long you have owned your shares.
Long-term capital gains are currently taxed to non-corporate shareholders at
reduced maximum rates.
•Dividends
and distributions are generally taxable to you whether you receive them in cash
or in additional shares through a broker’s dividend reinvestment service. If you
receive dividends or distributions in the form of additional shares through a
broker’s dividend reinvestment service, you will be required to pay applicable
U.S. federal, state or local taxes on the reinvested dividends but you will not
receive a corresponding cash distribution with which to pay any applicable
tax.
•The
Fund may be able to pass through to you foreign tax credits for certain taxes
paid by the Fund, provided the Fund meets certain requirements.
•Distributions
paid in January but declared by the Fund in October, November or December of the
previous year may be taxable to you in the previous year.
•The
Fund will inform you of the amount of your ordinary income dividends, qualified
dividend income, foreign tax credits and net capital gain distributions received
from the Fund shortly after the close of each calendar year.
Taxes
on Exchange-Listed Share Sales.
A
shareholder generally will recognize gain or loss on the sale, exchange or other
taxable disposition of shares in an amount equal to the difference between the
shareholder’s adjusted basis in the common stock disposed of and the amount
realized on their disposition. Generally, gain recognized by a shareholder on
the disposition of shares will result in gain or loss realized to a shareholder,
and will be long-term capital gain or loss if the shares have been held for more
than one year at the time of sale, except that any capital loss on the sale of
shares held for six months or less will be treated as long-term capital loss to
the extent of amounts treated as capital gain dividends to the shareholder with
respect to such shares.
Medicare
Tax. U.S.
individuals with income exceeding $200,000 ($250,000 if married and filing
jointly) are subject to a 3.8% Medicare contribution tax on their “net
investment income,” including interest, dividends, and capital gains (including
capital gains realized on the sale or exchange of shares). This 3.8% tax also
applies to all or a portion of the net investment income of certain shareholders
that are estates and trusts which the estate or trust has not distributed to its
beneficiaries.
Non-U.S.
Investors. If
you are not a U.S. person, as defined in the Code, distributions of the Fund’s
ordinary income will generally be subject to a 30% U.S. federal withholding tax,
unless a lower treaty rate applies or unless such income is effectively
connected with a U.S. trade or business of such non-U.S. investor (and if
required by an applicable income tax treaty, attributable to a permanent
establishment maintained in the United States by such non-U.S. investor). This
30% withholding tax generally will not apply to capital gain
dividends.
Backup
Withholding. The
Fund or your broker will be required in certain cases to withhold (as “backup
withholding”) on amounts payable to any shareholder who (1) has provided
either an incorrect tax identification number or no number at all, (2) is
subject to backup withholding by the Internal Revenue Service for failure to
properly report payments of interest or dividends, (3) has failed to
certify that such shareholder is not subject to backup withholding, or
(4) has not certified that such shareholder is a U.S. person (including a
U.S. resident alien). The backup withholding rate is currently 24%. Backup
withholding will not, however, be applied to payments that have been subject to
the 30% withholding tax applicable to shareholders who are neither citizens nor
residents of the United States.
FATCA.
Legislation
commonly referred to as the “Foreign Account Tax Compliance Act,” or “FATCA,”
generally imposes a 30% withholding tax on payments of certain types of income
to foreign financial institutions (“FFIs”) unless such FFIs either: (i) enter
into an agreement with the U.S. Treasury to report certain required information
with respect to accounts held by certain specified U.S. persons (or held by
foreign entities that have certain specified U.S. persons as substantial owners)
or (ii) reside in a jurisdiction that has entered into an intergovernmental
agreement (“IGA”) with the United States to collect and share such information
and are in compliance with the terms of such IGA and any enabling legislation or
regulations. The types of income subject to the tax include U.S. source interest
and dividends. While the Code would also require withholding on payments of the
gross proceeds from the sale of any property that could produce U.S. source
interest or dividends, the U.S. Treasury has indicated its intent to eliminate
this requirement in subsequent proposed regulations, which state that taxpayers
may rely on the proposed regulations until final regulations are issued. The
information required to be reported includes the identity and taxpayer
identification number of each account holder that is a specified U.S. person and
transaction activity within the holder’s account. In addition, subject to
certain exceptions, FATCA also imposes a 30% withholding on certain payments to
certain foreign entities that are not FFIs unless such foreign entities certify
that they do not have a greater than 10% U.S. owner that is a specified U.S.
person or provide the withholding agent with identifying information on each
greater than 10% U.S. owner that is a specified U.S. person. Depending on the
status of a shareholder and the status of the intermediaries through which they
hold their shares, shareholders could be subject to this 30% withholding tax
with respect to distributions on their shares. Under certain circumstances, a
shareholder might be eligible for refunds or credits of such taxes.
Distribution
The
Distributor, ETFMG Financial LLC, an affiliate of the Adviser, is a
broker-dealer registered with the U.S. Securities and Exchange Commission. The
Distributor distributes Creation Units for the Fund on an agency basis and does
not maintain a secondary market in the Fund’s shares. The Distributor has no
role in determining the policies of the Fund or the securities that are
purchased or sold by the Fund. The Distributor’s principal business address is
30 Maple Street, 2nd
Floor, Summit, New Jersey 07901.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act with respect to the Fund. In accordance with the
Plan, the Fund is authorized to pay an amount up to 0.25% of its average daily
net assets each year for certain distribution-related activities and shareholder
services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the
future, because the fees are paid out of the 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.
Fund
Service Providers
Eversheds
Sutherland (US) LLP, 700 6th Street NW, Washington, DC 20001, serves as legal
counsel to the Fund.
WithumSmith+Brown,
PC, with offices located at 1411 Broadway, 9th Floor, New York, New York 10018,
serves as the Fund’s independent registered public accounting firm. The
independent registered public accounting firm is responsible for auditing the
annual financial statements of the Fund.
Premium/Discount
Information
Information
regarding the number of days the Fund’s market price was a price above
(i.e.,
at a premium) or below (i.e.,
at a discount) its NAV for the most recently completed calendar year and the
most recently completed calendar quarters since that year, are provided, free of
charge, on the Fund’s website at www.ethoetf.com.
Litigation
The
Trust, the Adviser, and certain officers and affiliated persons of the Adviser
(together with the Adviser, the “Adviser Defendants”) were named as defendants
in an action filed December 21, 2021, in the Superior Court of New Jersey, Union
County, captioned PureShares,
LLC, d/b/a PureFunds et al. v. ETF Managers Group, LLC et al.,
Docket No. UNN-C-152-21 (the “NJ Action”). The NJ Action asserted breach of
contract and other tort claims and sought damages in unspecified amounts and
injunctive relief. On May 25, 2022, the court in the NJ Action dismissed with
prejudice all claims asserted against the Trust, as well as all contract claims
and all except one tort claim asserted against the Adviser
Defendants.
Financial
Highlights
The
financial highlights table is intended to help you understand the Fund’s
financial performance for the period of the Fund’s operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have gained (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been derived from the financial statements
audited by WithumSmith+Brown, PC, an independent registered public accounting
firm, whose report, along with the Fund’s financial statements, is included in
the Fund’s Annual
Report
dated September 30,
2022,
which is available upon request.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| For
a capital share outstanding throughout the year |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
| Year
Ended September 30, 2022 |
| Year
Ended September 30, 2021 |
| Year
Ended September 30, 2020 |
| Year
Ended September 30, 2019 |
| Year
Ended September 30, 2018 |
|
| Net
Asset Value, Beginning of Year |
$ |
59.36 |
|
| $ |
44.18 |
|
| $ |
39.58 |
|
| $ |
37.50 |
|
| $ |
32.01 |
| |
|
|
|
|
|
|
|
|
|
|
| |
| Income
from Investment Operations: |
|
|
|
|
|
|
|
|
| |
|
Net
Investment Income1 |
0.52 |
|
| 0.47 |
|
| 0.41 |
|
| 0.33 |
|
| 0.29 |
| |
| Net
realized and unrealized gain (loss) on investments |
(13.26) |
|
| 15.17 |
|
| 4.54 |
|
| 2.08 |
|
| 5.51 |
| |
| Total
from investment operations |
(12.74) |
|
| 15.64 |
|
| 4.95 |
|
| 2.41 |
|
| 5.80 |
| |
| Less
Distributions: |
|
|
|
|
|
|
|
|
| |
| Distributions
from net investment income |
(0.47) |
|
| (0.46) |
|
| (0.35) |
|
| (0.33) |
|
| (0.29) |
| |
| Net
realized gains |
— |
|
| — |
|
| — |
|
| — |
|
| (0.02) |
| |
| Total
distributions |
(0.47) |
|
| (0.46) |
|
| (0.35) |
|
| (0.33) |
|
| (0.31) |
| |
| Net
asset value, end of year |
$ |
46.15 |
|
| $ |
59.36 |
|
| $ |
44.18 |
|
| $ |
39.58 |
|
| $ |
37.50 |
| |
| Total
Return |
(21.58) |
% |
| 35.48 |
% |
| 12.59 |
% |
| 6.53 |
% |
| 18.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
| |
| Ratios/Supplemental
Data: |
|
|
|
|
|
|
|
|
| |
| Net
assets at end of year (000’s) |
$ |
147,670 |
|
| $ |
178,070 |
|
| $ |
90,561 |
|
| $ |
53,431 |
|
| $ |
35,627 |
| |
| Expenses
to Average Net Assets |
0.45 |
% |
| 0.45 |
% |
| 0.45 |
% |
| 0.45 |
% |
| 0.45 |
% |
|
| Net
Investment Income to Average Net Assets |
0.92 |
% |
| 0.83 |
% |
| 1.00 |
% |
| 0.88 |
% |
| 0.82 |
% |
|
|
Portfolio
Turnover Rate |
30 |
% |
| 45 |
% |
| 37 |
% |
| 41 |
% |
| 19 |
% |
|
1Calculated
based on average shares outstanding during the year.
ETF
Managers Trust
30
Maple Street, 2nd
Floor
Summit,
New Jersey 07901
ANNUAL/SEMI-ANNUAL
REPORTS TO SHAREHOLDERS
Additional
information about the Fund’s investments is available in the Fund’s annual and
semi-annual reports to shareholders (when available). In the Fund’s Annual
Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund’s performance during its last fiscal
year.
STATEMENT
OF ADDITIONAL INFORMATION (SAI)
The
SAI provides more detailed information about the Fund. The SAI is incorporated
by reference into, and is thus legally a part of, this Prospectus.
FOR
MORE INFORMATION
To
request a free copy of the latest annual or semi-annual report, when available,
the SAI or to request additional information about the Fund or to make other
inquiries, please contact us as follows:
Call: 1-844-ETFMGRS
(383-6477)
Monday
through Friday
8:30
a.m. to 6:30 p.m. (Eastern time)
Write: ETF
Managers Trust
30
Maple Street, 2nd
Floor
Summit,
New Jersey 07901
Visit: www.ethoetf.com
INFORMATION
PROVIDED BY THE SECURITIES AND EXCHANGE COMMISSION
Reports
and other information about the Fund are available in the EDGAR Database on the
SEC’s Internet site at http://www.sec.gov, or you can receive copies of this
information, after paying a duplicating fee, by electronic request at the
following e-mail address: publicinfo@sec.gov.
The
Trust’s Investment Company Act file number: 811-22310
