485BPOS
October 25,
2022
FUNDS
PROSPECTUS
Impact
Shares NAACP Minority Empowerment ETF
Ticker:
NACP – NYSE ARCA
Impact
Shares YWCA Women’s Empowerment ETF
Ticker:
WOMN – NYSE ARCA
Impact
Shares Sustainable Development Goals Global Equity ETF
Ticker:
SDGA – NYSE ARCA
Impact
Shares Affordable Housing MBS ETF
Ticker:
OWNS – NYSE ARCA
Although these securities have been registered with
the U.S. Securities and Exchange Commission (“SEC”), the SEC has not approved or
disapproved any shares offered in this Prospectus or determined whether this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Not
FDIC Insured
May
Lose Value
No
Bank Guarantee
TABLE
OF CONTENTS
|
|
|
| |
|
|
|
1 |
|
| |
|
|
|
12 |
|
| |
|
|
|
23 |
|
| |
|
|
|
36 |
|
| |
|
|
|
43 |
|
| |
|
|
|
52 |
|
| |
|
|
|
53 |
|
| |
|
|
|
53 |
|
| |
|
|
|
54 |
|
| |
|
|
|
55 |
|
| |
|
|
|
66 |
|
| |
|
|
|
69 |
|
| |
|
|
|
72 |
|
| |
|
|
|
72 |
|
| |
|
|
|
72 |
|
| |
|
|
|
72 |
|
| |
|
|
|
73 |
|
| |
|
|
|
73 |
|
| |
|
|
|
74 |
|
| |
|
|
|
75 |
|
| |
|
|
|
75 |
|
| |
|
|
|
76 |
|
| |
|
|
|
76 |
|
| |
|
|
|
76 |
|
| |
|
|
|
77 |
|
| |
|
|
|
78 |
|
| |
|
|
|
78 |
|
| |
|
|
|
78 |
|
| |
|
|
|
78 |
|
| |
|
|
|
79 |
|
| |
|
|
|
83 |
|
-i-
Impact
Shares NAACP Minority Empowerment ETF
FUND
SUMMARY
Investment
Objective
The
Impact Shares NAACP Minority Empowerment ETF (the “Fund” or the “Minority ETF”)
seeks investment results that, before fees and expenses, track the performance
of the Morningstar®
Minority Empowerment Index (the “Underlying
Index”).
Fees
and Expenses
The
following tables describe the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment)
|
|
|
| |
Management
Fee(1)(2)(3) |
|
|
0.49 |
% |
Distribution
and Service (12b‑1) Fees |
|
|
0.00 |
% |
Other
Expenses |
|
|
0.00 |
% |
Total
Annual Fund Operating Expenses |
|
|
0.49 |
% |
(1) |
The
Fund pays for the transfer agency, custody, fund administration, legal,
audit and other services it requires under a unitary fee structure (the
“unitary advisory fee”). Therefore, the Fund’s “Management Fee” includes
fees payable to Impact Shares, Corp. (“Impact Shares” or the “Adviser”)
for advisory services and for the provision by third parties engaged by
Impact Shares of transfer agency, custody, fund administration, legal,
audit and other services. Under the Fund’s Investment Advisory Agreement,
the Adviser bears all expenses of the Fund (including those of the
services listed above) with the exception of those described under the
section titled “Management of
the Fund.” |
(2) |
Impact
Shares is paid a Management Fee at an annual rate of 0.49% on the “Average
Daily Managed Assets” of the Fund. “Average Daily Managed Assets” is the
average daily value of the total assets of the Fund, less all accrued
liabilities of the Fund (other than the amount of any outstanding
borrowings constituting
financial leverage). |
(3) |
Expense information has been
restated to reflect current contractual
rates. |
Expense
Example
This
Example helps you compare the cost of investing in the Fund to 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 sell or redeem all 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. Your
actual costs may be higher or lower. Investors in the Fund may pay brokerage
commissions on their purchases and sales of Fund shares, which are not included
in the examples below. The Example reflects expense limitation agreements and/or
waivers, if any, in effect for the one‑year period and the first year of the
three-year period. Your actual costs may be higher or lower.
|
|
|
|
|
| |
1 Year |
|
3 Years |
|
5 Years |
|
10 Years |
$50 |
|
$157 |
|
$274 |
|
$616 |
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
1
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 fiscal year ended June 30, 2022, the Fund’s portfolio
turnover rate was 35%.
Principal
Investment Strategies
The
Fund will, under normal circumstances, invest at least 80% of its total assets,
plus borrowings for investment purposes (the “80% basket”) in component
securities of the Underlying Index (“Component Securities”).
The
Fund may invest the remaining 20% of its total assets (the “20% basket”) in
securities and instruments not included in the Underlying Index, but which the
Adviser believes will help the Fund track the Underlying Index. For example, the
Fund may invest in securities that are not components of the Underlying Index to
reflect various corporate actions (such as mergers) and other changes in the
Underlying Index (such as reconstitutions, additions and deletions). The Fund
may invest in securities of any type and of companies of any market
capitalization (including small- and mid‑capitalization companies),
market sector or industry, but expects to invest primarily in equity securities
of U.S. companies. The Fund may use the 20% basket to invest in securities
issued by other investment companies, including other exchange-traded funds. The
Fund also may invest in warrants and may also use derivatives, primarily swaps
(including equity, variance and volatility swaps), options and futures contracts
on securities, interest rates and/or currencies, within the 20% basket to track
the Underlying Index and as substitutes for direct investments the Fund can
make. The Fund may also use derivatives such as swaps, options (including
options on futures), futures, and foreign currency transactions (e.g., foreign
currency swaps, futures and forwards) to hedge various investments for risk
management and speculative purposes. In addition, the Fund’s 20% basket may be
invested in cash and cash equivalents, including shares of money market funds
advised by the Adviser or its affiliates. The Fund does not currently engage in
derivative transactions and has adopted a policy prohibiting derivatives
transactions. If the Board deems it advisable and in the best interests of
shareholders of the Fund, the Fund may change this policy in the future and
allow derivatives transactions undertaken in compliance with the new SEC
rules.
Unlike
many investment companies, the Fund does not try to “beat” the index it tracks.
The Fund uses a passive management strategy designed to track the total return
performance of the Underlying Index.
The
Adviser may use a representative sampling indexing strategy to manage the Fund.
“Representative sampling” is an indexing strategy that involves investing in a
representative sample of securities that collectively has an investment profile
similar to the Underlying Index. The securities selected are expected to have,
in the aggregate, investment characteristics (based on factors such as market
capitalization and industry weightings), fundamental characteristics (such as
return variability, leverage and price to earnings ratios) and liquidity
measures similar to those of the Underlying Index. The Fund may or may not hold
all of the securities in the Underlying Index. “Tracking error” is the
difference between the performance (return) of the Fund’s portfolio and that of
the Underlying Index. The Adviser expects that, over time, the Fund’s tracking
error will not exceed 5%. Funds that employ a representative sampling strategy
may incur tracking error risk to a greater extent than funds that seek to
replicate an index.
The
Fund concentrates its investments in a particular industry or group of
industries to approximately the same extent as the Underlying Index is so
concentrated.
The
Fund is a non‑diversified fund as defined in the Investment Company
Act of 1940, as amended (the “1940 Act”), but intends to adhere to the
diversification requirements applicable to regulated investment companies
(“RICs”) under Subchapter M of the Internal Revenue Code of 1986, as amended
(the “Code”). The Fund is not intended to be a complete investment
program.
The
Underlying Index is designed to measure the performance of large
and mid‑ capitalization companies that are “empowering to minorities,”
and to exhibit risk and return characteristics similar to those of the
Morningstar US Large‑Mid Cap® Index, as described
below.
2
The
Underlying Index is constructed using a rules-based methodology to select
companies from the Morningstar US Large‑Mid Cap® Index (the “Parent
Index”), a free float market‑cap weighted index that constitutes 90%
of the total market capitalization of the U.S. market) that have strong minority
empowerment practices. Morningstar constructs the Underlying Index using company
level indicators, scores, and indicator relevance weighting from Sustainalytics,
the Fund’s ESG research provider, that include certain social criteria
identified and compiled by the NAACP (“NAACP” or the “Partner Nonprofit”) to
measure the strength of minority empowerment practices and products or services
for each company within the Parent Index (a company’s “Minority Empowerment
Composite Score”). Based on that scoring, after excluding those companies that
Sustainalytics determines (i) derive more than 5% of their revenues from
predatory lending activities, (ii) derive more than 5% of their revenues
from the production of tobacco products, (iii) are involved in the
production of riot control weapons, (iv) operate correctional facilities or
provide security services, (v) are primarily involved in the production of
oil, gas or coal, (vi) are not compliant with the principles of the UN
Global Compact1, or
(vii) have a detrimental score for applicable controversies, the 200 best
scoring companies (after applying the optimized weighting methodology discussed
below) are selected by Morningstar as the final underlying index components. The
Underlying Index is constructed by Morningstar using an optimized weighting
methodology. Under this methodology, Morningstar uses a quantitative process
that is designed to determine optimal weights for securities to maximize
exposure of companies with higher rankings as to minority empowerment practices,
while maintaining an Underlying Index that exhibits risk and return
characteristics similar to those of the Parent Index. The Index Provider
determines the weighting of each security in the Underlying Index using the
following variables: Minority Empowerment Composite Score, market
capitalization, maximum and minimum weightings by security and sector.
Underlying Index constituents are subject to a maximum 5% per company
weighting.
The
Underlying Index is expected to contain approximately 200 securities, but this
number may change. If a company in the Underlying Index has acted in a manner
inconsistent with the selection criteria of the Underlying Index, Morningstar
may, in its discretion, after consulting with Sustainalytics, exclude the
company from the Underlying Index between reconstitution periods. Morningstar
may also make adjustments in accordance with its internal guidelines to reflect
extraordinary corporate events (e.g. mergers and acquisitions, spin-offs,
bankruptcies, insolvencies, and liquidations). The Underlying Index is
rebalanced quarterly and reconstituted utilizing the rules-based methodology
described above annually. Rebalancing refers to the process of adjusting the
weights of the constituent securities in the Underlying Index in accordance with
its optimized weighting methodology in response to changes in stock value and
market capitalization. Reconstitution refers to the process of changing the
constituent securities in the Underlying Index so that securities that no longer
meet the criteria for the Underlying Index are excluded and new securities that
do meet those criteria are
included.
The
composition of the Underlying Index is based on the following social screens
used in determining the Minority Empowerment Composite Score that narrows the
Index Universe. Each of the social screens for the Minority Fund addresses an
issue that has a history of NAACP
support.
1. Board
Diversity This indicator provides an assessment of the diversity of
a company’s board of directors. Diversity of background can provide fresh
perspectives in the boardroom and lead to better board
decision-making.
2. Discrimination Policy This indicator
provides an assessment of the quality of a company’s policy to eliminate
discrimination, including racial discrimination, and ensure equal
opportunity.
1 |
The
UN Global Compact is an arrangement by which companies voluntarily and
publicly commit to a set of principles, known as the Ten Principles of the
UN Global Compact, all of which are drawn from key UN Conventions and
Declarations, in four areas: (i) human rights; (ii) labor;
(iii) environment; and
(iv) anti-corruption. |
3
3. Scope of
Supplier Social Standards This indicator provides a general assessment of
whether a company has supply chain/contractor social policies and the scope of
its social standards, including items such as nondiscrimination
policies.
4. Freedom
of Association Policy This indicator provides an assessment of the
quality of a company’s freedom of association and collective bargaining policy,
including its impact on racial
minorities.
5. Diversity
Programs This indicator assesses the strength of a company’s
initiatives to increase the diversity of its workforce, including racial
diversity.
6. Community
Development Programs This indicator assesses the strength of a
company’s local community development programs. It does not focus on cash
donations, but formal programs that promote long-term economic development among
communities, including minority communities, directly affected by the company’s
operations.
7. Minority-Inclusive Health and Safety Management
System This indicator assesses the strength of the company’s
initiatives to manage employee health and safety and prevent accidents and
occupational illnesses.
8. Conflict
Minerals Programs This indicator measures the strength of a company’s
initiatives to eliminate conflict minerals from its products and its supply
chain. The term conflict minerals refers to tantalum (coltan), tin
(cassiterite), tungsten (wolframite), and gold (together, they are commonly
referred to as the 3TG), which have originated in conflict-affected or high-risk
regions and may be used to financially support the conflict or human rights
abuses.
9.
Media Ethics Programs This indicator
assesses the strength of a company’s initiatives to ensure good governance,
ethics, and integrity throughout its content creation to ensure impartiality,
transparency, objectivity, fairness, age‑appropriateness, independence,
plurality, and inclusiveness (diversity of content, topics, and
viewpoints).
10.
Human Rights Programs This indicator
assesses the strength of the company’s initiatives to comply with its obligation
to respect human rights.
11.
Editorial Guidelines This indicator
provides an assessment of the company’s commitment to address media ethics as it
relates to the dissemination of content. This includes the company’s stated
values related to the impact of content on protected classes and
minorities.
12.
Advertising Ethics This indicator
provides an assessment of the presence and strengths of a company policy on
advertising ethics.
13.
Human Capital Development This indicator
assesses the strength of a company’s initiatives to recruit, retain, and develop
human capital to avoid a shortage of skilled
labor.
14.
Responsible Product Offering This
indicator assesses the strength of a financial institution’s initiatives to
market products and services responsibly, so as to avoid predatory lending and
minimize risks to the customers of such financial
institution.
15.
Responsible Marketing Policy This
indicator provides an assessment of the quality of a company’s responsible
marketing policy.
16.
Human Rights Policy This indicator
provides an assessment of the strength of the company’s commitment to respect
human rights within its sphere of influence.
4
17. Gender Pay Equality Programs This indicator
assesses the strength of programs a company has implemented to ensure gender pay
equality. This includes initiatives to identify, measure, and close the gender
pay gap.
18.
Gender Pay Disclosure This indicator
assesses the strength of a company’s disclosure related to the gender pay
gap.
Principal
Risks
When you sell Fund shares, they may be worth less than
what you paid for them. Consequently, you can lose money by investing in the
Fund. No assurance can be given that the Fund will achieve its
objective, and investment results may vary substantially over time and from
period to period. An investment in the Fund is not appropriate for all
investors. An investment in the Fund involves risks, including equity investing
risk, index performance risk and securities market risk, among others. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with other funds. Each risk summarized below
is considered a “principal risk” of investing in the Fund, regardless of the
order in which it appears. The principal risks of investing in the Fund
include:
Asset Class Risk. Securities in the Underlying Index
or in the Fund’s portfolio may underperform in comparison to the general
securities markets or other asset classes.
Counterparty Risk. The Fund may engage in
transactions in securities and financial instruments that involve
counterparties. Counterparty risk is the risk that a counterparty (the other
party to a transaction or an agreement or the party with whom a Fund executes
transactions) to a transaction with a Fund may be unable or unwilling to make
timely principal, interest, settlement or margin payments, or otherwise honor
its obligations. If a counterparty becomes bankrupt or otherwise fails to
perform its obligations due to financial difficulties, the affected Fund’s
income or the value of its assets may decrease. A Fund may experience
significant delays in obtaining any recovery in a bankruptcy or other
reorganization proceeding and a Fund may obtain only limited recovery or may
obtain no recovery in such circumstances. In an attempt to limit the
counterparty risk associated with such transactions, the Fund conducts business
only with financial institutions judged by the Adviser to present acceptable
credit risk.
Derivatives Risk. Derivatives Risk is a
combination of several risks, including the risks that: (1) an investment
in a derivative instrument may not correlate well with the performance of the
securities or asset class to which the Fund seeks exposure, (2) derivative
contracts, including options, may expire worthless and the use of derivatives
may result in losses to the Fund, (3) a derivative instrument entailing
leverage may result in a loss greater than the principal amount invested,
(4) derivatives not traded on an exchange may be subject to credit risk,
for example, if the counterparty does not meet its obligations (see also
“Counterparty Risk”), and (5) derivatives not traded on an exchange may be
subject to liquidity risk and the related risk that the instrument is difficult
or impossible to value accurately.
Exchange-Traded Funds Risk. The price movement
of an exchange-traded fund may not exactly track the underlying index and may
result in a loss. In addition, shareholders bear both their proportionate share
of the Fund’s expenses and similar expenses of the underlying investment company
when the Fund invests in shares of another investment company.
Equity Investing Risk. The market prices of
equity securities owned by the Fund may go up or down, sometimes rapidly or
unpredictably. The value of a security may decline for a number of reasons that
may directly relate to the issuer, such as management performance, financial
leverage, non‑compliance with regulatory requirements, and reduced demand for
the issuer’s goods or services and also may decline due to general industry or
market conditions that are not specifically related to a particular company,
such as real or perceived adverse economic conditions, changes in the general
outlook for corporate earnings, changes in interest
5
or
currency rates, or adverse investor sentiment generally. In addition, equity
markets tend to move in cycles, which may cause stock prices to fall over short
or extended periods of time.
Ethnic Diversity Risk. The returns on a
portfolio of securities that excludes companies that are not ethnically diverse
may trail the returns on a portfolio of securities that includes companies that
are not ethnically diverse. Investing only in a portfolio of securities that are
ethnically diverse may affect the Fund’s exposure to certain types of
investments and may adversely impact the Fund’s performance depending on whether
such investments are in or out of favor in the
market.
Fee Risk. Because the fees paid by the
Fund to Impact Shares are based on the average daily value of the total assets
of the Fund, less all accrued liabilities of the Fund (other than the amount of
any outstanding borrowings constituting financial leverage), Impact Shares has a
financial incentive to cause the Fund to utilize leverage, which creates a
conflict of interest between Impact Shares, on the one hand, and the
shareholders of the Fund, on the other
hand.
Futures Contracts Risk. Futures contracts provide for
the future sale by one party and purchase by another party of a specified amount
of an underlying asset at a price, date and time specified when the contract is
made. A Fund that uses futures contracts, which are a type of derivative, is
subject to the risk of loss caused by unanticipated market movements. In
addition, there may at times be an imperfect correlation between the movement in
the prices of futures contracts and the value of their underlying instruments or
indexes and there may at times not be a liquid secondary market for certain
futures contracts.
Index Performance Risk. The Fund seeks to track
an index maintained by a third party provider unaffiliated with the Fund or the
Adviser. There can be no guarantee or assurance that the methodology used by the
third party provider to create the index will result in the Fund achieving high,
or even positive, returns. Further, there can be no guarantee that the
methodology underlying the index, or the daily calculation of the index will be
free from error. It is also possible that the value of the index may be subject
to intentional manipulation by third-party market participants. The particular
index used by the Fund may underperform other asset classes and may underperform
other similar indices. Each of these factors could have a negative impact on the
performance of the Fund.
Industry Concentration Risk. Because the
Fund may invest 25% or more of the value of its assets in an industry or group
of industries to the extent that the Underlying Index concentrates in an
industry or group of industries, the Fund’s performance largely depends on the
overall condition of such industry or group of industries and the Fund is
susceptible to economic, political and regulatory risks or other occurrences
associated with that industry or group of
industries.
Intellectual Property Risk. The Fund relies on
licenses that permit the Adviser to use the Underlying Index and associated
trade names, trademarks and service marks, as well as the Partner Nonprofit’s
name and logo (the “Intellectual Property”) in connection with the investment
strategies of the Fund and/or in marketing and other materials for the Fund.
Such licenses may be terminated, and, as a result, the Fund may lose its ability
to use the Intellectual Property. In the event a license is terminated, or the
license provider does not have rights to license the Intellectual Property, the
operations of the Fund may be adversely
affected.
Limited Fund Size Risk. The Fund may not
attract sufficient assets to achieve or maximize investment and operational
efficiencies and remain viable. If the Fund fails to achieve sufficient scale,
it may be liquidated.
Management Risk. Management risk is the
risk associated with the fact that the Fund relies on the Adviser’s ability to
achieve its investment objective. The Adviser is a non‑profit organization with
limited personnel and financial resources. The relative lack of resources may
increase the Fund’s management risk.
6
Market Price Variance Risk. Fund shares are
listed for trading on NYSE (the “Exchange”) and can be bought and sold in the
secondary market at prevailing market prices. The market prices of shares will
fluctuate in response to changes in the NAV and supply and demand for shares. As
a result, the trading prices of Shares may deviate significantly from NAV during
periods of market volatility. The Adviser cannot predict whether shares will
trade above, below or at their NAV. Given the fact that shares can be created
and redeemed in Creation Units, the Adviser believes that large discounts or
premiums to the NAV of shares should not be sustained in the long-term. In
addition, the securities held by the Fund may be traded in markets that close at
a different time than NYSE. Liquidity in those securities may be reduced after
the applicable closing times. Accordingly, during the time when NYSE is open but
after the applicable market closing, fixing or settlement
times, bid‑ask spreads and the resulting premium or discount to the
Shares’ NAV may widen. Further, secondary markets may be subject to irregular
trading activity, wide bid/ask spreads and extended trade settlement periods,
which could cause a material decline in the Fund’s NAV. In times of market
stress, market makers and authorized participants may step away from their
respective roles in making a market in Fund shares or in executing purchase and
redemption orders, which could lead to variances between the market price of
Fund shares and the underlying value of those shares. Also, in stressed market
conditions, the market for Fund shares may become less liquid in response to
deteriorating liquidity of the Fund’s portfolio holdings, which could lead to
differences between the market price of the Fund’s shares and the underlying
value of those shares. During periods of high market volatility, a Fund share
may trade at a significant discount to its NAV, and in these circumstances
certain types of brokerage orders may expose an investor to an increased risk of
loss. A “stop order,” sometimes called a “stop-loss order,” may cause a Fund
share to be sold at the next prevailing market price once the “stop” level is
reached, which during a period of high volatility can be at a price that is
substantially below NAV. By including a “limit” criterion with your brokerage
order, you may be able to limit the size of the loss resulting from the
execution of an ill‑timed stop order. The Fund’s shares may be listed
or traded on U.S. and non‑U.S. stock exchanges other than the U.S.
stock exchange where the Fund’s primary listing is maintained, and may otherwise
be made available to non‑U.S. investors through funds or structured
investment vehicles similar to depositary receipts. There can be no assurance
that the Fund’s shares will continue to trade on any such stock exchange or in
any market or that the Fund’s shares will continue to meet the requirements for
listing or trading on any exchange or in any market. The Fund’s shares may be
less actively traded in certain markets than in others, and investors are
subject to the execution and settlement risks and market standards of the market
where they or their broker direct their trades for execution. Certain
information available to investors who trade Fund shares on a U.S. stock
exchange during regular U.S. market hours may not be available to investors who
trade in other markets, which may result in secondary market prices in such
markets being less efficient.
The
Fund’s investment results are measured based upon the daily NAV of the Fund.
Investors purchasing and selling shares in the secondary market may not
experience investment results consistent with those experienced by those
purchasing and redeeming directly with the
Fund.
Mid‑Cap Company
Risk. Investing in securities of mid‑cap companies may
entail greater risks than investments in larger, more established
companies. Mid‑cap companies tend to have more narrow product lines,
more limited financial resources and a more limited trading market for their
stocks, as compared with larger companies. As a result, their stock prices may
decline significantly as market conditions
change.
Non‑Diversification Risk. As
a non‑diversified fund for purposes of the 1940 Act, the Fund may
invest a larger portion of its assets in the securities of fewer issuers than a
diversified fund. The Fund’s investment in fewer issuers may result in the
Fund’s shares being more sensitive to the economic results of those issuers. An
investment in the Fund could fluctuate in value more than an investment in a
diversified fund. Although the Fund is “non‑diversified” for purposes
of the 1940 Act, the Fund intends to comply with the diversification
requirements under Subchapter M of the Code in order to be eligible to qualify
as a regulated investment
company.
Operational and Technology Risk. Cyber-attacks,
disruptions, or failures that affect the Fund’s service providers, index
providers, Authorized Participants (as defined below), market makers,
counterparties,
7
market
participants, or issuers of securities held by the Fund may adversely affect the
Fund and its shareholders, including by causing losses for the Fund or impairing
Fund operations.
Options Risk. Options, such as covered
calls and covered puts, are subject to the risk that significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets.
Passive Investment Risk. The Fund is not
actively managed and invests in securities included in, or representative of,
the Underlying Index regardless of such securities’ investment merits. The Fund
will likely lose value to the extent the Underlying Index loses value. The
Adviser does not attempt to take defensive positions under any market
conditions, including during declining
markets.
Securities Market Risk. Securities market risk
is the risk that the value of securities owned by the Fund may go up or down,
sometimes rapidly or unpredictably, due to factors affecting particular
companies or the securities markets generally. The profitability of the Fund
substantially depends upon the Adviser correctly assessing the future price
movements of stocks, bonds, loans, options on stocks, and other securities and
the movements of interest rates. The Adviser cannot guarantee that it will be
successful in accurately predicting price movements. The market prices of
equities may decline for reasons that directly relate to the issuing company
(such as poor management performance or reduced demand for its goods or
services), factors that affect a particular industry (such as a decline in
demand, labor or raw material shortages, or increased production costs) or
general market conditions not specifically related to a company or industry
(such as real or perceived adverse economic conditions, changes in the general
outlook for corporate earnings, changes in interest or currency rates, or
adverse investor sentiment generally, or natural and environmental disasters and
systemic market dislocations). The spread of infectious disease including
epidemics and pandemics also could affect the economies of many nations in ways
that cannot necessarily be foreseen. For example, the COVID‑19 pandemic has
resulted, and may continue to result, in significant market volatility, exchange
suspensions and closures, declines in global financial markets, higher default
rates, supply chain disruptions, and a substantial economic downturn in
economies throughout the world. In addition, military action by Russia in
Ukraine has, and may continue to, adversely affect global energy and financial
markets and therefore could affect the value of the Fund’s investments,
including beyond the Fund’s direct exposure to Russian issuers or nearby
geographic regions. The extent and duration of the military action, sanctions,
and resulting market disruptions are impossible to predict and could be
substantial. The foregoing could lead to a significant economic downturn or
recession, increased market volatility, a greater number of market closures,
higher default rates and adverse effects on the values and liquidity of
securities or other assets. Such impacts, which may vary across asset classes,
may adversely affect the performance of the Fund’s investments, the Fund
and your investment in the Fund.
In
addition, the increasing popularity of passive index-based investing may have
the potential to increase security price correlations and volatility. As passive
strategies generally buy or sell securities based simply on inclusion and
representation in an index, securities prices will have an increasing tendency
to rise or fall based on whether money is flowing into or out of passive
strategies rather than based on an analysis of the prospects and valuation of
individual securities. This may result in increased market volatility as more
money is invested through passive strategies. As a result of the nature of the
Fund’s investment activities, it is possible that the Fund’s financial
performance may fluctuate substantially from period to period. Additionally, at
any point in time an investment in the Fund may be worth less than the original
investment, even after taking into account the reinvestment of dividends and
distributions.
Small‑Cap Company
Risk. Investing in the securities of small‑cap companies either directly
or indirectly through investments in ETFs, closed‑end funds or mutual funds may
pose greater market and liquidity risks than larger, more established companies,
because of limited product lines and/or operating history, limited financial
resources, limited trading markets, and the potential lack of management depth.
In addition, the securities of such companies are typically more volatile than
securities of larger capitalization companies.
8
Swaps Risk. Investments in swaps involve both
the risks associated with an investment in the underlying investments or
instruments (including equity investments) and counterparty risk. In a standard
over‑the‑counter (“OTC”) swap transaction, two parties agree to exchange the
returns, differentials in rates of return or some other amount calculated based
on the “notional amount” of predetermined investments or instruments, which may
be adjusted for an interest factor. Swaps can involve greater risks than direct
investments in securities, because swaps may be leveraged and OTC swaps are
subject to counterparty risk (e.g., the risk of a counterparty’s defaulting on
the obligation or bankruptcy), credit risk and pricing risk (i.e., swaps may be
difficult to value). Swaps may also be considered illiquid. Certain swap
transactions, including interest rate swaps and index credit default swaps, may
be subject to mandatory clearing and exchange trading, although the swaps in
which the Fund will invest are not currently subject to mandatory clearing and
exchange trading. The use of swaps is a highly specialized activity which
involves investment techniques, risk analyses and tax planning different from
those associated with ordinary portfolio securities transactions. The value of
swaps, like many other derivatives, may move in unexpected ways and may result
in losses for the Fund.
Tracking Error Risk. The performance of the
Fund may diverge from that of the Underlying Index. Because the Fund employs a
representative sampling strategy, the Fund may experience tracking error to a
greater extent than a fund that seeks to replicate an index. The Adviser may not
be able to cause the Fund’s performance to correlate to that of the Fund’s
benchmark, either on a daily or aggregate basis. Because the Underlying Index
rebalances monthly, but the Fund is not obligated to do the same, the risk of
tracking error may increase following the rebalancing of the Underlying
Index.
An investment in the Fund is not a
bank deposit and is not insured or guaranteed by the FDIC or any other
government agency. As with any investment company, there is no
guarantee that the Fund will achieve its
goal.
Performance
The following
information is intended to help you understand the risks of investing in the
Fund. The following bar chart shows the changes in the Fund’s performance from
year to year, and the table compares the Fund’s performance to the performance
of a broad-based securities market index/indices for the same period and since
inception. As with all mutual funds, the
Fund’s past performance (both before and after taxes) does not predict the
Fund’s future performance. Updated information about the Fund’s
performance can be found by visiting the Fund’s website at www.impactetfs.org
or by calling 844‑448‑3383
(844‑GIVE‑ETF).
Annual
Total Return(1)
The
bar chart shows the performance of the Fund as of December 31, 2019, 2020
and 2021.
(1) |
Through September 30,
2022 (the most recently ended quarter for which data is
available), the year to date return of the
Fund was ‑26.3%. The following table sets forth the Fund’s
highest and lowest quarterly returns since
inception. |
9
|
|
|
|
|
| |
Highest Quarterly Return |
|
Highest Quarterly Return Date |
|
Lowest Quarterly Return |
|
Lowest Quarterly Return Date |
20.79% |
|
6/30/20 |
|
-17.18% |
|
3/31/20 |
Impact
Shares NAACP Minority Empowerment ETF
Average
Annual Returns
(For
the Year Ended December 31, 2021 and Since
Inception)
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
Since Inception |
|
Fund
Returns Before Taxes |
|
|
27.04 |
% |
|
|
20.37 |
% |
Fund
Returns After Taxes on Distributions |
|
|
25.73 |
% |
|
|
19.68 |
% |
Fund
Returns After Taxes on Distributions and Sale of Fund Shares |
|
|
16.26 |
% |
|
|
16.03 |
% |
Morningstar
Minority Empowerment Index(1) |
|
|
30.17 |
% |
|
|
17.89 |
% |
Morningstar
US Large‑Mid Cap Index(1) |
|
|
25.94 |
% |
|
|
17.99 |
% |
(1) |
The index returns do not
reflect deductions for fees, expenses, or
taxes. |
After‑tax returns are
calculated using the historical highest individual federal marginal income tax
rates and do not reflect the impact of state and local taxes.
Actual after‑tax returns
depend on an investor’s tax situation and may differ from those shown, and the
after‑tax returns shown are not relevant to investors who hold their Fund shares
through tax advantaged arrangements such as 401(k) plans or individual
retirement accounts (“IRAs”). In some cases, the after‑tax
returns 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.
Portfolio
Management
Impact
Shares, Corp. serves as the investment adviser to the Fund. The portfolio
manager for the Fund is Ethan Powell, who has managed the Fund since inception.
|
|
|
| |
Portfolio
Manager |
|
Managed
the Fund Since |
|
Title
with Adviser |
Ethan Powell |
|
July 2018 |
|
President |
Purchase
and Sale of Fund Shares
The
Fund is an exchange-traded fund. The Fund issues and redeems shares only to
authorized participants who have entered into agreements with the Fund’s
distributor (“Authorized Participants”) in exchange for the deposit or delivery
of a basket of assets (securities and/or cash) in large blocks, known as
creation units, each of which comprises 50,000 shares or such other amount as
may be from time to time determined to be in the best interests of a Fund by the
President of the Fund (“Creation Units”). Retail investors may only purchase and
sell shares on a national securities exchange through a broker-dealer. The price
of Fund shares is based on market price, and because ETF shares trade at market
prices rather than NAV, shares may trade at a price greater than NAV (a premium)
or less than NAV (a discount).
Important
Additional Information
Tax
Information
The
Fund intends to make distributions that generally will be taxable to you as
ordinary income or capital gains, unless you are a tax‑exempt investor or
otherwise investing in the Fund through a tax‑advantaged arrangement, such as a
401(k) plan or an individual retirement account. If you are investing in the
Fund through a tax‑advantaged arrangement, you may be taxed later upon
withdrawals from that account.
10
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Fund and its related companies may pay the
intermediary for the sale of Fund shares and related services. These payments
may create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your financial intermediary’s website for more
information.
11
Impact
Shares YWCA Women’s Empowerment ETF
FUND
SUMMARY
Investment
Objective
The
Impact Shares YWCA Women’s Empowerment ETF (the “Fund” or the “Women’s ETF”)
seeks investment results that, before fees and expenses, track the performance
of the Morningstar® Women’s Empowerment
Index (the “Underlying Index”).
Fees
and Expenses
The
following tables describe the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment)
|
|
|
| |
Management
Fee (1)(2)(3) |
|
|
0.75 |
% |
Distribution
and Service (12b‑1) Fees |
|
|
0.00 |
% |
Other
Expenses |
|
|
0.00 |
% |
Total
Annual Fund Operating Expenses |
|
|
0.75 |
% |
(1) |
The
Fund pays for the transfer agency, custody, fund administration, legal,
audit and other services it requires under a unitary fee structure (the
“unitary advisory fee”). Therefore, the Fund’s “Management Fee” includes
fees payable to Impact Shares, Corp. (“Impact Shares” or the “Adviser”)
for advisory services and for the provision by third parties engaged by
Impact Shares of transfer agency, custody, fund administration, legal,
audit and other services. Under the Fund’s Investment Advisory Agreement,
the Adviser bears all expenses of the Fund (including those of the
services listed above) with the exception of those described under the
section titled “Management of
the Fund.” |
(2) |
Impact
Shares is paid a Management Fee at an annual rate of 0.75% on the “Average
Daily Managed Assets” of the Fund. “Average Daily Managed Assets” is the
average daily value of the total assets of the Fund, less all accrued
liabilities of the Fund (other than the amount of any outstanding
borrowings constituting
financial leverage). |
(3) |
Expense information has been
restated to reflect current contractual
rates. |
Expense
Example
This
Example helps you compare the cost of investing in the Fund to 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 sell or redeem all 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. Your
actual costs may be higher or lower. Investors in the Fund may pay brokerage
commissions on their purchases and sales of Fund shares, which are not included
in the examples below. The Example reflects expense limitation agreements and/or
waivers, if any, in effect for the one‑year period and the first year of the
three-year period. Your actual costs may be higher or lower.
|
|
|
|
|
| |
1 Year |
|
3 Years |
|
5 Years |
|
10 Years |
$77 |
|
$240 |
|
$417 |
|
$930 |
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
12
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 fiscal year ended June 30, 2022, the Fund’s portfolio
turnover rate was 36%.
Principal
Investment Strategies
The
Fund will, under normal circumstances, invest at least 80% of its total assets
plus any borrowings for investment purposes (the “80% basket”) in component
securities of the Underlying Index (“Component Securities”). The Fund may invest
the remaining 20% of its total assets (the “20% basket”) in securities or other
instruments not included in the Underlying Index, but which the Adviser believes
will help the Fund track the Underlying Index. For example, the Fund may invest
in securities that are not components of the Underlying Index to reflect various
corporate actions (such as mergers) and other changes in the Underlying Index
(such as reconstitutions, additions and deletions). The Fund may invest in
securities of any type (including equity and debt securities) and of companies
of any market capitalization (including small- and mid‑capitalization
companies), market sector or industry, but expects to invest primarily in equity
securities of U.S. companies. The Fund may use the 20% basket to invest in
securities issued by other investment companies, including other exchange-traded
funds. The Fund also may invest in warrants and may also use derivatives,
primarily swaps (including equity, variance and volatility swaps), options and
futures contracts on securities, interest rates and/or currencies, within the
20% basket to track the Underlying Index and as substitutes for direct
investments the Fund can make. The Fund may also use derivatives such as swaps,
options (including options on futures), futures, and foreign currency
transactions (e.g., foreign currency swaps, futures and forwards) to hedge
various investments for risk management and speculative purposes. In addition,
the Fund’s 20% basket may be invested in cash and cash equivalents, including
shares of money market funds advised by the Adviser or its affiliates. The Fund
does not currently engage in derivative transactions and has adopted a policy
prohibiting derivatives transactions. If the Board deems it advisable and in the
best interests of shareholders of the Fund, the Fund may change this policy in
the future and allow derivatives transactions undertaken in compliance with the
new SEC rules.
Unlike
many investment companies, the Fund does not try to “beat” the index it tracks.
The Fund uses a passive management strategy designed to track the total return
performance of the Underlying Index.
The
Adviser may use a representative sampling indexing strategy to manage the Fund.
“Representative sampling” is an indexing strategy that involves investing in a
representative sample of securities that collectively has an investment profile
similar to the Underlying Index. The securities selected are expected to have,
in the aggregate, investment characteristics (based on factors such as market
capitalization and industry weightings), fundamental characteristics (such as
return variability, leverage and price to earnings ratios) and liquidity
measures similar to those of the Underlying Index. The Fund may or may not hold
all of the securities in the Underlying Index. “Tracking error” is the
difference between the performance (return) of the Fund’s portfolio and that of
the Underlying Index. The Adviser expects that, over time, the Fund’s tracking
error will not exceed 5%. Funds that employ a representative sampling strategy
may incur tracking error risk to a greater extent than funds that seek to
replicate an index.
The
Fund concentrates its investments in a particular industry or group of
industries to approximately the same extent as the Underlying Index is so
concentrated.
The
Fund is a non‑diversified fund as defined in the Investment Company
Act of 1940, as amended (the “1940 Act”), but intends to adhere to the
diversification requirements applicable to regulated investment companies
(“RICs”) under Subchapter M of the Internal Revenue Code of 1986, as amended
(the “Code”). The Fund is not intended to be a complete investment
program.
The
Underlying Index is designed to measure the performance of U.S. large
and mid‑ capitalization companies that are “empowering to women,” and
to exhibit risk and return characteristics similar to those of the Morningstar
US Large‑Mid Cap® Index (the “Parent
Index”), as described below. The Parent Index is a free
13
float market‑cap weighted
index that constitutes 90% of the total market capitalization of the U.S.
market. The Parent Index is an equity benchmark designed to comprehensively
represent the performance of the companies incorporated and/or listed in the
United States and contains large and mid‑capitalization equities and
is designed with the following objectives in mind: (1) transparent and
objective rules; (2) full investibility; and (3) low
turnover.
The
Underlying Index is constructed using a rules-based methodology to select
companies from the Parent Index that have strong women’s empowerment practices.
Morningstar, Inc. (“Morningstar” or the “Index Provider”) constructs the
Underlying Index using company level indicators, scores, and indicator relevance
weighting from Equileap, the Fund’s ESG research provider. The YWCA USA (“YWCA”
or the “Partner Nonprofit”) has reviewed and approved the use of Equileap’s
social screens (through the use of the Underlying Index) to measure the strength
of women’s empowerment practices and products or services for each company
within the Parent Index (a company’s “Gender Diversity Score”). After excluding
those companies that Equileap determines are (i) involved in the weapons,
gambling, or tobacco industries, (ii) on the Norwegian Ethics Council
List1 or (iii) that
have experienced an applicable legal controversy, the 200 best scoring companies
(after applying the optimized weighting methodology discussed below) are
selected by Morningstar as the final underlying index components. The Underlying
Index is constructed by Morningstar using an optimized weighting methodology.
Under this methodology, Morningstar uses a quantitative process that is designed
to determine optimal weights for securities to maximize exposure to companies
with higher rankings as to women’s empowerment practices, while maintaining an
Underlying Index that exhibits risk and return characteristics similar to those
of the Parent Index. Morningstar determines the weighting of each security in
the Underlying Index using the following variables: Gender Diversity Score,
market capitalization, and maximum and minimum weightings by security and
sector. Underlying Index constituents are subject to a maximum 5% per company
weighting.
The
Underlying Index is expected to contain approximately 200 securities, but this
number may change. If a company in the Underlying Index has acted in a manner
inconsistent with the selection criteria of the Underlying Index, Morningstar
may, in its discretion, after consulting with Equileap, exclude the company from
the Underlying Index between reconstitution periods. Morningstar may also make
adjustments in accordance with its internal guidelines to reflect extraordinary
corporate events (e.g. mergers and acquisitions, spin-offs, bankruptcies,
insolvencies, and liquidations). The Underlying Index is rebalanced quarterly
and reconstituted utilizing the rules-based methodology described above
annually. Rebalancing refers to the process of adjusting the weights of the
constituent securities in the Underlying Index in accordance with its optimized
weighting methodology in response to changes in stock value and market
capitalization. Reconstitution refers to the process of changing the constituent
securities in the Underlying Index so that securities that no longer meet the
criteria for the Underlying Index are excluded and new securities that do meet
those criteria are included.
The
composition of the Underlying Index is based on the following social screens
used in determining the Gender Diversity Score that narrows the universe of
companies included in the Parent Index. Equileap determines a company’s Gender
Diversity Score based upon its analysis of publicly available information, as
reported by such company in its most recent annual report for its fiscal year
end.
Each
of the social screens for the Fund addresses an issue that has a history of YWCA
support.
CATEGORY A: GENDER BALANCE IN LEADERSHIP &
WORKFORCE
1. Non‑Executive Board:
Percentage of male and female as a proportion of the total number of
non‑executive Board members, as of the fiscal year end wherever available,
otherwise as of the date of the latest filing.
1 |
The
list of companies that the Council of Ethics for the Norwegian Government
Pension Fund Global (the “Pension Fund”) has recommended excluding from
the Pension Fund’s portfolio of investments on the grounds that investment
in such companies would be inconsistent with the Pension Fund’s Ethical
Guidelines. |
14
2.
Executives: Percentage of male and female executives as a proportion of the
total number of executives, as of the fiscal year end wherever available,
otherwise as of the date of the latest filing Executives are either defined by
the company or represent those individuals that form the company executive
committee/ board, management committee/board or
equivalent.
3.
Senior Management: Percentage of male and female senior management, as a
proportion of the total number of senior management, as of the fiscal year end
wherever available, otherwise as of the date of the latest filing. Senior
management are defined and reported by the
company.
4.
Workforce: Percentage of male and female employees at the company, as a
percentage of total employees.
5.
Promotion & Career Development Opportunities: Ratio of male and female
employees in management compared to ratio of each gender in total
employees.
CATEGORY B: EQUAL COMPENSATION & WORK LIFE
BALANCE
6.
Fair Remuneration: Demonstrates a commitment to ensure payment of a fair wage to
all employees, even in those countries that do not legally require a minimum
wage.
7.
Equal Pay: Commitment to provide comparable wages, hours, and benefits,
including retirement benefits, for all employees for comparable work in country
of incorporation.
8.
Parental Leave: Paid leave programs for child and dependent care to both women
and men (maternity leave, paternity leave, dependent care) in country of
incorporation.
9.
Flexible Work Options: Option for employees to control and/or vary the start/end
times of the workday and/or vary the location from which employees work in
country of incorporation.
CATEGORY C: POLICIES PROMOTING GENDER EQUALITY
10.
Training and Career Development: Ensures equal access to training and career
development.
11.
Recruitment Strategy: Commitment to ensure non‑discrimination against
any type of demographic group. This could be in the form of an equal
opportunities policy, as described by the
company.
12.
Freedom from Violence, Abuse and Sexual Harassment: Prohibit all forms of
violence in the workplace, including verbal, physical and sexual
harassment.
13.
Safety at Work: Commitment to the safety of employees in the workplace, in
travel to and from the workplace, and on company related business, and ensure
the safety of vendors in the
workplace.
14.
Human Rights: Commitment to ensure the protection of the rights of all people it
works with including employees’ rights to participate in legal, civic and
political affairs.
15.
Social Supply Chain: Commitment to reduce social risks in its supply chain such
as forbidding business-related activities that condone, support, or otherwise
participate in human trafficking, including for labor or sexual
exploitation
16.
Supplier Diversity: Commitment to ensure diversity in the supply chain,
including a focus to ensure female-owned businesses in the supply
chain.
15
17.
Employee Protection: Systems and policies for the reporting of internal ethical
compliance complaints without retaliation or retribution, including but not
limited to access to confidential third-party ethics hotlines or systems for
confidential written complaints
CATEGORY D: COMMITMENT, TRANSPARENCY &
ACCOUNTABILITY
18.
Commitment to Women’s Empowerment: Recognition and commitment to ensuring
women’s empowerment in the
workplace.
19.
Audit: Undertaken and awarded an independent gender audit certificate by an
Equileap recognized body.
Principal
Risks
When you sell Fund shares, they may be worth less than
what you paid for them. Consequently, you can lose money by investing in the
Fund. No assurance can be given that the Fund will achieve its
objective, and investment results may vary substantially over time and from
period to period. An investment in the Fund is not appropriate for all
investors. An investment in the Fund involves risks, including equity investing
risk, index performance risk and securities market risk, among others. . The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with other funds. Each risk summarized below
is considered a “principal risk” of investing in the Fund, regardless of the
order in which it appears. The principal risks of investing in the Fund
include:
Asset Class Risk. Securities in the Underlying Index
or in the Fund’s portfolio may underperform in comparison to the general
securities markets or other asset classes.
Counterparty Risk. The Fund may engage in
transactions in securities and financial instruments that involve
counterparties. Counterparty risk is the risk that a counterparty (the other
party to a transaction or an agreement or the party with whom a Fund executes
transactions) to a transaction with a Fund may be unable or unwilling to make
timely principal, interest, settlement or margin payments, or otherwise honor
its obligations. If a counterparty becomes bankrupt or otherwise fails to
perform its obligations due to financial difficulties, the affected Fund’s
income or the value of its assets may decrease. A Fund may experience
significant delays in obtaining any recovery in a bankruptcy or other
reorganization proceeding and a Fund may obtain only limited recovery or may
obtain no recovery in such circumstances. In an attempt to limit the
counterparty risk associated with such transactions, the Fund conducts business
only with financial institutions judged by the Adviser to present acceptable
credit risk.
Derivatives Risk. Derivatives Risk is a
combination of several risks, including the risks that: (1) an investment
in a derivative instrument may not correlate well with the performance of the
securities or asset class to which the Fund seeks exposure, (2) derivative
contracts, including options, may expire worthless and the use of derivatives
may result in losses to the Fund, (3) a derivative instrument entailing
leverage may result in a loss greater than the principal amount invested,
(4) derivatives not traded on an exchange may be subject to credit risk,
for example, if the counterparty does not meet its obligations (see also
“Counterparty Risk”), and (5) derivatives not traded on an exchange may be
subject to liquidity risk and the related risk that the instrument is difficult
or impossible to value accurately.
Exchange-Traded Funds Risk. The price movement
of an exchange-traded fund may not exactly track the underlying index and may
result in a loss. In addition, shareholders bear both their proportionate share
of the Fund’s expenses and similar expenses of the underlying investment company
when the Fund invests in shares of another investment company.
Equity Investing Risk. The market prices of
equity securities owned by the Fund may go up or down, sometimes rapidly or
unpredictably. The value of a security may decline for a number of reasons that
may
16
directly
relate to the issuer, such as management performance, financial leverage,
non‑compliance with regulatory requirements, and reduced demand for the issuer’s
goods or services and also may decline due to general industry or market
conditions that are not specifically related to a particular company, such as
real or perceived adverse economic conditions, changes in the general outlook
for corporate earnings, changes in interest or currency rates, or adverse
investor sentiment generally. In addition, equity markets tend to move in
cycles, which may cause stock prices to fall over short or extended periods of
time.
Fee Risk. Because the fees paid by the Fund to
Impact Shares are based on the average daily value of the total assets of the
Fund, less all accrued liabilities of the Fund (other than the amount of any
outstanding borrowings constituting financial leverage), Impact Shares has a
financial incentive to cause the Fund to utilize leverage, which creates a
conflict of interest between Impact Shares, on the one hand, and the
shareholders of the Fund, on the other
hand.
Futures Contracts Risk. Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of an underlying asset at a price, date and time specified when
the contract is made. A Fund that uses futures contracts, which are a type of
derivative, is subject to the risk of loss caused by unanticipated market
movements. In addition, there may at times be an imperfect correlation between
the movement in the prices of futures contracts and the value of their
underlying instruments or indexes and there may at times not be a liquid
secondary market for certain futures
contracts.
Gender Diversity Risk. The returns on a
portfolio of securities that excludes companies that are not gender diverse may
trail the returns on a portfolio of securities that includes companies that are
not gender diverse. Investing only in a portfolio of securities that are gender
diverse may affect the Fund’s exposure to certain types of investments and may
adversely impact the Fund’s performance depending on whether such investments
are in or out of favor in the
market.
Index Performance Risk. The Fund seeks to track
an index maintained by a third party provider unaffiliated with the Fund or the
Adviser. There can be no guarantee or assurance that the methodology used by the
third party provider to create the index will result in the Fund achieving high,
or even positive, returns. Further, there can be no guarantee that the
methodology underlying the index, or the daily calculation of the index will be
free from error. It is also possible that the value of the index may be subject
to intentional manipulation by third-party market participants. The particular
index used by the Fund may underperform other asset classes and may underperform
other similar indices. Each of these factors could have a negative impact on the
performance of the Fund.
Industry Concentration Risk. Because the Fund
may invest 25% or more of the value of its assets in an industry or group of
industries to the extent that the Underlying Index concentrates in an industry
or group of industries, the Fund’s performance may depend to a large extent on
the overall condition of such industry or group of industries and the Fund may
be susceptible to economic, political and regulatory risks or other occurrences
associated with that industry or group of
industries.
Intellectual Property Risk. The Fund relies on
licenses that permit the Adviser to use the Underlying Index and associated
trade names, trademarks and service marks, as well as the Partner Nonprofit’s
name and logo (the “Intellectual Property”) in connection with the investment
strategies of the Fund and/or in marketing and other materials for the Fund.
Such licenses may be terminated, and, as a result, the Fund may lose its ability
to use the Intellectual Property. In the event a license is terminated, or the
license provider does not have rights to license the Intellectual Property, the
operations of the Fund may be adversely
affected.
Limited Fund Size Risk. The Fund may not
attract sufficient assets to achieve or maximize investment and operational
efficiencies and remain viable. If a Fund fails to achieve sufficient scale, it
may be liquidated.
17
Management Risk. Management risk is the risk
associated with the fact that the Fund relies on the Adviser’s ability to
achieve its investment objective. The Adviser is a non‑profit organization with
limited personnel and financial resources. The relative lack of resources may
increase the Fund’s management
risk.
Market Price Variance Risk. Fund shares are
listed for trading on NYSE Arca, Inc. (the “Exchange”) and can be bought and
sold in the secondary market at prevailing market prices. The market prices of
shares will fluctuate in response to changes in the net asset value (“NAV”) and
supply and demand for shares. As a result, the trading prices of shares may
deviate significantly from NAV during periods of market volatility. The Adviser
cannot predict whether shares will trade above, below or at their NAV. Given the
fact that shares can be created and redeemed in Creation Units, the Adviser
believes that large discounts or premiums to the NAV of shares should not be
sustained in the long-term. In addition, the securities held by the Fund may be
traded in markets that close at a different time than the Exchange. Liquidity in
those securities may be reduced after the applicable closing times. Accordingly,
during the time when the Exchange is open but after the applicable market
closing, fixing or settlement times, bid‑ask spreads and the resulting
premium or discount to the Shares’ NAV may widen. Further, secondary markets may
be subject to irregular trading activity, wide bid/ask spreads and extended
trade settlement periods, which could cause a material decline in the Fund’s
NAV. In times of market stress, market makers and authorized participants may
step away from their respective roles in making a market in Fund shares or in
executing purchase and redemption orders, which could lead to variances between
the market price of Fund shares and the underlying value of those shares. Also,
in stressed market conditions, the market for Fund shares may become less liquid
in response to deteriorating liquidity of the Fund’s portfolio holdings, which
could lead to differences between the market price of the Fund’s shares and the
underlying value of those shares. During periods of high market volatility, a
Fund share may trade at a significant discount to its NAV, and in these
circumstances certain types of brokerage orders may expose an investor to an
increased risk of loss. A “stop order,” sometimes called a “stop-loss order,”
may cause a Fund share to be sold at the next prevailing market price once the
“stop” level is reached, which during a period of high volatility can be at a
price that is substantially below NAV. By including a “limit” criterion with
your brokerage order, you may be able to limit the size of the loss resulting
from the execution of an ill‑timed stop order. The Fund’s shares may
be listed or traded on U.S. and non‑U.S. stock exchanges other than
the U.S. stock exchange where the Fund’s primary listing is maintained, and may
otherwise be made available to non‑U.S. investors through funds or
structured investment vehicles similar to depositary receipts. There can be no
assurance that the Fund’s shares will continue to trade on any such stock
exchange or in any market or that the Fund’s shares will continue to meet the
requirements for listing or trading on any exchange or in any market. The Fund’s
shares may be less actively traded in certain markets than in others, and
investors are subject to the execution and settlement risks and market standards
of the market where they or their broker direct their trades for execution.
Certain information available to investors who trade Fund shares on a U.S. stock
exchange during regular U.S. market hours may not be available to investors who
trade in other markets, which may result in secondary market prices in such
markets being less efficient.
The
Fund’s investment results are measured based upon the daily NAV of the Fund.
Investors purchasing and selling shares in the secondary market may not
experience investment results consistent with those experienced by those
purchasing and redeeming directly with the
Fund.
Mid‑Cap Company
Risk. Investing in securities of mid‑cap companies may entail
greater risks than investments in larger, more established
companies. Mid‑cap companies tend to have more narrow product lines,
more limited financial resources and a more limited trading market for their
stocks, as compared with larger companies. As a result, their stock prices may
decline significantly as market conditions
change.
Non‑Diversification Risk. As a non‑diversified fund
for purposes of the 1940 Act, the Fund may invest a larger portion of its assets
in the securities of fewer issuers than a diversified fund. The Fund’s
investment in fewer issuers may result in the Fund’s shares being more sensitive
to the economic results of those issuers. An investment in the Fund could
fluctuate in value more than an investment in a diversified
fund.
18
Although
each Fund is “non‑diversified” for purposes of the 1940 Act, each Fund intends
to comply with the diversification requirements under Subchapter M of the Code
in order to be eligible to qualify as a regulated investment
company.
Operational and Technology Risk. Cyber-attacks,
disruptions, or failures that affect the Fund’s service providers, index
providers, Authorized Participants (as defined below), market makers,
counterparties, market participants, or issuers of securities held by the Fund
may adversely affect the Fund and its shareholders, including by causing losses
for the Fund or impairing Fund
operations.
Options Risk. Options, such as covered calls
and covered puts, are subject to the risk that significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets.
Passive Investment Risk. The Fund is not
actively managed and invests in securities included in, or representative of,
the Underlying Index regardless of such securities’ investment merits. The
Adviser does not attempt to take defensive positions under any market
conditions, including during declining
markets.
Securities Market Risk. Securities market risk
is the risk that the value of securities owned by the Fund may go up or down,
sometimes rapidly or unpredictably, due to factors affecting particular
companies or the securities markets generally. The profitability of the Fund
substantially depends upon the Adviser correctly assessing the future price
movements of stocks, bonds, loans, options on stocks, and other securities and
the movements of interest rates. The Adviser cannot guarantee that it will be
successful in accurately predicting price movements. The market prices of
equities may decline for reasons that directly relate to the issuing company
(such as poor management performance or reduced demand for its goods or
services), factors that affect a particular industry (such as a decline in
demand, labor or raw material shortages, or increased production costs) or
general market conditions not specifically related to a company or industry
(such as real or perceived adverse economic conditions, changes in the general
outlook for corporate earnings, changes in interest or currency rates, or
adverse investor sentiment generally, or natural and environmental disasters and
systemic market dislocations). The spread of infectious disease including
epidemics and pandemics also could affect the economies of many nations in ways
that cannot necessarily be foreseen. For example, the COVID‑19 pandemic has
resulted, and may continue to result, in significant market volatility, exchange
suspensions and closures, declines in global financial markets, higher default
rates, supply chain disruptions, and a substantial economic downturn in
economies throughout the world. In addition, military action by Russia in
Ukraine has, and may continue to, adversely affect global energy and financial
markets and therefore could affect the value of the Fund’s investments,
including beyond the Fund’s direct exposure to Russian issuers or nearby
geographic regions. The extent and duration of the military action, sanctions,
and resulting market disruptions are impossible to predict and could be
substantial. The foregoing could lead to a significant economic downturn or
recession, increased market volatility, a greater number of market closures,
higher default rates and adverse effects on the values and liquidity of
securities or other assets. Such impacts, which may vary across asset classes,
may adversely affect the performance of the Fund’s investments, the Fund
and your investment in the Fund.
In
addition, the increasing popularity of passive index-based investing may have
the potential to increase security price correlations and volatility. As passive
strategies generally buy or sell securities based simply on inclusion and
representation in an index, securities prices will have an increasing tendency
to rise or fall based on whether money is flowing into or out of passive
strategies rather than based on an analysis of the prospects and valuation of
individual securities. This may result in increased market volatility as more
money is invested through passive strategies. As a result of the nature of the
Fund’s investment activities, it is possible that the Fund’s financial
performance may fluctuate substantially from period to period. Additionally, at
any point in time an investment in the Fund may be worth less than the original
investment, even after taking into account the reinvestment of dividends and
distributions.
19
Small‑Cap Company
Risk. Investing in the securities of small‑cap companies either
directly or indirectly through investments in ETFs, closed‑end funds
or mutual funds may pose greater market and liquidity risks than larger, more
established companies, because of limited product lines and/or operating
history, limited financial resources, limited trading markets, and the potential
lack of management depth. In addition, the securities of such companies are
typically more volatile than securities of larger capitalization
companies.
Swaps Risk. Investments in swaps involve both
the risks associated with an investment in the underlying investments or
instruments (including equity investments) and counterparty risk. In a standard
over‑the‑counter (“OTC”) swap transaction, two parties agree to exchange the
returns, differentials in rates of return or some other amount calculated based
on the “notional amount” of predetermined investments or instruments, which may
be adjusted for an interest factor. Swaps can involve greater risks than direct
investments in securities, because swaps may be leveraged and OTC swaps are
subject to counterparty risk (e.g., the risk of a counterparty’s defaulting on
the obligation or bankruptcy), credit risk and pricing risk (i.e., swaps may be
difficult to value). Swaps may also be considered illiquid. Certain swap
transactions, including interest rate swaps and index credit default swaps, may
be subject to mandatory clearing and exchange trading, although the swaps in
which the Fund will invest are not currently subject to mandatory clearing and
exchange trading. The use of swaps is a highly specialized activity which
involves investment techniques, risk analyses and tax planning different from
those associated with ordinary portfolio securities transactions. The value of
swaps, like many other derivatives, may move in unexpected ways and may result
in losses for the Fund.
Tracking Error Risk. The performance of the
Fund may diverge from that of the Underlying Index. Because the Fund employs a
representative sampling strategy, the Fund may experience tracking error to a
greater extent than a fund that seeks to replicate an index. The Adviser may not
be able to cause the Fund’s performance to correlate to that of the Fund’s
benchmark, either on a daily or aggregate basis. Because the Underlying Index
rebalances monthly, but the Fund is not obligated to do the same, the risk of
tracking error may increase following the rebalancing of the Underlying
Index.
An investment in the Fund is not a
bank deposit and is not insured or guaranteed by the FDIC or any other
government agency. As with any investment company, there is no
guarantee that the Fund will achieve its
goal.
Performance
The following
information is intended to help you understand the risks of investing in the
Fund. The following bar chart shows the changes in the Fund’s performance from
year to year, and the table compares the Fund’s performance to the performance
of a broad-based securities market index/indices for the same period and since
inception. As with all mutual funds, the
Fund’s past performance (both before and after taxes) does not predict the
Fund’s future performance. Updated information about the Fund’s
performance can be found by visiting the Fund’s website at www.impactetfs.org
or by calling 844‑448‑3383
(844‑GIVE‑ETF).
20
Annual
Total Return(1)
The
bar chart shows the performance of the Fund as of December 31, 2019, 2020
and 2021.
(1) |
Through September 30,
2022 (the most recently ended quarter for which data is
available) year to date return of the
Fund was ‑25.39%. The following table sets forth the
Fund’s highest and lowest quarterly returns since
inception. |
|
|
|
|
|
| |
Highest
Quarterly
Return |
|
Highest Quarterly
Return Date |
|
Lowest
Quarterly
Return |
|
Lowest
Quarterly
Return Date |
21.25% |
|
6/30/20 |
|
-17.91% |
|
3/31/20 |
Impact
Shares YWCA Women’s Empowerment ETF
Average
Annual Returns
(For
the Year Ended December 31, 2021 and Since
Inception)
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
Since Inception |
|
Fund
Returns Before Taxes |
|
|
24.70 |
% |
|
|
22.36 |
% |
Fund
Returns After Taxes on Distributions |
|
|
23.55 |
% |
|
|
21.04 |
% |
Fund
Returns After Taxes on Distributions and Sale of Fund Shares |
|
|
15.01 |
% |
|
|
17.37 |
% |
Morningstar
Women’s Empowerment Index(1) |
|
|
27.08 |
% |
|
|
17.72 |
% |
Morningstar
US Large‑Mid cap Index(1) |
|
|
25.94 |
% |
|
|
19.44 |
% |
(1) |
The index returns do not
reflect deductions for fees, expenses, or
taxes. |
After‑tax returns are
calculated using the historical highest individual federal marginal income tax
rates and do not reflect the impact of state and local taxes.
Actual after‑tax returns
depend on an investor’s tax situation and may differ from those shown, and the
after‑tax returns shown are not relevant to investors who hold their Fund shares
through tax advantaged arrangements such as 401(k) plans or individual
retirement accounts (“IRAs”). In some cases, the after‑tax
returns 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.
21
Portfolio
Management
Impact
Shares, Corp. serves as the investment adviser to the Fund. The portfolio
manager for the Fund is Ethan Powell, who has managed the Fund since inception.
|
|
|
| |
Portfolio
Manager |
|
Managed
the Fund
Since |
|
Title
with Adviser |
Ethan Powell |
|
August 2018 |
|
President |
Purchase
and Sale of Fund Shares
The
Fund is an exchange-traded fund. The Fund issues and redeems shares only to
authorized participants who have entered into agreements with the Fund’s
distributor (“Authorized Participants”) in exchange for the deposit or delivery
of a basket of assets (securities and/or cash) in large blocks, known as
Creation Units, each of which comprises 50,000 shares or such other amount as
may be from time to time determined to be in the best interests of a Fund by the
President of the Fund. Retail investors may only purchase and sell shares on a
national securities exchange through a broker-dealer. The price of Fund shares
is based on market price, and because ETF shares trade at market prices rather
than NAV, shares may trade at a price greater than NAV (a premium) or less than
NAV (a discount).
Important
Additional Information
Tax
Information
The
Fund intends to make distributions that generally will be taxable to you as
ordinary income or capital gains, unless you are a tax‑exempt investor
or otherwise investing in the Fund through a tax‑advantaged arrangement, such as
a 401(k) plan or an individual retirement account. If you are investing in the
Fund through a tax‑advantaged arrangement, you may be taxed later upon
withdrawals from that account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Fund and its related companies may pay the
intermediary for the sale of Fund shares and related services. These payments
may create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your financial intermediary’s website for more
information.
22
Impact
Shares Sustainable Development Goals Global Equity
ETF
FUND
SUMMARY
Investment
Objective
The
Impact Shares Sustainable Development Goals Global Equity ETF (the “Fund” or the
“Sustainable Development Goals ETF”) seeks investment results that, before fees
and expenses, track the performance of the Morningstar® Societal Development Index
(the “Underlying Index”).
Fees
and Expenses
The
following tables describe the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Annual Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment)
|
|
|
| |
Management
Fee(1)(2)(3) |
|
|
0.75 |
% |
Distribution
and Service (12b‑1) Fees |
|
|
0.00 |
% |
Other
Expense . |
|
|
0.00 |
% |
Total
Annual Fund Operating Expenses |
|
|
0.75 |
% |
(1) |
The
Fund pays for the transfer agency, custody, fund administration, legal,
audit and other services it requires under a unitary fee structure (the
“unitary advisory fee”). Therefore, the Fund’s “Management Fee” includes
fees payable to Impact Shares, Corp. (“Impact Shares” or the “Adviser”)
for advisory services and for the provision by third parties engaged by
Impact Shares of transfer agency, custody, fund administration, legal,
audit and other services. Under the Fund’s Investment Advisory Agreement,
the Adviser bears all expenses of the Fund (including those of the
services listed above) with the exception of those described under the
section titled “Management of
the Fund.” |
(2) |
Impact
Shares is paid a Management Fee at an annual rate of 0.75% on the “Average
Daily Managed Assets” of the Fund. “Average Daily Managed Assets” is the
average daily value of the total assets of the Fund, less all accrued
liabilities of the Fund (other than the amount of any outstanding
borrowings constituting
financial leverage). |
(3) |
Expense information has been
restated to reflect current contractual
rates. |
Expense
Example
This
Example helps you compare the cost of investing in the Fund to 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 sell or redeem all 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. Your
actual costs may be higher or lower. Investors in the Fund may pay brokerage
commissions on their purchases and sales of Fund shares, which are not included
in the examples below. The Example reflects expense limitation agreements and/or
waivers, if any, in effect for the one‑year period and the first year of the
three-year period. Your actual costs may be higher or lower.
|
|
|
|
|
| |
1 Year |
|
3 Years |
|
5 Years |
|
10 Years |
$77 |
|
$240 |
|
$417 |
|
$930 |
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 fiscal year ended June 30, 2022, the Fund’s portfolio turnover rate
was 30%.
23
Principal
Investment Strategies
The
Fund will, under normal circumstances, invest at least 80% of its total assets
plus any borrowings for investment purposes (the “80% basket”) in component
securities of the Underlying Index (“Component Securities”). The Fund may invest
the remaining 20% of its total assets (the “20% basket”) in securities and
instruments not included in the Underlying Index, but which the Adviser believes
will help the Fund track the Underlying Index. For example, the Fund may invest
in securities that are not components of the Underlying Index to reflect various
corporate actions (such as mergers) and other changes in the Underlying Index
(such as reconstitutions, additions and deletions). Under normal market
conditions, the Fund will invest in at least three countries, including the
United States, and at least 40% of its net assets will be invested in the
securities of non‑U.S. companies, which may be in both developed and emerging
market countries. The Adviser currently considers a company to be a non‑U.S.
company if: (i) at least 50% of the company’s assets are located outside of
the United States; (ii) at least 50% of the company’s revenues are
generated outside of the United States; (iii) the company is organized or
maintains its principal place of business outside of the United States; or
(iv) its securities are traded principally outside the United States. A
country is considered to be an emerging market country by the Adviser if the
country is classified by the World Bank as low income, middle income or upper
middle income, or, by the International Monetary Fund as a “non‑advanced”
country.
The
Fund may invest in securities of any type (including equity and debt securities)
and of companies of any market capitalization (including small- and
mid‑capitalization companies), market sector or industry, but expects to invest
primarily in equity securities of U.S. companies and foreign (non‑U.S.)
companies in both developed and emerging markets. The Fund may use the 20%
basket to invest in securities issued by other investment companies, including
other exchange-traded funds. The Fund also may invest in warrants and may also
use derivatives, primarily swaps (including equity, variance and volatility
swaps), options and futures contracts on securities, interest rates and/or
currencies, within the 20% basket to track the Underlying Index and as
substitutes for direct investments the Fund can make. The Fund may also use
derivatives such as swaps, options (including options on futures), futures, and
foreign currency transactions (e.g., foreign currency swaps, futures and
forwards) to hedge various investments for risk management and speculative
purposes. In addition, the Fund’s 20% basket may be invested in cash and cash
equivalents, including shares of money market funds advised by the Adviser or
its affiliates The Fund does not currently engage in derivative transactions and
has adopted a policy prohibiting derivatives transactions. If the Board deems it
advisable and in the best interests of shareholders of the Fund, the Fund may
change this policy in the future and allow derivatives transactions undertaken
in compliance with the new SEC rules.
Unlike
many investment companies, the Fund does not try to “beat” the index it tracks.
The Fund uses a passive management strategy designed to track the total return
performance of the Underlying Index.
The
Adviser may use a representative sampling indexing strategy to manage the Fund.
“Representative sampling” is an indexing strategy that involves investing in a
representative sample of securities that collectively has an investment profile
similar to the Underlying Index. The securities selected are expected to have,
in the aggregate, investment characteristics (based on factors such as market
capitalization and industry weightings), fundamental characteristics (such as
return variability, leverage and price to earnings ratios) and liquidity
measures similar to those of the Underlying Index. The Fund may or may not hold
all of the securities in the Underlying Index. “Tracking error” is the
difference between the performance (return) of the Fund’s portfolio and that of
the Underlying Index. The Adviser expects that, over time, the Fund’s tracking
error will not exceed 5%. Funds that employ a representative sampling strategy
may incur tracking error risk to a greater extent than funds that seek to
replicate an index.
The
Fund concentrates its investments in a particular industry or group of
industries to approximately the same extent as the Underlying Index is so
concentrated.
The
Fund is a non‑diversified fund as defined in the Investment Company Act of 1940,
as amended (the “1940 Act”), but intends to adhere to the diversification
requirements applicable to regulated investment companies (“RICs”) under
Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The
Fund is not intended to be a complete investment program.
24
The
Underlying Index is designed to measure the performance of large and
mid‑capitalization companies globally that (i) display a commitment to the
UN’s Sustainable Development Goals1, (ii) adhere to the
principles of the UN Global Compact2, (iii) display a
commitment to reducing poverty and supporting economic development globally and
(iv) have exposure to countries with low levels of socioeconomic
development. The Underlying Index is intended to exhibit risk and return
characteristics similar to those of the Morningstar® Global Markets Large‑Mid
Index (the “Parent Index”), as described
below.
The
Underlying Index is constructed using a rules-based methodology to select
companies with specific characteristics (described below) from the Parent Index.
The Parent Index is a free-float market‑cap weighted index composed of the
equity securities of publicly-traded companies encompassing the top 97% of
stocks by market capitalization across 46 countries including both developed and
emerging markets. To be eligible for inclusion in the Parent Index, companies
must meet specific trading frequency, U.S. Dollar trading volume and
turnover, and free-float market capitalization requirements. The Underlying
Index provides exposure to both developed and emerging
markets.
Morningstar,
Inc. (“Morningstar” or the “Index Provider”) constructs the Underlying Index
using company level indicators, scores, and indicator relevance weightings from
Sustainalytics, the Fund’s ESG research provider, that include certain social
criteria identified by the United Nations Capital Development Fund (“UNCDF” or
the “Partner Nonprofit”), to measure (i) commitment to the UN’s Sustainable
Development Goals1,
(ii) adherence to the principles of the UN Global Compact2, (iii) commitment to
reducing poverty and supporting economic development globally and
(iv) exposure to countries with low levels of socioeconomic development for
each company within the Parent Index (a company’s “Societal Development Score”).
Morningstar determines a company’s exposure to countries with low levels of
socioeconomic development using a quantitative scale based on the percentage of
a company’s revenue identified as coming from countries defined as “low income”
or “lower middle income” by the World Bank or as a “Least Developed Country” by
the United Nations, excluding countries that are classified as developed or
emerging by Morningstar Indexes, and increases the company’s Societal
Development Score accordingly. In addition to the Societal Development Score,
Sustainalytics assigns each company an “Overall ESG Score” which reflects its
assessment of a company’s overall ESG preparedness and performance relative to
other companies in the same global industry peer group. The Overall ESG Score is
comprised of a company’s numerical scores for environmental, social and
governance criteria as determined according to Sustainalytics’ proprietary
methodology. After excluding those companies that Sustainalytics determines
(i) have products involved in the following activities: adult
entertainment, alcoholic beverages, controversial weapons, gambling, military
contracting weapons, nuclear energy and small arms, or tobacco, (ii) have a
detrimental controversy score for incidents related to a company involving one
or more of the following matters: business ethics, governance, public policy,
employee relations, social supply chain, society and community, operations, or
environmental supply chain, (iii) are not compliant with the principles of
the UN Global Compact, or (iv) have a below average Overall ESG Score
relative to its global industry peers; the 200 highest scoring companies (after
applying the optimized weighting methodology discussed below) are selected by
Morningstar as the final underlying index components. The Underlying Index is
constructed by Morningstar using an optimized free-float market cap weighting
methodology. Under this methodology, Morningstar uses a quantitative process
that is designed to determine optimal weights for securities to maximize
exposure to companies with higher rankings as to global economic development,
while maintaining an Underlying Index that exhibits risk and return
characteristics similar to those of the Parent Index. Morningstar determines the
weighting of each security in the Underlying Index using the following
variables: Societal Development Score, market capitalization, maximum and
minimum weightings by security, sector and region. Underlying Index constituents
are subject to a maximum 5% per company weighting.
1 |
The
UN Sustainable Development Goals (“SDGs”) are a collection of 17 global
goals set by the UN Development Program that calls for integration of
economic development, social equity, and environmental protection. Adopted
in 2015, the SDGs are intended to stimulate action over the next fifteen
years in areas of critical importance for humanity and the planet,
including: poverty eradication, food security, health, education, gender
equality, access to water, sanitation, clean energy, decent jobs, key
infrastructure, strong institutions, inequality reduction, sustainable
urbanization, responsible production and consumption patterns, climate
change mitigation and adaptation, and ecosystem
conservation. |
2 |
The
UN Global Compact is an arrangement by which companies voluntarily and
publicly commit to a set of principles, known as the Ten Principles of the
UN Global Compact, all of which are drawn from key UN Conventions and
Declarations, in four areas: (i) human rights; (ii) labor;
(iii) environment; and
(iv) anti-corruption. |
25
The
Underlying Index provides exposure to both developed and emerging markets and is
expected to contain approximately 200 securities, but this number may change. If
a company in the Underlying Index has acted in a manner inconsistent with the
selection criteria of the Underlying Index, Morningstar may, in its discretion,
after consulting with Sustainalytics, exclude the company from the Underlying
Index between reconstitution periods. Morningstar may also make adjustments to
the Underlying Index in accordance with its internal guidelines to reflect
extraordinary corporate events (e.g. mergers and acquisitions, spin-offs,
bankruptcies, insolvencies, and liquidations). The Underlying Index is
rebalanced quarterly and reconstituted utilizing the rules-based methodology
described above annually. Rebalancing refers to the process of adjusting the
weights of the constituent securities in the Underlying Index in accordance with
its optimized weighting methodology in response to changes in stock value and
market capitalization. Reconstitution refers to the process of changing the
constituent securities in the Underlying Index so that securities that no longer
meet the criteria for the Underlying Index are excluded and new securities that
do meet those criteria are
included.
The
composition of the Underlying Index is based on thirty‑two separate social
indicators used in determining the Societal Development Score that narrows the
universe of companies included in the Parent Index. Each of these social
indicators addresses an issue that has historically been important to the UNCDF
and falls within one of the following five groups:
|
a. |
Bribery and Corruption Policy This
indicator assesses the quality of a company’s policy to combat bribery and
corruption. |
|
b. |
Bribery and Corruption Programs This
indicator assesses the quality of a company’s programs to combat bribery
and corruption. |
|
c. |
Global Compact Signatory This indicator
denotes whether a company is a signatory to the United Nations Global
Compact. |
|
d. |
Human Rights Policy This indicator
assesses the strength of a company’s commitment to respect human rights
within its sphere of
influence. |
|
e. |
Renewable Energy Programs This indicator
assesses whether a company has taken initiatives to increase the use of
renewable energy. |
|
f. |
Renewable Energy Use This indicator
provides an assessment of the company’s renewable energy
consumption. |
|
g. |
Deforestation Policy This indicator
provides an assessment of the quality of the company’s commitment to
address deforestation. |
|
h. |
Deforestation Program This indicator
provides an assessment of whether the company has a program in place to
mitigate deforestation and how it is
applied. |
|
a. |
HIV/AIDS Programs This indicator assesses
the quality of a company’s programs to address HIV/AIDS among its
employees. |
|
b. |
Collective Bargaining Agreements This
indicator assesses the extent that the company’s employees are covered by
collective bargaining
agreements. |
|
c. |
Freedom of Association Policy This
indicator assesses the quality of a company’s freedom of association and
collective bargaining
policy. |
|
d. |
Working Conditions Policy This indicator
assesses whether the company has a formal policy on working hours and/or
minimum wages. The indicator relates to relevant core labor rights
conventions of the International Labor Organization
(ILO). |
26
|
e. |
Gender Pay Disclosure This indicator
assesses the strength of a company’s disclosure related to the gender pay
gap. |
|
f. |
Gender Pay Equality Programs This
indicator assesses the strength of programs a company has implemented to
ensure gender pay equality. This includes initiatives to identify,
measure, and close the gender pay
gap. |
3. |
Contractor and Supply Chain
Monitoring |
|
a. |
Conflict Minerals Policy This indicator
assesses the quality of a company’s formal policy commitment to eliminate
conflict minerals from its products and its supply
chain. |
|
b. |
Conflict Minerals Programs This indicator
assesses the strength of the company’s initiatives to eliminate conflict
minerals from its products and its supply
chain. |
|
c. |
EICC Signatory This indicator denotes
whether the company is a member of the Electronic Industry Citizenship
Coalition (EICC). |
|
d. |
Fair Trade Products This Indicator
assesses the contribution of fair trade products to total company
revenues. |
|
e. |
Scope of Social Supplier Standards This
indicator assesses whether the company has supply chain/contractor
policies and the scope of social
standards. |
|
f. |
Social Supplier Certification This
indicator assesses the percentage of suppliers certified to an external
labor/social standard, such as SA 8000 or similar. SA8000 certification is
an external verification ensuring that core labor standards are adhered
to. |
|
g. |
Supply Chain Management This indicator
assesses whether the company has a supply chain management system and how
it is applied. |
4. |
Community Involvement and Social Development
Programs. |
|
a. |
Access to Basic Services This indicator
assesses the quality of the company’s programs that promote access to
basic services (energy, electricity, water) to poor or disadvantaged
groups and of the quality of its reporting on such
programs. |
|
b. |
Access to Health Care This indicator
assesses the strength of the company’s initiatives to promote access to
health care equipment and
services. |
|
c. |
Access to Medicine Programs This
indicator assesses the strength of a company’s overall policies,
strategies and initiatives to improve access to medicine in developing
countries as well as for low‑income groups in developed
markets. |
|
d. |
Community Development Programs This
indicator assesses the strength of the company’s local community
development programs. It does not focus on cash donations, but formal
programs that promote long-term economic development among communities
directly affected by the company’s
operations. |
|
e. |
Community Involvement Programs This
indicator assesses the company’s mechanisms to consult with local
communities potentially affected by its
operations. |
|
f. |
Equitable Pricing and Availability This
indicator assesses the extent to which the company has developed and
implemented drug pricing models that ensure equitable access to medicine
for poor countries and poor populations within
countries. |
|
g. |
Indigenous Rights Policy This indicator
assesses the quality of the company’s policy on indigenous people and land
rights. |
27
|
h. |
Neglected Diseases R&D This indicator
assesses the strength of companies’ research and development (R&D)
activities in areas that are under-researched and/or where there is a
great societal need. This includes neglected tropical diseases and other
diseases that disproportionally affect developing
countries. |
5. |
Financial Inclusion in Access to Products and
Services |
|
a. |
Credit & Loan Standards This indicator
assesses the quality of a company’s environmental and social standards in
its credit and loan
activities. |
|
b. |
Financial Inclusion This indicator
assesses whether the company has taken initiatives to promote financial
inclusion of disadvantaged
people. |
|
c. |
Sustainable Financial Initiatives This
indicator assesses whether the company offers sustainability-related
financial
services. |
Principal
Risks
When you sell Fund shares, they may be worth less than
what you paid for them. Consequently, you can lose money by investing in the
Fund. No assurance can be given that the Fund will achieve its
objective, and investment results may vary substantially over time and from
period to period. An investment in the Fund is not appropriate for all
investors. An investment in the Fund involves risks, including foreign
securities risk, emerging markets risk, equity investing risk, index performance
risk and securities market risk, among others. . The principal risks are
presented in alphabetical order to facilitate finding particular risks and
comparing them with other funds. Each risk summarized below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. The principal risks of investing in the Fund include:
Asset Class Risk. Securities in the Underlying Index
or in the Fund’s portfolio may underperform in comparison to the general
securities markets or other asset classes.
Brexit. In June 2016, the United Kingdom
approved a referendum to leave the European Union (commonly known as “Brexit”).
On January 31, 2020, the United Kingdom left the European Union and during
a transition period that ended on December 31, 2020, negotiated an
agreement that governs the terms of the ongoing relationship between United
Kingdom and the European Union. At present the long term political and economic
consequences of Brexit are uncertain. Given the size and importance of the
United Kingdom’s economy, uncertainty about its legal, political, and economic
relationship with the remaining member states of the European Union may continue
to be a source of instability. Moreover, other countries may seek to withdraw
from the European Union and/or abandon the euro, the common currency of the
European Union. The ultimate effects of these events and other socio-political
or geopolitical issues are not known but could profoundly affect global
economies and markets. Whether or not a Fund invests in securities of issuers
located in Europe or with significant exposure to European issuers or countries,
these events could negatively affect the value and liquidity of the Fund’s
investments.
Counterparty Risk. The Fund may engage in
transactions in securities and financial instruments that involve
counterparties. Counterparty risk is the risk that a counterparty (the other
party to a transaction or an agreement or the party with whom a Fund executes
transactions) to a transaction with a Fund may be unable or unwilling to make
timely principal, interest, settlement or margin payments, or otherwise honor
its obligations. If a counterparty becomes bankrupt or otherwise fails to
perform its obligations due to financial difficulties, the affected Fund’s
income or the value of its assets may decrease. A Fund may experience
significant delays in obtaining any recovery in a bankruptcy or other
reorganization proceeding and a Fund may obtain only limited recovery or may
obtain no recovery in such circumstances. In an attempt to limit the
counterparty risk associated with such transactions, the Fund conducts business
only with financial institutions judged by the Adviser to present acceptable
credit risk.
28
Derivatives Risk. Derivatives Risk is a
combination of several risks, including the risks that: (1) an investment
in a derivative instrument may not correlate well with the performance of the
securities or asset class to which the Fund seeks exposure, (2) derivative
contracts, including options, may expire worthless and the use of derivatives
may result in losses to the Fund, (3) a derivative instrument entailing
leverage may result in a loss greater than the principal amount invested,
(4) derivatives not traded on an exchange may be subject to credit risk,
for example, if the counterparty does not meet its obligations (see also
“Counterparty Risk”), and (5) derivatives not traded on an exchange may be
subject to liquidity risk and the related risk that the instrument is difficult
or impossible to value accurately.
Emerging Markets Risk. Investing in issuers
located in or tied economically to emerging markets is subject to the same risks
as foreign market investments, generally to a greater extent. The Fund will be
subject to these risks to an even greater extent, to the extent the Fund invests
in issuers exposed to countries defined as “low income” or “lower middle income”
by the World Bank or as a “Least Developed Country” by the United Nations. These
countries typically confront severe structural impediments to sustainable
development and are highly vulnerable to economic and environmental shocks and
have low levels of human assets. Emerging markets may have additional risks
including greater fluctuations in market values and currency exchange rates;
increased risk of default; greater social, economic, and political uncertainty
and instability; increased risk of nationalization, expropriation, or other
confiscation of assets of issuers to which the Fund may be exposed; increased
risk of embargoes or economic sanctions on a country, sector, or issuer; greater
governmental involvement in the economy; less governmental supervision and
regulation of the securities markets and participants in those markets; controls
on non‑U.S. investment, capital controls and limitations on repatriation of
invested capital, dividends, interest, and other income, and on the Fund’s
ability to exchange local currencies for U.S. dollars; lower levels of
liquidity; inability to purchase and sell investments or otherwise settle
transactions; greater risk of issues with share registration and safe custody;
unavailability of currency hedging techniques; differences in, or lack of,
auditing and financial reporting standards and resulting unavailability of
material information about issuers; slower clearance and longer settlement; and
difficulties in obtaining and/or enforcing legal judgments. Additionally, a
foreign issuer is not generally subject to uniform accounting, auditing and
financial reporting standards and practices comparable to those in the United
States. The Public Company Accounting Oversight Board, which regulates auditors
of U.S. public companies, is unable to inspect audit work papers in certain
foreign countries. Investors in foreign countries often have limited rights and
few practical remedies to pursue shareholder claims, including class actions or
fraud claims, and the ability of the U.S. Securities and Exchange Commission,
the U.S. Department of Justice and other authorities to bring and enforce
actions against foreign issuers or foreign persons is
limited.
Exchange-Traded Funds Risk. The price movement
of an exchange-traded fund may not exactly track the underlying index and may
result in a loss. In addition, shareholders bear both their proportionate share
of the Fund’s expenses and similar expenses of the underlying investment company
when the Fund invests in shares of another investment
company.
Equity Investing Risk. The market prices of
equity securities owned by the Fund may go up or down, sometimes rapidly or
unpredictably. The value of a security may decline for a number of reasons that
may directly relate to the issuer, such as management performance, financial
leverage, non‑compliance with regulatory requirements, and reduced demand for
the issuer’s goods or services and also may decline due to general industry or
market conditions that are not specifically related to a particular company,
such as real or perceived adverse economic conditions, changes in the general
outlook for corporate earnings, changes in interest or currency rates, or
adverse investor sentiment generally. In addition, equity markets tend to move
in cycles, which may cause stock prices to fall over short or extended periods
of time.
Fee Risk. Because the fees paid by the Fund to
Impact Shares are based on the average daily value of the total assets of the
Fund, less all accrued liabilities of the Fund (other than the amount of any
outstanding borrowings constituting financial leverage), Impact Shares has a
financial incentive to cause the Fund to utilize leverage, which creates a
conflict of interest between Impact Shares, on the one hand, and the
shareholders of the Fund, on the other hand.
29
Futures Contracts Risk. Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of an underlying asset at a price, date and time specified when
the contract is made. A Fund that uses futures contracts, which are a type of
derivative, is subject to the risk of loss caused by unanticipated market
movements. In addition, there may at times be an imperfect correlation between
the movement in the prices of futures contracts and the value of their
underlying instruments or indexes and there may at times not be a liquid
secondary market for certain futures
contracts.
Foreign Securities Risk. Investments in
securities of non‑U.S. issuers involve certain risks not involved in domestic
investments (for example, fluctuations in foreign exchange rates (for non‑U.S.
securities not denominated in U.S. dollars); future foreign economic, financial,
political and social developments; nationalization; exploration or confiscatory
taxation; smaller markets; different trading and settlement practices; less
governmental supervision; and different accounting, auditing and financial
recordkeeping standards and requirements) that may result in the Fund
experiencing more rapid and extreme changes in value than a fund that invests
exclusively in securities of U.S. companies. These risks are magnified for
investments in issuers tied economically to emerging markets, the economies of
which tend to be more volatile than the economies of developed markets. In
addition, investments by the Fund in non‑U.S. securities may be subject to
withholding and other taxes imposed by foreign countries on dividends, interest,
capital gains, or other income or proceeds. Those taxes will reduce the Fund’s
yield on any such securities.
Geographic Risk. To the extent the Fund’s
investments in a single country or a limited number of countries represent a
large percentage of the Fund’s assets, the Fund will be subject to the risk that
economic, political and social conditions in those countries will have a
significant impact on its investment performance and the Fund’s shares may be
subject to increased price
volatility.
Index Performance Risk. The Fund seeks to track
an index maintained by a third party provider unaffiliated with the Fund or the
Adviser. There can be no guarantee or assurance that the methodology used by the
third party provider to create the index will result in the Fund achieving high,
or even positive, returns. Further, there can be no guarantee that the
methodology underlying the index, or the daily calculation of the index will be
free from error. It is also possible that the value of the index may be subject
to intentional manipulation by third-party market participants. The particular
index used by the Fund may underperform other asset classes and may underperform
other similar indices. Each of these factors could have a negative impact on the
performance of the Fund.
Industry Concentration Risk. Because the Fund
may invest 25% or more of the value of its assets in an industry or group of
industries to the extent that the Underlying Index concentrates in an industry
or group of industries, the Fund’s performance may depend to a large extent on
the overall condition of such industry or group of industries and the Fund may
be susceptible to economic, political and regulatory risks or other occurrences
associated with that industry or group of
industries.
Intellectual Property Risk. The Fund relies on
licenses that permit the Adviser to use the Underlying Index and associated
trade names, trademarks and service marks, as well as the Partner Nonprofit’s
name and logo (the “Intellectual Property”) in connection with the investment
strategies of the Fund and/or in marketing and other materials for the Fund.
Such licenses may be terminated, and, as a result, the Fund may lose its ability
to use the Intellectual Property. In the event a license is terminated, or the
license provider does not have rights to license the Intellectual Property, the
operations of the Fund may be adversely
affected.
Limited Fund Size Risk. The Fund may not
attract sufficient assets to achieve or maximize investment and operational
efficiencies and remain viable. If a Fund fails to achieve sufficient scale, it
may be liquidated.
Management Risk. Management risk is the risk
associated with the fact that the Fund relies on the Adviser’s ability to
achieve its investment objective. The Adviser is a non‑profit organization with
limited personnel and financial resources. The relative lack of resources may
increase the Fund’s management risk.
30
Market Price Variance Risk. Fund shares are
listed for trading on NYSE Arca, Inc. (the “Exchange”) and can be bought and
sold in the secondary market at prevailing market prices. The market prices of
shares will fluctuate in response to changes in the net asset value (“NAV”) and
supply and demand for shares. As a result, the trading prices of shares may
deviate significantly from NAV during periods of market volatility. The Adviser
cannot predict whether shares will trade above, below or at their NAV. Given the
fact that shares can be created and redeemed in Creation Units, the Adviser
believes that large discounts or premiums to the NAV of shares should not be
sustained in the long-term. In addition, the securities held by the Fund may be
traded in markets that close at a different time than the Exchange. Liquidity in
those securities may be reduced after the applicable closing times. Accordingly,
during the time when the Exchange is open but after the applicable market
closing, fixing or settlement times, bid‑ask spreads and the resulting premium
or discount to the Shares’ NAV may widen. Further, secondary markets may be
subject to irregular trading activity, wide bid/ask spreads and extended trade
settlement periods, which could cause a material decline in the Fund’s NAV. In
times of market stress, market makers and authorized participants may step away
from their respective roles in making a market in Fund shares or in executing
purchase and redemption orders, which could lead to variances between the market
price of Fund shares and the underlying value of those shares. Also, in stressed
market conditions, the market for Fund shares may become less liquid in response
to deteriorating liquidity of the Fund’s portfolio holdings, which could lead to
differences between the market price of the Fund’s shares and the underlying
value of those shares. During periods of high market volatility, a Fund share
may trade at a significant discount to its NAV, and in these circumstances
certain types of brokerage orders may expose an investor to an increased risk of
loss. A “stop order,” sometimes called a “stop-loss order,” may cause a Fund
share to be sold at the next prevailing market price once the “stop” level is
reached, which during a period of high volatility can be at a price that is
substantially below NAV. By including a “limit” criterion with your brokerage
order, you may be able to limit the size of the loss resulting from the
execution of an ill‑timed stop order. The Fund’s shares may be listed or traded
on U.S. and non‑U.S. stock exchanges other than the U.S. stock exchange where
the Fund’s primary listing is maintained, and may otherwise be made available to
non‑U.S. investors through funds or structured investment vehicles similar to
depositary receipts. There can be no assurance that the Fund’s shares will
continue to trade on any such stock exchange or in any market or that the Fund’s
shares will continue to meet the requirements for listing or trading on any
exchange or in any market. The Fund’s shares may be less actively traded in
certain markets than in others, and investors are subject to the execution and
settlement risks and market standards of the market where they or their broker
direct their trades for execution. Certain information available to investors
who trade Fund shares on a U.S. stock exchange during regular U.S. market hours
may not be available to investors who trade in other markets, which may result
in secondary market prices in such markets being less
efficient.
The
Fund’s investment results are measured based upon the daily NAV of the Fund.
Investors purchasing and selling shares in the secondary market may not
experience investment results consistent with those experienced by those
purchasing and redeeming directly with the
Fund.
Mid‑Cap Company Risk. Investing in securities
of mid‑cap companies may entail greater risks than investments in larger, more
established companies. Mid‑cap companies tend to have more narrow product lines,
more limited financial resources and a more limited trading market for their
stocks, as compared with larger companies. As a result, their stock prices may
decline significantly as market conditions
change.
Non‑Diversification Risk. As a non‑diversified
fund for purposes of the 1940 Act, the Fund may invest a larger portion of its
assets in the securities of fewer issuers than a diversified fund. The Fund’s
investment in fewer issuers may result in the Fund’s shares being more sensitive
to the economic results of those issuers. An investment in the Fund could
fluctuate in value more than an investment in a diversified fund. Although the
Fund is “non‑diversified” for purposes of the 1940 Act, the Fund intends to
comply with the diversification requirements under Subchapter M of the Code in
order to be eligible to qualify as a regulated investment
company.
Operational and Technology Risk. Cyber-attacks,
disruptions, or failures that affect the Fund’s service providers, index
providers, Authorized Participants (as defined below), market makers,
counterparties,
31
market
participants, or issuers of securities held by the Fund may adversely affect the
Fund and its shareholders, including by causing losses for the Fund or impairing
Fund operations.
Options Risk. Options, such as covered calls
and covered puts, are subject to the risk that significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets.
Passive Investment Risk. The Fund is not
actively managed and invests in securities included in, or representative of,
the Underlying Index regardless of such securities’ investment merits. The
Adviser does not attempt to take defensive positions under any market
conditions, including during declining
markets.
Securities Market Risk. Securities market risk
is the risk that the value of securities owned by the Fund may go up or down,
sometimes rapidly or unpredictably, due to factors affecting particular
companies or the securities markets generally. The profitability of the Fund
substantially depends upon the Adviser correctly assessing the future price
movements of stocks, bonds, loans, options on stocks, and other securities and
the movements of interest rates. The Adviser cannot guarantee that it will be
successful in accurately predicting price movements. The market prices of
equities may decline for reasons that directly relate to the issuing company
(such as poor management performance or reduced demand for its goods or
services), factors that affect a particular industry (such as a decline in
demand, labor or raw material shortages, or increased production costs) or
general market conditions not specifically related to a company or industry
(such as real or perceived adverse economic conditions, changes in the general
outlook for corporate earnings, changes in interest or currency rates, or
adverse investor sentiment generally, or natural and environmental disasters and
systemic market dislocations). The spread of infectious disease including
epidemics and pandemics also could affect the economies of many nations in ways
that cannot necessarily be foreseen. For example, the COVID‑19 pandemic has
resulted, and may continue to result, in significant market volatility, exchange
suspensions and closures, declines in global financial markets, higher default
rates, supply chain disruptions, and a substantial economic downturn in
economies throughout the world. In addition, military action by Russia in
Ukraine has, and may continue to, adversely affect global energy and financial
markets and therefore could affect the value of the Fund’s investments,
including beyond the Fund’s direct exposure to Russian issuers or nearby
geographic regions. The extent and duration of the military action, sanctions,
and resulting market disruptions are impossible to predict and could be
substantial. The foregoing could lead to a significant economic downturn or
recession, increased market volatility, a greater number of market closures,
higher default rates and adverse effects on the values and liquidity of
securities or other assets. Such impacts, which may vary across asset classes,
may adversely affect the performance of the Fund’s investments, the Fund
and your investment in the Fund.
In
addition, the increasing popularity of passive index-based investing may have
the potential to increase security price correlations and volatility. As passive
strategies generally buy or sell securities based simply on inclusion and
representation in an index, securities prices will have an increasing tendency
to rise or fall based on whether money is flowing into or out of passive
strategies rather than based on an analysis of the prospects and valuation of
individual securities. This may result in increased market volatility as more
money is invested through passive strategies. As a result of the nature of the
Fund’s investment activities, it is possible that the Fund’s financial
performance may fluctuate substantially from period to period. Additionally, at
any point in time an investment in the Fund may be worth less than the original
investment, even after taking into account the reinvestment of dividends and
distributions.
Small‑Cap Company Risk. Investing in the
securities of small‑cap companies either directly or indirectly through
investments in ETFs, closed‑end funds or mutual funds may pose greater market
and liquidity risks than larger, more established companies, because of limited
product lines and/or operating history, limited financial resources, limited
trading markets, and the potential lack of management depth. In addition, the
securities of such companies are typically more volatile than securities of
larger capitalization companies.
Swaps Risk. Investments in swaps involve both
the risks associated with an investment in the underlying investments or
instruments (including equity investments) and counterparty risk. In a
standard
32
over‑the‑counter
(“OTC”) swap transaction, two parties agree to exchange the returns,
differentials in rates of return or some other amount calculated based on the
“notional amount” of predetermined investments or instruments, which may be
adjusted for an interest factor. Swaps can involve greater risks than direct
investments in securities, because swaps may be leveraged and OTC swaps are
subject to counterparty risk (e.g., the risk of a counterparty’s defaulting on
the obligation or bankruptcy), credit risk and pricing risk (i.e., swaps may be
difficult to value). Swaps may also be considered illiquid. Certain swap
transactions, including interest rate swaps and index credit default swaps, may
be subject to mandatory clearing and exchange trading, although the swaps in
which the Fund will invest are not currently subject to mandatory clearing and
exchange trading. The use of swaps is a highly specialized activity which
involves investment techniques, risk analyses and tax planning different from
those associated with ordinary portfolio securities transactions. The value of
swaps, like many other derivatives, may move in unexpected ways and may result
in losses for the Fund.
Tracking Error Risk. The performance of the
Fund may diverge from that of the Underlying Index. Because the Fund employs a
representative sampling strategy, the Fund may experience tracking error to a
greater extent than a fund that seeks to replicate an index. The Adviser may not
be able to cause the Fund’s performance to correlate to that of the Fund’s
benchmark, either on a daily or aggregate basis. Because the Underlying Index
rebalances monthly but the Fund is not obligated to do the same, the risk of
tracking error may increase following the rebalancing of the Underlying
Index.
An investment in the Fund is not a
bank deposit and is not insured or guaranteed by the FDIC or any other
government agency. As with any investment company, there is no
guarantee that the Fund will achieve its
goal.
Performance
The following
information is intended to help you understand the risks of investing in the
Fund. The following bar chart shows the changes in the Fund’s performance from
year to year, and the table compares the Fund’s performance to the performance
of a broad-based securities market index/indices for the same period and since
inception. As with all mutual funds, the
Fund’s past performance (both before and after taxes) does not predict the
Fund’s future performance. Updated information about the Fund’s
performance can be found by visiting the Fund’s website at www.impactetfs.org
or by calling 844‑448‑3383
(844‑GIVE‑ETF).
Annual
Total Return(1)
The
bar chart shows the performance of the Fund as of December 31, 2019, 2020
and 2021.
(1) |
Through September 30,
2022 (the most recently ended quarter for which data is
available) year to date return of the
Fund was ‑25.87%. The following table sets forth the
Fund’s highest and lowest quarterly returns since
inception. |
33
|
|
|
|
|
| |
Highest Quarterly Return |
|
Highest Quarterly Return Date |
|
Lowest Quarterly Return |
|
Lowest Quarterly Return Date |
16.98% |
|
12/31/20 |
|
-20.98% |
|
3/31/20 |
Impact
Shares Sustainable Development Goals Global Equity ETF
Average
Annual Returns
(For
the Year Ended December 31, 2021 and Since
Inception)
|
|
|
|
|
|
|
| |
|
|
1 Year |
|
|
Since Inception |
|
Fund
Returns Before Taxes |
|
|
16.88 |
% |
|
|
13.87 |
% |
Fund
Returns After Taxes on Distributions |
|
|
14.23 |
% |
|
|
12.79 |
% |
Fund
Returns After Taxes on Distributions and Sale of Fund Shares |
|
|
11.86 |
% |
|
|
10.85 |
% |
Morningstar
Societal Development Index(1) |
|
|
23.90 |
% |
|
|
13.30 |
% |
Morningstar
Global Markets Large‑Mid Index |
|
|
18.53 |
% |
|
|
14.17 |
% |
(1) |
The index returns do not
reflect deductions for fees, expenses, or
taxes. |
After‑tax returns are
calculated using the historical highest individual federal marginal income tax
rates and do not reflect the impact of state and local taxes.
Actual after‑tax returns
depend on an investor’s tax situation and may differ from those shown, and the
after‑tax returns shown are not relevant to investors who hold their Fund shares
through tax advantaged arrangements such as 401(k) plans or individual
retirement accounts (“IRAs”). In some cases, the after‑tax
returns 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.
Portfolio
Management
Impact
Shares, Corp. serves as the investment adviser to the Fund. The portfolio
manager for the Fund is Ethan Powell, who has managed the Fund since inception.
|
|
|
| |
Portfolio
Manager |
|
Managed
the Fund Since |
|
Title
with Adviser |
Ethan Powell |
|
September 2018 |
|
President |
Purchase
and Sale of Fund Shares
The
Fund is an exchange-traded fund. The Fund issues and redeems shares only to
authorized participants who have entered into agreements with the Fund’s
distributor (“Authorized Participants”) in exchange for the deposit or delivery
of a basket of assets (securities and/or cash) in large blocks, known as
Creation Units, each of which comprises 50,000 shares or such other amount as
may be from time to time determined to be in the best interests of a Fund by the
President of the Fund. Retail investors may only purchase and sell shares on a
national securities exchange through a broker-dealer. The price of Fund shares
is based on market price, and because ETF shares trade at market prices rather
than NAV, shares may trade at a price greater than NAV (a premium) or less than
NAV (a discount).
Important
Additional Information
Tax
Information
The
Fund intends to make distributions that generally will be taxable to you as
ordinary income or capital gains, unless you are a tax‑exempt investor or
otherwise investing in the Fund through a tax‑advantaged arrangement, such as a
401(k) plan or an individual retirement account. If you are investing in the
Fund through a tax‑advantaged arrangement, you may be taxed later upon
withdrawals from that account.
34
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Fund and its related companies may pay the
intermediary for the sale of Fund shares and related services. These payments
may create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your financial intermediary’s website for more
information.
35
Impact
Shares Affordable Housing MBS ETF
FUND
SUMMARY
Investment
Objective
The
primary investment objective of the Impact Shares Affordable Housing MBS ETF
(the “Fund” or the “Affordable Housing ETF”) is to generate current income.
Fees
and Expenses
The
following tables describe the fees and expenses that you may pay if you buy,
hold, and sell shares of the Fund. 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
Fee |
|
|
0.30 |
% |
Distribution
and Service (12b‑1) Fees |
|
|
0.00 |
% |
Other
Expenses(1) |
|
|
0.23 |
% |
Total
Annual Operating Expenses |
|
|
0.53 |
% |
Waivers
and Reimbursements(2) |
|
|
(0.23 |
)% |
Total
Annual Fund Operating Expenses |
|
|
0.30 |
% |
(1) |
“Other Expenses” are based
on estimated amounts for the current fiscal
year. |
(2) |
Community
Capital Management, Inc. (“CCM” or the “Sub‑Adviser”) has contractually
agreed to limit the total annual operating expenses (exclusive of fees
paid by the Fund pursuant to its distribution plan under Rule 12b‑1 under
the Investment Company Act of 1940, as amended, taxes, brokerage
commissions and other transaction costs, interest payments, acquired fund
fees and expenses, extraordinary expenses and dividend expenses on short
sales) of the Fund to 0.30% through October 31,
2023. This contract may not be terminated without the
action or consent of the Fund’s Board of Trustees.
|
Expense
Example
This
Example helps you compare the cost of investing in the Fund to 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 sell or redeem all 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. Your
actual costs may be higher or lower. Investors in the Fund may pay brokerage
commissions on their purchases and sales of Fund shares, which are not included
in the examples below. The Example reflects expense limitation agreements and/or
waivers, if any, in effect for the one‑year period and the first year of the
three-year period. Your actual costs may be higher or lower.
|
|
|
|
|
| |
1 Year |
|
3 Years |
|
5 Years |
|
10 Years |
$31 |
|
$147 |
|
$273 |
|
$643 |
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions or spreads, 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 fiscal year ended June 30, 2022, the Fund’s portfolio
turnover rate was 78%
36
Principal
Investment Strategy
Under
normal circumstances, the Fund will invest at least 80% of its net assets in
mortgage-backed securities backed by pools of mortgage loans that the Fund’s
Sub‑Adviser believes were made to minority families, low‑income families, and/or
families that live in persistent poverty areas. These loans include home loans
in census tracts where more than 50% of the population is non‑white and at least
40% of the population is living at or below the poverty line (defined as a
racially or ethnically concentrated areas of poverty or “R/ECAP”); loans in
counties where, for more than 20 years, 20% or more of the population has lived
in poverty (defined as a persistent poverty county or “PPC”); and loans to
minority borrowers or loans originated in a census tract where more than 50% of
the population is a minority (also referred to as a majority-minority census
tract). The Fund will invest at least 51% of its net assets in mortgage-backed
securities that the Fund’s investment advisor believes will be deemed to be
qualified under the Community Reinvestment Act of 1977 (“CRA”), so that
financial institutions that are subject to the CRA may receive investment test
or similar consideration/credit under the CRA with respect to shares of the Fund
held by them. The Fund may also invest in mortgage-backed securities backed by
pools of loans sourced from non‑traditional originators including Community
Development Financial Institutions (CDFIs) and minority-owned banks.
The
mortgage-backed securities in which the Fund invests are issued and/or
guaranteed by government- sponsored enterprises (each a “GSE”), such as the
Government National Mortgage Association (“Ginnie Mae”), the Federal National
Mortgage Association (“Fannie Mae”) or the Federal Home Loan Bank (“Freddie
Mac”) and are therefore rated investment grade. To create the mortgage-backed
securities in which the Fund invests, these GSEs securitize pools of mortgage
loans and each mortgage loan in the pool must meet the conforming underwriting
standards of the relevant agency. While securities issued or guaranteed by
Ginnie Mae are backed by the full faith and credit of the U.S. Department of the
Treasury, securities issued by Fannie Mae and Freddie Mac are solely the
obligation of the issuer and generally do not carry any guarantee from the U.S.
government.
Using
a proprietary algorithm, the Sub‑Adviser screens mortgage origination tapes to
identify loans that are made to low‑ and moderate-income families and
minorities. A “low‑income borrower” is a person whose total annual income is 50%
or less of the area median income (“AMI”) or average income for the community
where they live. A “moderate-income borrower” is person whose total annual
income is above 50% but less than 80% of the AMI or average income for the
community where they live. The Sub‑Adviser will designate a borrower as living
in a persistent poverty area if the borrower’s address is located in one of the
Federally designated PPCs. In addition, the Sub‑Adviser assesses the
loan‑to‑value and FICO scores of borrowers before selecting a mortgage for
inclusion in the pools underlying the mortgage-backed securities for the Fund’s
portfolio. When making investment decisions, the Sub‑Adviser will consider
coupon payments of the qualifying mortgage-backed security pools to manage the
prepayment and/or extension risk of the Fund’s portfolio.
The
Fund is a non‑diversified fund as defined in the Investment Company Act of 1940,
as amended (the “1940 Act”), but intends to adhere to the diversification
requirements applicable to regulated investment companies (“RICs”) under
Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The
Fund is not intended to be a complete investment program.
Principal
Risks
When you sell Fund shares, they may be worth less than
what you paid for them. Consequently, you can lose money by investing in the
Fund. No assurance can be given that the Fund will achieve its
objective, and investment results may vary substantially over time and from
period to period. An investment in the Fund is not appropriate for all
investors. An investment in the Fund involves risks, including mortgage-related
securities risk, interest rate risk, extension risk, credit risk and U.S.
government securities risk, among others. Descriptions of these and other
principal risks of investing in the Fund are provided below. . The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with other funds. Each risk
37
summarized
below is considered a “principal risk” of investing in the Fund, regardless of
the order in which it appears. The principal risks of investing in the Fund
include:
Active Investment Management Risk. The Fund is
actively managed. The Adviser’s judgments about the attractiveness, relative
value, or potential appreciation of a particular sector, security or investment
strategy may prove to be incorrect, and
may cause the Fund to incur losses. There can be no assurance that the Adviser’s
investment techniques and decisions will produce the desired results. There is
no guarantee that the Fund’s investment objective will be
achieved.
Asset Class Risk. Securities in the Fund’s portfolio
may underperform in comparison to the general securities markets or other asset
classes.
Call Risk. Some debt securities may be
redeemed, or “called,” at the option of the issuer before their stated maturity
date. In general, an issuer will call its debt securities if they can be
refinanced by issuing new debt securities which bear a lower interest rate. The
Fund is subject to the possibility that during periods of falling interest rates
an issuer will call its high yielding debt securities. The Fund would then be
forced to invest the proceeds at lower interest rates, likely resulting in a
decline in the Fund’s income.
Cash Transactions Risk. The Fund will effect
its creations and redemptions primarily for cash rather than in‑kind. As a
result, an investment in the Fund may be less tax‑efficient than an investment
in an ETF that effects all of its creations and redemptions in‑kind. Because the
Fund will effect redemptions for cash, it may be required to sell portfolio
securities in order to obtain the cash needed to distribute redemption proceeds.
A sale of shares may result in capital gains or losses and may also result in
higher brokerage costs.
Counterparty Risk. Fund transactions involving
a counterparty are subject to the risk that the counterparty will not fulfill
its obligation to the Fund. Counterparty risk may arise because of the
counterparty’s financial condition (i.e., financial difficulties, bankruptcy, or
insolvency), market activities and developments, or other reasons, whether
foreseen or not. A counterparty’s inability to fulfill its obligation may result
in significant financial loss to the Fund. The Fund may be unable to recover its
investment from the counterparty or may obtain a limited recovery, and/or
recovery may be delayed. These risks may be greater when engaging in
over‑the‑counter transactions or when the Fund conducts business with a limited
number of counterparties.
Credit Risk. An issuer or other obligated party
of a debt security may be unable or unwilling to make dividend, interest and/or
principal payments when due. In addition, the value of a debt security may
decline because of concerns about the issuer’s ability or unwillingness to make
such payments. In certain cases, the issuer could be late in paying interest or
principal, or could fail to pay its financial obligations
altogether.
Extension Risk. Extension risk is the risk
that, when interest rates rise, certain obligations will be paid off by the
issuer (or other obligated party) more slowly than anticipated, causing the
value of these debt securities to fall. Rising interest rates tend to extend the
duration of debt securities, making their market value more sensitive to changes
in interest rates. The value of longer-term debt securities generally changes
more in response to changes in interest rates than shorter-term debt securities.
As a result, in a period of rising interest rates, securities may exhibit
additional volatility and may lose
value.
Fee Risk. Because the fees paid by the Fund to
Impact Shares (as defined below) are based on the average daily value of the
managed assets of the Fund, less all accrued liabilities of the Fund (other than
the amount of any outstanding borrowings constituting financial leverage),
Impact Shares has a financial incentive to cause the Fund to utilize leverage,
which creates a conflict of interest between Impact Shares, on the one hand, and
the shareholders of the Fund, on the other
hand.
Income Risk. The Fund’s income may decline when
interest rates fall or if there are defaults in the mortgage loans underling the
securities in its portfolio. This decline can occur because the Fund may
subsequently invest in lower-yielding securities as debt securities in its
portfolio mature, are near maturity or are called, or the Fund otherwise needs
to purchase additional debt securities.
38
Inflation Risk. Inflation risk is the risk that
the value of assets or income from investments will be less in the future as
inflation decreases the value of money. As inflation increases, the present
value of the Fund’s assets and distributions may
decline.
Interest Rate Risk. Interest rate risk is the
risk that the value of the debt securities in the Fund’s portfolio will decline
because of rising market interest rates. Interest rate risk is generally lower
for shorter term debt securities and higher for longer-term debt securities.
Duration is a reasonably accurate measure of a debt security’s price sensitivity
to changes in interest rates and a common measure of interest rate risk.
Duration measures a debt security’s expected life on a present value basis,
taking into account the debt security’s yield, interest payments and final
maturity. In general, duration represents the expected percentage change in the
value of a security for an immediate 1% change in interest rates. For example,
the price of a debt security with a three-year duration would be expected to
drop by approximately 3% in response to a 1% increase in interest rates.
Therefore, prices of debt securities with shorter durations tend to be less
sensitive to interest rate changes than debt securities with longer durations.
As the value of a debt security changes over time, so will its duration. As of
the date of this Prospectus, the United States is experiencing a rising market
interest rate environment, which may increase a Fund’s exposure to risks
associated with rising market interest rates. Rising market interest rates have
unpredictable effects on the markets and may expose fixed-income and related
markets to heightened volatility. To the extent that the Fund invests in
fixed-income securities, an increase in market interest rates may lead to
increased redemptions and increased portfolio turnover, which could reduce
liquidity for certain investments, adversely affect values, and increase costs.
Increased redemptions may cause the Fund to liquidate portfolio positions when
it may not be advantageous to do so and may lower returns. If dealer capacity in
fixed-income markets is insufficient for market conditions, it may further
inhibit liquidity and increase volatility in the fixed-income markets. Further,
recent and potential future changes in government policy may affect interest
rates.
Liquidity Risk. The Fund may hold certain
investments that may trade over‑the‑counter or in limited volume or lack an
active trading market. Accordingly, the Fund may not be able to sell or close
out of such investments at favorable times or prices (or at all), or at the
prices approximating those at which the Fund currently values them. Illiquid
securities may trade at a discount from comparable, more liquid investments and
may be subject to wide fluctuations in market value. The prices of illiquid
securities may be more volatile than more liquid investments. The risks
associated with illiquid securities may be greater in times of financial
stress.
Limited Fund Size Risk. The Fund may not
attract sufficient assets to achieve or maximize investment and operational
efficiencies and remain viable. If the Fund fails to achieve sufficient scale,
it may be liquidated.
Management Risk. Management risk is the risk
associated with the fact that the Fund relies on the Adviser’s ability to
achieve its investment objective. The Adviser has limited experience managing an
ETF. The relative lack of experience of the Adviser may increase the Fund’s
management risk.
Market Price Variance Risk. Fund shares are
listed for trading on the NYSE Arca, Inc. (“NYSE” or the “Exchange”) and can be
bought and sold in the secondary market at prevailing market prices. The market
prices of shares will fluctuate in response to changes in the NAV and supply and
demand for shares. As a result, the trading prices of shares may deviate
significantly from NAV during periods of market volatility. The Adviser cannot
predict whether shares will trade above, below or at their NAV. Given the fact
that shares can be created and redeemed in Creation Units (as defined below),
the Adviser believes that large discounts or premiums to the NAV of shares
should not be sustained in the long-term. In addition, the securities held by
the Fund may be traded in markets that close at a different time than NYSE.
Liquidity in those securities may be reduced after the applicable closing
times.
Accordingly,
during the time when NYSE is open but after the applicable market closing,
fixing or settlement times, bid‑ask spreads and the resulting premium or
discount to the shares’ NAV may widen. Further,
39
secondary
markets may be subject to irregular trading activity, wide bid/ask spreads and
extended trade settlement periods, which could cause a material decline in the
Fund’s NAV. In times of market stress, market makers and authorized participants
may step away from their respective roles in making a market in Fund shares or
in executing purchase and redemption orders, which could lead to variances
between the market price of Fund shares and the underlying value of those
shares. Also, in stressed market conditions, the market for Fund shares may
become less liquid in response to deteriorating liquidity of the Fund’s
portfolio holdings, which could lead to differences between the market price of
the Fund’s shares and the underlying value of those shares. During periods of
high market volatility, the Fund’s shares may trade at a significant discount to
its NAV, and in these circumstances certain types of brokerage orders may expose
an investor to an increased risk of loss. A “stop order,” sometimes called a
“stop-loss order,” may cause the Fund’s shares to be sold at the next prevailing
market price once the “stop” level is reached, which during a period of high
volatility can be at a price that is substantially below NAV. By including a
“limit” criterion with your brokerage order, you may be able to limit the size
of the loss resulting from the execution of an ill‑timed stop order. The Fund’s
shares may be listed or traded on U.S. and non‑U.S. stock exchanges other than
the U.S. stock exchange where the Fund’s primary listing is maintained and may
otherwise be made available to non‑U.S. investors through funds or structured
investment vehicles similar to depositary receipts. There can be no assurance
that the Fund’s shares will continue to trade on any such stock exchange or in
any market or that the Fund’s shares will continue to meet the requirements for
listing or trading on any exchange or in any market. The Fund’s shares may be
less actively traded in certain markets than in others, and investors are
subject to the execution and settlement risks and market standards of the market
where they or their broker direct their trades for execution. Certain
information available to investors who trade Fund shares on a U.S. stock
exchange during regular U.S. market hours may not be available to investors who
trade in other markets, which may result in secondary market prices in such
markets being less efficient.
The
Fund’s investment results are measured based upon the daily NAV of the Fund.
Investors purchasing and selling shares in the secondary market may not
experience investment results consistent with those experienced by those
purchasing and redeeming directly with the
Fund.
Mortgage-Related Securities Risk.
Mortgage-related securities are subject to the same risks as investments in
other types of debt securities, including credit risk, interest rate risk,
liquidity risk and valuation risk. However, these investments make the Fund more
susceptible to adverse economic, political or regulatory events that affect the
value of real estate. Mortgage-related securities are also significantly
affected by the rate of prepayments and modifications of the mortgage loans
underlying those securities, as well as by other factors such as borrower
defaults, delinquencies, realized or liquidation losses and other shortfalls.
Mortgage-related securities are particularly sensitive to prepayment risk, given
that the term to maturity for mortgage loans is generally substantially longer
than the expected lives of those securities. As the timing and amount of
prepayments cannot be accurately predicted, the timing of changes in the rate of
prepayments of the mortgage loans may significantly affect the Fund’s actual
yield to maturity on any mortgage-related securities. Along with prepayment
risk, mortgage-related securities are significantly affected by interest rate
risk.
Non‑Diversification Risk. As a non‑diversified
fund for purposes of the 1940 Act, the Fund may invest a larger portion of its
assets in the securities of fewer issuers than a diversified fund. The Fund’s
investment in fewer issuers may result in the Fund’s shares being more sensitive
to the economic results of those issuers. An investment in the Fund could
fluctuate in value more than an investment in a diversified
fund.
Although
the Fund is “non‑diversified” for purposes of the 1940 Act, the Fund intends to
comply with the diversification requirements under Subchapter M of the Code in
order to be eligible to qualify as a regulated investment
company.
Operational and Technology Risk. Cyber-attacks,
disruptions, or failures that affect the Fund’s service providers, index
providers, Authorized Participants (as defined below), market makers,
counterparties, market participants, or issuers of securities held by the Fund
may adversely affect the Fund and its shareholders, including by causing losses
for the Fund or impairing Fund operations.
40
Prepayment Risk. Prepayment risk is the risk
that the issuer of a debt security will repay principal prior to the scheduled
maturity date. Debt securities allowing prepayment may offer less potential for
gains during a period of declining interest rates, as the Fund may be required
to reinvest the proceeds of any prepayment at lower interest rates. These
factors may cause the value of an investment in the Fund to
change.
Securities Market Risk. The value of securities
owned by the Fund may go up or down, sometimes rapidly or unpredictably, due to
factors affecting particular companies or the securities markets generally. A
general downturn in the securities market may cause multiple asset classes to
decline in value simultaneously. Many factors, including terrorism, war, natural
disasters and the spread of infectious disease including epidemics or pandemics
such as the COVID‑19 outbreak can affect this value and you may lose money by
investing in the Fund. These conditions (and their aftermath) have led, and in
the future may lead, to increased short-term market volatility and may have
adverse long-term effects on U.S. and world economies and markets generally.
Likewise, natural and environmental disasters, including earthquakes, fires,
floods, hurricanes, tsunamis and weather- related phenomena generally, as well
as the spread of infectious disease including epidemics or pandemics such as the
COVID‑19 outbreak, can be highly disruptive to economies and markets, adversely
affecting 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. To the extent the Fund
takes significant positions in one or more specific sectors, countries or
regions, the Fund will be subject to the risks associated with such sector(s),
country(ies) or region(s) to a greater extent than would be a more broadly
diversified fund.
Significant Exposure Risk. To the extent that
the Fund invests a large percentage of its assets in a single asset class or the
securities of issuers within the same country, state, region, industry or
sector, an adverse economic, business or political development may affect the
value of the Fund’s investments more than if the Fund were more broadly
diversified. A significant exposure makes the Fund more susceptible to any
single occurrence and may subject the Fund to greater market risk than a fund
that is more broadly diversified.
Specified Pools Risk. The Fund is expected to
primarily invest in specified pools of mortgage loans. This may cause the Fund
to take longer to fully achieve its principal investment
strategy.
Trading Issues Risk. Although the shares of the
Fund 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
shares on the Exchange may be halted due to market conditions or for reasons
that, in the view of the Exchange, make trading in shares inadvisable. In
addition, trading in shares on the Exchange is subject to trading halts caused
by extraordinary market volatility pursuant to the Exchange’s “circuit breaker”
rules. Market makers are under no obligation to make a market in the Fund’s
shares, and authorized participants are not obligated to submit purchase or
redemption orders for Creation Units (as defined below). In the event market
makers cease making a market in the Fund’s shares or authorized participants
stop submitting purchase or redemption orders for Creation Units, Fund shares
may trade at a larger premium or discount to their net asset value. 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. The Fund
may have difficulty maintaining its listing on the Exchange in the event the
Fund’s assets are small or the Fund does not have enough
shareholders.
Transactions Risk. The Fund may purchase
securities via to‑be‑announced transactions (“TBA Transactions”). In such a
transaction, the purchase price of the securities is typically fixed at the time
of the commitment, but delivery and payment can take place a month or more after
the date of the commitment. At the time of delivery of the securities, the value
may be more or less than the purchase or sale price. Purchasing securities in a
TBA Transaction may give rise to investment leverage and may increase the Fund’s
volatility.
Default
by, or bankruptcy of, a counterparty to a TBA Transaction would expose the Fund
to possible losses because of an adverse market action, expenses or delays in
connection with the purchase or sale of the pools specified in such
transaction.
41
U.S. Government Securities Risk. U.S.
government securities are subject to interest rate risk but generally do not
involve the credit risks associated with investments in other types of debt
securities. As a result, the yields available from U.S. government securities
are generally lower than the yields available from other debt securities. U.S.
government securities are guaranteed only as to the timely payment of interest
and the payment of principal when held to maturity. While securities issued or
guaranteed by U.S. federal government agencies (such as Ginnie Mae) are backed
by the full faith and credit of the U.S. Department of the Treasury, securities
issued by government sponsored entities (such as Fannie Mae and Freddie Mac) are
solely the obligation of the issuer and generally do not carry any guarantee
from the U.S. government.
Obligations
of U.S. government agencies, authorities, instrumentalities and sponsored
enterprises (such as Fannie Mae and Freddie Mac) have historically involved
little risk of loss of principal if held to maturity. However, the maximum
potential liability of the issuers of some of these securities may greatly
exceed their current resources and no assurance can be given that the U.S.
government would provide financial support to any of these entities if it were
not obligated to do so by law.
Fannie
Mae and Freddie Mac have been operating under conservatorship, with the Federal
Housing Finance Administration (“FHFA”) acting as their conservator, since 2008.
The entities are dependent upon the continued support of the U.S. Department of
the Treasury and FHFA in order to continue their business operations. These
factors, among others, could affect the future status and role of Fannie Mae or
Freddie Mac and the value of their securities and the securities that they
guarantee. Additionally, the U.S. government and its agencies and
instrumentalities do not guarantee the market values of their securities, which
may fluctuate.
Valuation Risk. The Fund is subject to the risk
of mispricing or improper valuation of its investments, in particular to the
extent that its securities are fair
valued.
An investment in the Fund is not a
bank deposit and is not insured or guaranteed by the FDIC or any other
government agency. As with any investment company, there is no
guarantee that the Fund will achieve its
goal.
Performance
Because the Fund commenced operations on
July 26, 2021, total return information is not yet available for a full
calendar year. Financial information for the Fund from July 26, 2021
through June 30, 2021 is available in the “Financial Highlights” section of
this prospectus. The performance information provided by the
Fund in the future will give some indication of the risks of investing in the
Fund by showing changes against those of a broad measure of market performance.
As
with all mutual funds, the Fund’s past performance (both before and after taxes)
does not predict the Fund’s future performance. Updated
information about the Fund’s performance can be found by visiting the Fund’s
website at www.impactetfs.org
or by calling 844‑448‑3383
(844‑GIVE‑ETF).
Portfolio
Management
Impact
Shares, Corp. serves as the investment adviser to the Fund. The Fund’s
sub‑adviser is Community Capital Management, Inc. (“CCM” or the “Sub‑Adviser”).
The portfolio managers for the Fund primarily responsible for the day‑to‑day
management of the Fund’s portfolio are as follows:
|
|
|
| |
|
|
|
Portfolio Managers |
|
Managed the Fund Since |
|
Title with Sub‑Adviser |
|
|
|
Elliot
Gilfarb, CFA
(Senior
Portfolio Manager) |
|
Inception
(July 2021) |
|
Head
of Fixed Income |
|
|
|
Andy
Kaufman
(Senior
Portfolio Manager) |
|
Inception
(July 2021) |
|
Chief
Investment Officer |
|
|
|
Jessica
Botelho |
|
Inception
(July 2021) |
|
Director
of CRA and Impact Research |
|
|
|
Shonali
Pal |
|
June
2022 |
|
Portfolio
Manager |
42
Purchase
and Sale of Fund Shares
The
Fund is an exchange-traded fund. The Fund issues and redeems shares only to
authorized participants who have entered into agreements with the Fund’s
distributor (“Authorized Participants”) in exchange for the deposit or delivery
of a basket of assets (securities and/or cash) in large blocks, known as
creation units, each of which comprises 50,000 shares or such other amount as
may be changed from time to time in the future if determined to be in the best
interests of a Fund by the President of the Fund (“Creation Units”). Retail
investors may only purchase and sell shares on a national securities exchange
through a broker-dealer. The price of Fund shares is based on market price, and
because ETF shares trade at market prices rather than NAV, shares may trade at a
price greater than NAV (a premium) or less than NAV (a discount).
Important
Additional Information Tax Information
The
Fund intends to make distributions that generally will be taxable to you as
ordinary income or capital gains, unless you are a tax‑exempt investor or
otherwise investing in the Fund through a tax‑advantaged arrangement, such as a
401(k) plan or an individual retirement account. If you are investing in the
Fund through a tax‑advantaged arrangement, you may be taxed later upon
withdrawals from that account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Fund and its related companies may pay the
intermediary for the sale of Fund shares and related services.
These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment. Ask your salesperson or visit your financial intermediary’s website
for more information.
DESCRIPTION
OF UNDERLYING INDICES OF THE MINORITY ETF, THE WOMEN’S ETF AND THE SUSTAINABLE
DEVELOPMENT GOALS ETF
Additional
information about Underlying Index construction for the Minority ETF, the
Women’s ETF and the Sustainable Development Goals ETF is set forth below. The
Minority ETF, the Women’s ETF and the Sustainable Development Goals ETF are
sometimes referred to below individually as an “Equity ETF” and collectively as
the “Equity ETFs”.
Impact
Shares NAACP Minority Empowerment ETF
Morningstar® Minority Empowerment Index
(for purposes of this section, the “Underlying Index”)
The
Underlying Index is constructed using a rules-based methodology to select
companies from the Morningstar US Large‑Mid Cap® Index (the “Parent
Index”), a free float market‑cap weighted index that constitutes 90%
of the total market capitalization of the U.S. Market) that have strong minority
empowerment practices. Morningstar constructs the Underlying Index using company
level indicators, scores, and indicator relevance weighting from Sustainalytics,
the Fund’s ESG research provider, that include certain social criteria
identified and compiled by the NAACP (“NAACP” or the “Partner Nonprofit”) to
measure the strength of minority empowerment practices and products or services
for each company within the Parent Index (a company’s “Minority Empowerment
Composite Score”). Based on that scoring, after excluding those companies that
Sustainalytics determines (i) derive more than 5% of their revenues from
predatory lending activities, (ii) derive more than 5% of their revenues
from the production of tobacco products, (iii) are involved in the
production of riot control weapons, (iv) operate correctional facilities or
provide security services, (v) are primarily involved in the production of
oil, gas or coal, (vi) are not compliant with the principles of the UN
Global Compact1, or
(vii) have a detrimental score for applicable controversies, the 200 best
scoring companies (after applying the optimized weighting methodology discussed
below) are selected by Morningstar as the final underlying index components.
1 |
The
UN Global Compact is an arrangement by which companies voluntarily and
publicly commit to a set of principles, known as the Ten Principles of the
UN Global Compact, all of which are drawn from key UN Conventions and
Declarations, in four areas: (i) human rights; (ii) labor;
(iii) environment; and (iv) anti-corruption.
|
43
The
Underlying Index is constructed by Morningstar using an optimized weighting
methodology. Under this methodology, Morningstar uses a quantitative process
that is designed to determine optimal weights for securities to maximize
exposure of companies with higher rankings as to minority empowerment practices,
while maintaining an Underlying Index that exhibits risk and return
characteristics similar to those of the Parent Index. The Index Provider
determines the weighting of each security in the Underlying Index using the
following variables: Minority Empowerment Composite Score, market
capitalization, maximum and minimum weightings by security and sector.
Underlying Index constituents are subject to a maximum 5% per company weighting.
The
Underlying Index is expected to contain approximately 200 securities, but this
number may change. If a company in the Underlying Index has acted in a manner
inconsistent with the selection criteria of the Underlying Index, Morningstar
may, in its discretion, after consulting with Sustainalytics, exclude the
company from the Underlying Index between reconstitution periods. Morningstar
may also make adjustments to the Underlying Index in accordance with its
internal guidelines to reflect extraordinary corporate events (e.g. mergers and
acquisitions, spin-offs, bankruptcies, insolvencies, and liquidations). The
Underlying Index is rebalanced quarterly and reconstituted utilizing the
rules-based methodology described above annually. Rebalancing refers to the
process of adjusting the weights of the constituent securities in the Underlying
Index in accordance with its optimized weighting methodology in response to
changes in stock value and market capitalization.
Reconstitution
refers to the process of changing the constituent securities in the Underlying
Index so that securities that no longer meet the criteria for the Underlying
Index are excluded and new securities that do meet those criteria are included.
The
composition of the Underlying Index is based on the following social screens
used in determining the Minority Empowerment Composite Score that narrows the
Index Universe. Each of the social screens for the Minority Fund addresses an
issue that has a history of NAACP support.
1. Board
Diversity This indicator provides an assessment of the diversity of
a company’s board of directors. Diversity of background can provide fresh
perspectives in the boardroom and lead to better board decision-making.
2. Discrimination Policy This indicator
provides an assessment of the quality of a company’s policy to eliminate
discrimination, including racial discrimination, and ensure equal opportunity.
3. Scope of
Supplier Social Standards This indicator provides a general assessment of
whether a company has supply chain/contractor social policies and the scope of
its social standards, including items such as nondiscrimination policies.
4. Freedom
of Association Policy This indicator provides an assessment of the
quality of a company’s freedom of association and collective bargaining policy,
including its impact on racial minorities.
5. Diversity
Programs This indicator assesses the strength of a company’s
initiatives to increase the diversity of its workforce, including racial
diversity.
6. Community
Development Programs This indicator assesses the strength of a
company’s local community development programs. It does not focus on cash
donations, but formal programs that promote long-term economic development among
communities, including minority communities, directly affected by the company’s
operations.
7. Minority-Inclusive Health and Safety Management
System This indicator assesses the strength of the company’s
initiatives to manage employee health and safety and prevent accidents and
occupational illnesses.
44
8. Conflict
Minerals Programs This indicator measures the strength of a company’s
initiatives to eliminate conflict minerals from its products and its supply
chain. The term conflict minerals refers to tantalum (coltan), tin
(cassiterite), tungsten (wolframite), and gold (together, they are commonly
referred to as the 3TG), which have originated in conflict-affected or high-risk
regions and may be used to financially support the conflict or human rights
abuses.
9.
Media Ethics Programs This indicator
assesses the strength of a company’s initiatives to ensure good governance,
ethics, and integrity throughout its content creation to ensure impartiality,
transparency, objectivity, fairness, age‑appropriateness, independence,
plurality, and inclusiveness (diversity of content, topics, and viewpoints).
10.
Human Rights Programs This indicator
assesses the strength of the company’s initiatives to comply with its obligation
to respect human rights.
11.
Editorial Guidelines This indicator
provides an assessment of the company’s commitment to address media ethics as it
relates to the dissemination of content. This includes the company’s stated
values related to the impact of content on protected classes and minorities.
12.
Advertising Ethics This indicator
provides an assessment of the presence and strengths of a company policy on
advertising ethics.
13.
Human Capital Development This indicator
assesses the strength of a company’s initiatives to recruit, retain, and develop
human capital to avoid a shortage of skilled labor.
14.
Responsible Product Offering This
indicator assesses the strength of a financial institution’s initiatives to
market products and services responsibly, so as to avoid predatory lending and
minimize risks to the customers of such financial institution.
15.
Responsible Marketing Policy This
indicator provides an assessment of the quality of a company’s responsible
marketing policy
16.
Human Rights Policy This indicator
provides an assessment of the strength of the company’s commitment to respect
human rights in within its sphere of influence.
17. Gender Pay Equality Programs This indicator
assesses the strength of programs a company has implemented to ensure gender pay
equality. This includes initiatives to identify, measure, and close the gender
pay gap.
18.
Gender Pay Disclosure This indicator
assesses the strength of a company’s disclosure related to the gender pay gap.
45
Impact
Shares YWCA Women’s Empowerment ETF
The Morningstar® Women’s Empowerment Index
(for purposes of this section, the “Underlying Index”)
The
Underlying Index is constructed using a rules-based methodology to select
companies from the Morningstar US Large‑Mid Cap® Index (the “Parent Index”)
that have strong women’s empowerment practices. The Parent Index is a free float
market‑cap weighted index that constitutes 90% of the total market
capitalization of the U.S. market. The Parent Index is an equity benchmark
designed to comprehensively represent the performance of the companies
incorporated and/or listed in the United States and contains large and
mid‑capitalization equities and is designed with the following objectives in
mind: (1) transparent and objective rules; (2) full investibility; and
(3) low turnover. Morningstar, Inc. (“Morningstar” or the “Index Provider”)
constructs the Underlying Index using company level indicators, scores, and
indicator relevance weighting from Equileap, the Fund’s ESG research
provider2. The YWCA USA
(“YWCA” or the “Partner Nonprofit”) has reviewed and approved the use of
Equileap’s social screens (through the use of the Underlying Index) to measure
the strength of women’s empowerment practices and products or services for each
company within the Parent Index (a company’s “Gender Diversity Score”). After
excluding those companies that Equileap determines are (i) involved in the
weapons, gambling, or tobacco industries, (ii) on the Norwegian Ethics
Council List3 or
(iii) that have experienced an applicable legal controversy, the 200 best
scoring companies (after applying the optimized weighting methodology discussed
below) are selected by Morningstar as the final underlying index components. The
Underlying Index is constructed by Morningstar using an optimized weighting
methodology. Under this methodology, Morningstar uses a quantitative process
that is designed to determine optimal weights for securities to maximize
exposure to companies with higher rankings as to women’s empowerment practices,
while maintaining an Underlying Index that exhibits risk and return
characteristics similar to those of the Parent Index. Morningstar determines the
weighting of each security in the Underlying Index using the following
variables: Gender Diversity Score, market capitalization, and maximum and
minimum weightings by security and sector. Underlying Index constituents are
subject to a maximum 5% per company weighting.
2 |
The
Impact Shares YWCA Women’s Empowerment ETF (the “Fund”) is not sponsored,
endorsed, sold or promoted by Equileap. Equileap 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 Morningstar
Index to track general stock market performance. Equileap’s only
relationship to Impact Shares Corp. is the licensing of certain service
marks and service names of Equileap. Equileap is not responsible for and
has not participated in the determination of the prices and amount of
shares of the Fund or the timing of the issuance or sale of shares of the
Fund or in the determination or calculation of the equation by which
shares in the Fund is converted into cash. Equileap has no obligation or
liability in connection with the administration, marketing or trading of
the Fund. |
3 |
The
list of companies that the Council of Ethics for the Norwegian Government
Pension Fund Global (the “Pension Fund”) has recommended excluding from
the Pension Fund’s portfolio of investments on the grounds that investment
in such companies would be inconsistent with the Pension Fund’s Ethical
Guidelines. |
EQUILEAP
DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE DESCRIPTIONOF THE
FUND CONTAINED HEREIN OR ANY DATA INCLUDED HEREIN AND EQUILEAP SHALL HAVE NO
LIABILITY FOR ANY ERRORS OR OMISSIONS HEREIN. EQUILEAP MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY IMPACT SHARES CORP., OWNERS
OR USERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
MORNINGSTAR® WOMEN’S
EMPOWERMENT INDEX OR ANY DATA INCLUDED THEREIN. EQUILEAP MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE MORNINGSTAR® WOMENS EMPOWERMENT INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL EQUILEAP HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
46
The
Underlying Index is expected to contain approximately 200 securities, but this
number may change. If a company in the Underlying Index has acted in a manner
inconsistent with the selection criteria of the Underlying Index, Morningstar
may, in its discretion, after consulting with Equileap, exclude the company from
the Underlying Index between reconstitution periods. Morningstar may also make
adjustments in accordance with its internal guidelines to reflect extraordinary
corporate events (e.g. mergers and acquisitions, spin-offs, bankruptcies,
insolvencies, and liquidations). The Underlying Index is rebalanced quarterly
and reconstituted utilizing the rules-based methodology described above
annually. Rebalancing refers to the process of adjusting the weights of the
constituent securities in the Underlying Index in accordance with its optimized
weighting methodology in response to changes in stock value and market
capitalization. Reconstitution refers to the process of changing the constituent
securities in the Underlying Index so that securities that no longer meet the
criteria for the Underlying Index are excluded and new securities that do meet
those criteria are included.
The
composition of the Underlying Index is based on the following social screens
used in determining the Gender Diversity Score that narrows the universe of
companies included in the Parent Index. Equileap determines a company’s Gender
Diversity Score based upon its analysis of publicly available information, as
reported by such company in its most recent annual report for its fiscal year
end.
Each
of the social screens for the Fund addresses an issue that has a history of YWCA
support.
CATEGORY A: GENDER BALANCE IN LEADERSHIP &
WORKFORCE
1. Non‑Executive Board:
Percentage of male and female as a proportion of the total number
of non‑executive Board members, as of the fiscal year end wherever
available, otherwise as of the date of the latest filing.
2.
Executives: Percentage of male and female executives as a proportion of the
total number of executives, as of the fiscal year end wherever available,
otherwise as of the date of the latest filing Executives are either defined by
the company or represent those individuals that form the company executive
committee/ board, management committee/board or equivalent.
3.
Senior Management: Percentage of male and female senior management, as a
proportion of the total number of senior management, as of the fiscal year end
wherever available, otherwise as of the date of the latest filing. Senior
management are defined and reported by the company.
4.
Workforce: Percentage of male and female employees at the company, as a
percentage of total employees.
5.
Promotion & Career Development Opportunities: Ratio of male and female
employees in management compared to ratio of each gender in total employees.
CATEGORY B: EQUAL COMPENSATION & WORK LIFE
BALANCE
6.
Fair Remuneration: Demonstrates a commitment to ensure payment of a fair wage to
all employees, even in those countries that do not legally require a minimum
wage.
7.
Equal Pay: Commitment to provide comparable wages, hours, and benefits,
including retirement benefits, for all employees for comparable work in country
of incorporation.
8.
Parental Leave: Paid leave programs for child and dependent care to both women
and men (maternity leave, paternity leave, dependent care) in country of
incorporation.
47
9.
Flexible Work Options: Option for employees to control and/or vary the start/end
times of the workday and/or vary the location from which employees work in
country of incorporation.
CATEGORY C: POLICIES PROMOTING GENDER EQUALITY
10.
Training and Career Development: Ensures equal access to training and career
development.
11.
Recruitment Strategy: Commitment to ensure non‑discrimination against
any type of demographic group. This could be in the form of an equal
opportunities policy, as described by the company.
12.
Freedom from Violence, Abuse and Sexual Harassment: Prohibit all forms of
violence in the workplace, including verbal, physical and sexual harassment.
13.
Safety at Work: Commitment to the safety of employees in the workplace, in
travel to and from the workplace, and on company related business, and ensure
the safety of vendors in the workplace.
14.
Human Rights: Commitment to ensure the protection of the rights of all people it
works with including employees’ rights to participate in legal, civic and
political affairs.
15.
Social Supply Chain: Commitment to reduce social risks in its supply chain such
as forbidding business-related activities that condone, support, or otherwise
participate in human trafficking, including for labor or sexual exploitation
16.
Supplier Diversity: Commitment to ensure diversity in the supply chain,
including a focus to ensure female-owned businesses in the supply chain.
17.
Employee Protection: Systems and policies for the reporting of internal ethical
compliance complaints without retaliation or retribution, including but not
limited to access to confidential third-party ethics hotlines or systems for
confidential written complaints
CATEGORY D: COMMITMENT, TRANSPARENCY &
ACCOUNTABILITY
18.
Commitment to Women’s Empowerment: Recognition and commitment to ensuring
women’s empowerment in the workplace.
19.
Audit: Undertaken and awarded an independent gender audit certificate by an
Equileap recognized body.
Impact
Shares Sustainable Development Goals Global Equity ETF
The Morningstar® Societal Development Index
(for purposes of this section, the “Underlying Index”)
The
Underlying Index is constructed using a rules-based methodology to select
companies with specific characteristics (described below) from the Parent Index.
The Parent Index is a free-float market‑cap weighted index composed of the
equity securities of publicly-traded companies encompassing the top 97% of
stocks by market capitalization across 46 countries including both developed and
emerging markets. To be eligible for inclusion in the Parent Index, companies
must meet specific trading frequency, U.S. Dollar trading volume and
turnover, and free-float market capitalization requirements. The Underlying
Index provides exposure to both developed and emerging markets.
Morningstar,
Inc. (“Morningstar” or the “Index Provider”) constructs the Underlying Index
using company level indicators, scores, and indicator relevance weightings from
Sustainalytics, the Fund’s ESG research provider,
48
that
include certain social criteria identified by the United Nations Capital
Development Fund (“UNCDF” or the “Partner Nonprofit”), to measure
(i) commitment to the UN’s Sustainable Development Goals4, (ii) adherence to the
principles of the UN Global Compact5, (iii) commitment to
reducing poverty and supporting economic development globally and
(iv) exposure to countries with low levels of socioeconomic development for
each company within the Parent Index (a company’s “Societal Development Score”).
Morningstar determines a company’s exposure to countries with low levels of
socioeconomic development using a quantitative scale based on the percentage of
a company’s revenue identified as coming from countries defined as “low income”
or “lower middle income” by the World Bank or as a “Least Developed Country” by
the United Nations, excluding countries that are classified as developed or
emerging by Morningstar Indexes, and increases the company’s Societal
Development Score accordingly. In addition to the Societal Development Score,
Sustainalytics assigns each company an “Overall ESG Score” which reflects its
assessment of a company’s overall ESG preparedness and performance relative to
other companies in the same global industry peer group. The Overall ESG Score is
comprised of a company’s numerical scores for environmental, social and
governance criteria as determined according to Sustainalytics’ proprietary
methodology. After excluding those companies that Sustainalytics determines
(i) have products involved in the following activities: adult
entertainment, alcoholic beverages, controversial weapons, gambling, military
contracting weapons, nuclear energy and small arms, or tobacco, (ii) have a
detrimental controversy score for incidents related to a company involving one
or more of the following matters: business ethics, governance, public policy,
employee relations, social supply chain, society and community, operations, or
environmental supply chain, (iii) are not compliant with the principles of
the UN Global Compact, or (iv) have a below average Overall ESG Score
relative to its global industry peers; the 200 highest scoring companies (after
applying the optimized weighting methodology discussed below) are selected by
Morningstar as the final underlying index components. The Underlying Index is
constructed by Morningstar using an optimized free-float market cap weighting
methodology. Under this methodology, Morningstar uses a quantitative process
that is designed to determine optimal weights for securities to maximize
exposure to companies with higher rankings as to global economic development,
while maintaining an Underlying Index that exhibits risk and return
characteristics similar to those of the Parent Index. Morningstar determines the
weighting of each security in the Underlying Index using the following
variables: Societal Development Score, market capitalization, maximum and
minimum weightings by security, sector and region. Underlying Index constituents
are subject to a maximum 5% per company weighting.
The
Underlying Index provides exposure to both developed and emerging markets and is
expected to contain approximately 200 securities, but this number may change. If
a company in the Underlying Index has acted in a manner inconsistent with the
selection criteria of the Underlying Index, Morningstar may, in its discretion,
after consulting with Sustainalytics, exclude the company from the Underlying
Index between reconstitution periods. Morningstar may also make adjustments to
the Underlying Index in accordance with its internal guidelines to reflect
extraordinary corporate events (e.g. mergers and acquisitions, spin-offs,
bankruptcies, insolvencies, and liquidations). The Underlying Index is
rebalanced quarterly and reconstituted utilizing the rules-based methodology
described above annually. Rebalancing refers to the process of adjusting the
weights of the constituent securities in the Underlying Index in accordance with
its optimized weighting methodology in response to changes in stock value and
market capitalization. Reconstitution refers to the process
4 |
The
UN Sustainable Development Goals (“SDGs”) are a collection of 17 global
goals set by the UN Development Program that calls for integration of
economic development, social equity, and environmental protection. Adopted
in 2015, the SDGs are intended to stimulate action over the next fifteen
years in areas of critical importance for humanity and the planet,
including: poverty eradication, food security, health, education, gender
equality, access to water, sanitation, clean energy, decent jobs, key
infrastructure, strong institutions, inequality reduction, sustainable
urbanization, responsible production and consumption patterns, climate
change mitigation and adaptation, and ecosystem conservation.
|
5 |
The
UN Global Compact is an arrangement by which companies voluntarily and
publicly commit to a set of principles, known as the Ten Principles of the
UN Global Compact, all of which are drawn from key UN Conventions and
Declarations, in four areas: (i) human rights; (ii) labor; (iii)
environment; and (iv) anti-corruption. |
49
of
changing the constituent securities in the Underlying Index so that securities
that no longer meet the criteria for the Underlying Index are excluded and new
securities that do meet those criteria are included.
The
composition of the Underlying Index is based on thirty‑two separate social
indicators used in determining the Societal Development Score that narrows the
universe of companies included in the Parent Index. Each of these social
indicators addresses an issue that has historically been important to the UNCDF
and falls within one of the following five groups:
|
a. |
Bribery and Corruption Policy This
indicator assesses the quality of a company’s policy to combat bribery and
corruption. |
|
b. |
Bribery and Corruption Programs This
indicator assesses the quality of a company’s programs to combat bribery
and corruption. |
|
c. |
Global Compact Signatory This indicator
denotes whether a company is a signatory to the United Nations Global
Compact. |
|
d. |
Human Rights Policy This indicator
assesses the strength of a company’s commitment to respect human rights
within its sphere of influence. |
|
e. |
Renewable Energy Programs This indicator
assesses whether a company has taken initiatives to increase the use of
renewable energy. |
|
f. |
Renewable Energy Use This indicator
provides an assessment of the company’s renewable energy consumption.
|
|
g. |
Deforestation Policy This indicator
provides an assessment of the quality of the company’s commitment to
address deforestation. |
|
h. |
Deforestation Program This indicator
provides an assessment of whether the company has a program in place to
mitigate deforestation and how it is applied. |
|
a. |
HIV/AIDS Programs This indicator assesses
the quality of a company’s programs to address HIV/AIDS among its
employees. |
|
b. |
Collective Bargaining Agreements This
indicator assesses the extent that the company’s employees are covered by
collective bargaining agreements. |
|
c. |
Freedom of Association Policy This
indicator assesses the quality of a company’s freedom of association and
collective bargaining policy. |
|
d. |
Working Conditions Policy This indicator
assesses whether the company has a formal policy on working hours and/or
minimum wages. The indicator relates to relevant core labor rights
conventions of the International Labor Organization (ILO).
|
|
e. |
Gender Pay Disclosure This indicator
assesses the strength of a company’s disclosure related to the gender pay
gap. |
|
f. |
Gender Pay Equality Programs This
indicator assesses the strength of programs a company has implemented to
ensure gender pay equality. This includes initiatives to identify,
measure, and close the gender pay gap. |
50
3. |
Contractor and Supply Chain Monitoring
|
|
a. |
Conflict Minerals Policy This indicator
assesses the quality of a company’s formal policy commitment to eliminate
conflict minerals from its products and its supply chain.
|
|
b. |
Conflict Minerals Programs This indicator
assesses the strength of the company’s initiatives to eliminate conflict
minerals from its products and its supply chain.
|
|
c. |
EICC Signatory This indicator denotes
whether the company is a member of the Electronic Industry Citizenship
Coalition (EICC). |
|
d. |
Fair Trade Products This Indicator
assesses the contribution of fair trade products to total company
revenues. |
|
e. |
Scope of Social Supplier Standards This
indicator assesses whether the company has supply chain/contractor
policies and the scope of social standards. |
|
f. |
Social Supplier Certification This
indicator assesses the percentage of suppliers certified to an external
labor/social standard, such as SA 8000 or similar. SA8000 certification is
an external verification ensuring that core labor standards are adhered
to. |
|
g. |
Supply Chain Management This indicator
assesses whether the company has a supply chain management system and how
it is applied. |
4. |
Community Involvement and Social Development
Programs. |
|
a. |
Access to Basic Services This indicator
assesses the quality of the company’s programs that promote access to
basic services (energy, electricity, water) to poor or disadvantaged
groups and of the quality of its reporting on such programs.
|
|
b. |
Access to Health Care This indicator
assesses the strength of the company’s initiatives to promote access to
health care equipment and services. |
|
c. |
Access to Medicine Programs This
indicator assesses the strength of a company’s overall policies,
strategies and initiatives to improve access to medicine in developing
countries as well as for low‑income groups in developed markets.
|
|
d. |
Community Development Programs This
indicator assesses the strength of the company’s local community
development programs. It does not focus on cash donations, but formal
programs that promote long-term economic development among communities
directly affected by the company’s operations. |
|
e. |
Community Involvement Programs This
indicator assesses the company’s mechanisms to consult with local
communities potentially affected by its operations.
|
|
f. |
Equitable Pricing and Availability This
indicator assesses the extent to which the company has developed and
implemented drug pricing models that ensure equitable access to medicine
for poor countries and poor populations within countries.
|
|
g. |
Indigenous Rights Policy This indicator
assesses the quality of the company’s policy on indigenous people and land
rights. |
|
h. |
Neglected Diseases R&D This indicator
assesses the strength of companies’ research and development (R&D)
activities in areas that are under-researched and/or where there is a
great societal need. This includes neglected tropical diseases and other
diseases that disproportionally affect developing countries.
|
51
5. |
Financial Inclusion in Access to Products and
Services |
|
a. |
Credit & Loan Standards This indicator
assesses the quality of a company’s environmental and social standards in
its credit and loan activities. |
|
b. |
Financial Inclusion This indicator
assesses whether the company has taken initiatives to promote financial
inclusion of disadvantaged people. |
|
c. |
Sustainable Financial Initiatives This
indicator assesses whether the company offers sustainability-related
financial services. |
PRINCIPAL
INVESTMENTS OF THE EQUITY ETFS
The
following is a description of principal investment practices in which each
Equity ETF may engage. Any references to investments made by a Fund include
those that may be made both directly by the Equity ETF and indirectly by the
Equity ETF (e.g., through its investments in derivatives (if applicable) or
other pooled investment vehicles). Please see “Principal Risks” below for the
risks associated with each of the principal investment practices.
Please
see the “Principal Investment Strategies” section under “Fund Summary” above for
a complete discussion of each Equity ETF’s principal investment strategies. The
Equity ETFs may invest in various types of securities and engage in various
investment techniques which are not the principal focus of an Equity ETF and
therefore are not described in this Prospectus. These securities, techniques and
practices, together with their risks, are described in the Statement of
Additional Information (the “SAI”), which you may obtain free of charge by
contacting shareholder services (see the back cover of this Prospectus for the
address and phone number). The Adviser seeks to track the performance of each
Equity ETF’s Underlying Index as closely as possible (i.e., obtain a high degree
of correlation with the Underlying Index). A number of factors may affect an
Equity ETF’s ability to achieve a high degree of correlation with its Underlying
Index, and there can be no guarantee that the Equity ETF will achieve a high
degree of correlation with its Index. The Adviser will utilize a sampling
strategy in managing each Equity ETF. Sampling means that the Adviser uses
quantitative analysis to select securities, including securities in each
Underlying Index, outside of each Underlying Index that have a similar
investment profile as each Underlying Index in terms of key risk factors,
performance attributes and other economic characteristics. These include
industry weightings, market capitalization, and other financial characteristics
of securities. The quantity of holdings in an Equity ETF will be based on a
number of factors, including asset size of each Equity ETF. In addition, from
time to time, securities are added to or removed from each Underlying Index. The
Adviser may sell securities that are represented in an Index, or purchase
securities that are not yet represented in each Underlying Index, in
anticipation of their removal from or addition to an Index. Further, the Adviser
may choose to overweight securities in each Underlying Index, purchase or sell
securities not in an Index, or utilize various combinations of other available
techniques, in seeking to track each Underlying Index. The Board of Trustees of
the Trust (the “Board”) may change an Equity ETF’s investment strategy,
Underlying Index and other policies without shareholder approval, except as
otherwise indicated in this Prospectus or in the SAI. The Board may also change
a Fund’s investment objective without shareholder approval.
Each
Equity ETF is a non‑diversified fund as defined in the 1940 Act, but intends to
adhere to the diversification requirements applicable to RICs under the Code. An
Equity ETF is not intended to be a complete investment program.
The
Board may change the Equity ETF’s investment strategy and other policies without
shareholder approval, except as otherwise indicated in this Prospectus or in the
SAI. The Board may also change the Fund’s investment objective without
shareholder approval.
52
NON‑PRINCIPAL
STRATEGIES OF THE EQUITY ETFS
Additional Information. The foregoing
percentage limitations in an Equity ETF’s investment strategies apply at the
time of purchase of securities. The Board may change any of the foregoing
investment policies, including the investment objective, the Underlying Index
and the 80% investment policy, without shareholder approval. An Equity ETF will
provide shareholders with written notice at least 60 days prior to committing
less than 80% of its total assets, plus any borrowings for investment purposes,
under normal circumstances, in component securities of an Equity ETF’s
Underlying Index. For example, if an Equity ETF’s Underlying Index is
discontinued by its Index Provider, the license agreement for the Underlying
Index is terminated by the Index Provider or the Board determines that it would
not be beneficial to shareholders for the Equity ETF to continue operations
using the Underlying Index, the Board may change the Underlying Index as
described in the “Investment Restrictions” section of the Funds’ SAI.
If
an Equity ETF’s shares are delisted, the Board may seek to list its shares on
another exchange, merge with another ETF or traditional mutual fund or redeem
its shares at NAV.
Borrowing Money. An Equity ETF may borrow money
from a bank as permitted by the Investment Company Act of 1940, as amended
(“1940 Act”), or other governing statute, by the Rules thereunder, or by the
U.S. Securities and Exchange Commission (“SEC”) or other regulatory agency with
authority over the Equity ETF, but only for temporary or emergency purposes. An
Equity ETF may also invest in reverse repurchase agreements, which are
considered borrowings under the 1940 Act. Although the 1940 Act presently allows
each Equity ETF to borrow from any bank (including pledging, mortgaging or
hypothecating assets) in an amount up to 33 1/3% of its total assets (not
including temporary borrowings not in excess of 5% of its total assets), and
there is no percentage limit on Equity ETF assets that can be used in connection
with reverse repurchase agreements, under normal circumstances any borrowings by
an Equity ETF will not exceed 10% of such Equity ETF’s total assets.
Lending of Securities. An Equity ETF may lend
its portfolio securities in an amount not to exceed one‑quarter (25%) of the
value of its total assets via a securities lending program through its
securities lending agent (“Lending Agent”), to brokers, dealers and other
financial institutions desiring to borrow securities to complete transactions
and for other purposes. A securities lending program allows an Equity ETF to
receive a portion of the income generated by lending its securities and
investing the respective collateral. An Equity ETF will receive collateral for
each loaned security which is at least equal to 102% of the market value of that
security, marked to market each trading day. In the securities lending program,
the borrower generally has the right to vote the loaned securities; however, the
Equity ETF may call loans to vote proxies if a material issue affecting the
Equity ETF’s economic interest in the investment is to be voted upon. Security
loans may be terminated at any time by an Equity ETF.
PRINCIPAL
INVESTMENT PRACTICES OF THE AFFORDABLE HOUSING ETF
The
following is a description of principal investment practices in which the
Affordable Housing ETF may engage. Any references to investments made by the
Affordable Housing ETF include those that may be made both directly by the
Affordable Housing ETF and indirectly by the Affordable Housing ETF (e.g.,
through its investments in derivatives (if applicable) or other pooled
investment vehicles). Please see “Description of Risks” below for the risks
associated with each of the principal investment practices.
Under
normal circumstances, the Affordable Housing ETF will invest at least 80% of its
net assets in mortgage-backed securities backed by pools of mortgage loans that
the Affordable Housing ETF’s Sub‑Adviser believes were made to minority
families, low‑income families, and/or families that live in persistent poverty
areas. These loans include home loans in census tracts where more than 50% of
the population is non‑white and at least 40% of the population is living at or
below the poverty line (defined as a racially or ethnically concentrated areas
of poverty or “R/ECAP”); loans in counties where, for more than 20 years, 20% or
more of
53
the
population has lived in poverty (defined as a persistent poverty county or
“PPC”); and loans to minority borrowers or loans originated in a census tract
where more than 50% of the population is a minority (also referred to as a
majority-minority census tract. At least 51% of the loans underlying the
mortgage-backed securities in which the Affordable Housing ETF invests will have
been made to low‑ and moderate-income borrowers. The Affordable Housing ETF may
also invest in mortgage-backed securities backed by pools of loans sourced from
non‑traditional originators including Community Development Financial
Institutions (CDFIs) and minority-owned banks.
The
mortgage-backed securities in which the Affordable Housing ETF invests are
issued and/or guaranteed by government- sponsored enterprises (each a “GSE”),
such as the Government National Mortgage Association (“Ginnie Mae”), the Federal
National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Bank
(“Freddie Mac”) and are therefore rated investment grade. To create the
mortgage-backed securities in which the Affordable Housing ETF invests, these
GSEs securitize pools of mortgage loans and each mortgage loan in the pool must
meet the conforming underwriting standards of the relevant agency. While
securities issued or guaranteed by Ginnie Mae are backed by the full faith and
credit of the U.S. Department of the Treasury, securities issued by Fannie Mae
and Freddie Mac are solely the obligation of the issuer and generally do not
carry any guarantee from the U.S. government.
Using
a proprietary algorithm, the Sub‑Adviser screens mortgage origination tapes that
provide addresses, income, and debt levels of borrowers and in certain cases
demographic information (such as gender, race and ethnicity data) to identify
loans that are made to low‑ and moderate-income families and minorities. A
“low‑income borrower” is a person whose total annual income is 50% or less of
the area median income (“AMI”) or average income for the community where they
live. A “moderate-income borrower” is person whose total annual income is above
50% but less than 80% of the AMI or average income for the community where they
live. The Sub‑Adviser will designate a borrower as living in a persistent
poverty area if the borrower’s address is located in one of the Federally
designated persistent poverty counties, which are defined as counties where 20%
or more of the population lives in poverty as measured by the U.S. Census
Bureau. In addition, the Sub‑Adviser assesses the loan‑to‑value and FICO scores
of borrowers before selecting a mortgage for inclusion in the pools underlying
the mortgage-backed securities for the Affordable Housing ETF’s portfolio. When
making investment decisions, the Sub‑Adviser will consider coupon payments of
the qualifying mortgage-backed security pools to manage the prepayment and/or
extension risk of the Affordable Housing ETF’s portfolio.
The
Affordable Housing ETF is a non‑diversified fund as defined in the 1940 Act, but
intends to adhere to the diversification requirements applicable to RICs under
the Code. The Affordable Housing ETF is not intended to be a complete investment
program.
The
Board may change the Affordable Housing ETF’s investment strategy and other
policies without shareholder approval, except as otherwise indicated in this
Prospectus or in the SAI. The Board may also change the Fund’s investment
objective without shareholder approval.
NON‑PRINCIPAL
STRATEGIES OF THE AFFORDABLE HOUSING ETF
Additional Information. The foregoing
percentage limitations in the Affordable Housing ETF’s investment strategies
apply at the time of purchase of securities. The Board may change any of the
foregoing investment policies, including the investment objective and the 80%
investment policy, without shareholder approval. The Affordable Housing ETF will
provide shareholders with written notice at least 60 days prior to committing
less than 80% of its total assets, plus any borrowings for investment purposes,
under normal circumstances, in mortgage-backed bonds other than those described
above under “Description of Principal Investments”.
If
the Affordable Housing ETF’s shares are delisted, the Board may seek to list its
shares on another exchange, merge with another ETF or traditional mutual fund or
redeem its shares at NAV.
54
Borrowing Money. The Affordable Housing ETF may
borrow money from a bank as permitted by the 1940 Act, or other governing
statute, by the Rules thereunder, or by the U.S. Securities and Exchange
Commission (the “SEC”) or other regulatory agency with authority over the
Affordable Housing ETF, but only for temporary or emergency purposes. The
Affordable Housing ETF may also invest in reverse repurchase agreements, which
are considered borrowings under the 1940 Act. Although the 1940 Act presently
allows the Affordable Housing ETF to borrow from any bank (including pledging,
mortgaging or hypothecating assets) in an amount up to 33 1/3% of its total
assets (not including temporary borrowings not in excess of 5% of its total
assets), and there is no percentage limit on Affordable Housing ETF assets that
can be used in connection with reverse repurchase agreements, under normal
circumstances any borrowings by the Affordable Housing ETF will not exceed 10%
of the Affordable Housing ETF’s total assets.
Temporary
Defensive Strategies. When the Adviser or sub‑adviser anticipates unusual
market, economic, political, or other conditions, the Affordable Housing ETF may
temporarily depart from its principal investment strategies as a defensive
measure. In such circumstances, the Affordable Housing ETF may invest in
securities believed to present less risk, such as cash, cash equivalents, money
market fund shares and other money market instruments, debt securities that are
high quality or higher quality than normal, more liquid securities, or others.
While the Affordable Housing ETF invests defensively, it may not achieve its
investment objective. An Affordable Housing ETF’s defensive investment position
may not be effective in protecting its value. It is impossible to predict
accurately how long such alternative strategies may be utilized.
DESCRIPTION
OF RISKS
Factors
that may affect a Fund’s portfolio as a whole are called “principal risks” and
are summarized in this section. This summary describes the nature of these
principal risks and certain related risks, but is not intended to include every
potential risk. The Funds could be subject to additional risks because the types
of investments each makes may change over time. The SAI includes more
information about the Funds and their investments. The Funds are not intended to
be a complete investment program.
Active Investment Management Risk (Affordable Housing
ETF only). The Fund is actively managed. The Adviser’s judgments about
the attractiveness, relative value, or potential appreciation of a particular
sector, security or investment strategy may prove to be incorrect, and may cause
the Fund to incur losses. There can be no assurance that the Adviser’s
investment techniques and decisions will produce the desired results. There is
no guarantee that the Fund’s investment objective will be achieved.
Asset Class Risk (All
Funds). The securities in an Underlying Index or in a Fund’s portfolio
may underperform the returns of other securities or indices that track other
countries, regions, industries, groups of industries, markets, asset classes or
sectors. Various types of securities or indices tend to experience cycles of
outperformance and underperformance in comparison to general securities markets.
Brexit (Sustainable Development Goals ETF only).
In June 2016, the United Kingdom approved a referendum to leave the
European Union (commonly known as “Brexit”). On January 31, 2020, the
United Kingdom left the European Union and, during a transition period that
ended on December 31, 2020, negotiated an agreement that governs the terms
of the ongoing relationship between United Kingdom and the European Union. At
present the long term political and economic consequences of Brexit are
uncertain. Given the size and importance of the United Kingdom’s economy,
uncertainty about its legal, political, and economic relationship with the
remaining member states of the European Union may continue to be a source of
instability. Moreover, other countries may seek to withdraw from the European
Union and/or abandon the euro, the common currency of the European Union. The
ultimate effects of these events and other socio-political or geopolitical
issues are not known but could profoundly affect global economies and markets.
Whether or not a Fund invests in securities of issuers located in Europe or with
significant exposure to European issuers or countries, these events could
negatively affect the value and liquidity of the Fund’s investments.
55
Call Risk (Affordable Housing ETF only). Some
debt securities may be redeemed, or “called,” at the option of the issuer before
their stated maturity date. In general, an issuer will call its debt securities
if they can be refinanced by issuing new debt securities which bear a lower
interest rate. The Fund is subject to the possibility that during periods of
falling interest rates an issuer will call its high yielding debt securities.
The Fund would then be forced to invest the proceeds at lower interest rates,
likely resulting in a decline in the Fund’s income.
Cash Transaction Risk (All Funds). The Funds
can effect creations and redemptions principally for cash, rather than for
in‑kind securities. ETFs generally are able to make in‑kind redemptions and
avoid being taxed on gain on the distributed portfolio securities at the fund
level. Because the Funds currently can effect redemptions for cash, rather than
for in‑kind securities, they may be required to sell portfolio securities in
order to obtain the cash needed to distribute redemption proceeds. The Funds may
recognize a capital gain on these sales that might not have been incurred if the
Funds had made a redemption in‑kind, and this may decrease the tax efficiency of
the Funds compared to ETFs that utilize an in‑kind redemption process and may
also result in higher brokerage costs.
Counterparty Risk (All Funds). The Funds may
engage in transactions in securities and financial instruments that involve
counterparties. Counterparty risk is the risk that a counterparty (the other
party to a transaction or an agreement or the party with whom a Fund executes
transactions) to a transaction with a Fund may be unable or unwilling to make
timely principal, interest, settlement or margin payments, or otherwise honor
its obligations. If a counterparty becomes bankrupt or otherwise fails to
perform its obligations due to financial difficulties, the affected Fund’s
income or the value of its assets may decrease. A Fund may experience
significant delays in obtaining any recovery in a bankruptcy or other
reorganization proceeding and a Fund may obtain only limited recovery or may
obtain no recovery in such circumstances. In an attempt to limit the
counterparty risk associated with such transactions, the Funds conduct business
only with financial institutions judged by the Adviser to present acceptable
credit risk. These risks may be greater when engaging in over‑the‑counter
transactions or when the Fund conducts business with a limited number of
counterparties.
Credit Risk (Affordable Housing ETF only). An
issuer or other obligated party of a debt security may be unable or unwilling to
make dividend, interest and/or principal payments when due. In addition, the
value of a debt security may decline because of concerns about the issuer’s
ability or unwillingness to make such payments. In certain cases, the issuer
could be late in paying interest or principal or could fail to pay its financial
obligations altogether.
Derivatives Risk (All Funds). Derivatives Risk
is a combination of several risks, including the risks that: (1) an
investment in a derivative instrument may not correlate well with the
performance of the securities or asset class to which the Funds seek exposure,
(2) derivative contracts, including options, may expire worthless and the
use of derivatives may result in losses to a Fund, (3) a derivative
instrument entailing leverage may result in a loss greater than the principal
amount invested, (4) derivatives not traded on an exchange may be subject
to credit risk, for example, if the counterparty does not meet its obligations
(see also “Counterparty Risk”), and (5) derivatives not traded on an
exchange may be subject to liquidity risk and the related risk that the
instrument is difficult or impossible to value accurately. As a general matter,
when a Fund establishes certain derivative instrument positions, such as certain
futures and options contract positions, it will segregate liquid assets (such as
cash, U.S. Treasury bonds or commercial paper) equivalent to a Fund’s
outstanding obligations under the contract or in connection with the position.
Emerging Markets Risk (Sustainable Development Goals
ETF only). Investing in issuers located in or tied economically to
emerging markets is subject to the same risks as foreign market investments,
generally to a greater extent. A Fund will be subject to these risks to an even
greater extent, to the extent a Fund invests in issuers exposed to countries
defined as “low income” or “lower middle income” by the World Bank or as a
“Least Developed Country” by the United Nations. These countries typically
confront severe structural impediments to sustainable development and are highly
vulnerable to economic and environmental shocks and
56
have
low levels of human assets. Emerging markets may have additional risks including
greater fluctuations in market values and currency exchange rates; increased
risk of default; greater social, economic, and political uncertainty and
instability; increased risk of nationalization, expropriation, or other
confiscation of assets of issuers to which a Fund may be exposed; increased risk
of embargoes or economic sanctions on a country, sector, or issuer; greater
governmental involvement in the economy; less governmental supervision and
regulation of the securities markets and participants in those markets; controls
on non‑U.S. investment, capital controls and limitations on repatriation of
invested capital, dividends, interest, and other income, and on a Fund’s ability
to exchange local currencies for U.S. dollars; lower levels of liquidity;
inability to purchase and sell investments or otherwise settle transactions;
greater risk of issues with share registration and safe custody; unavailability
of currency hedging techniques; differences in, or lack of, auditing and
financial reporting standards and resulting unavailability of material
information about issuers; slower clearance and longer settlement; and
difficulties in obtaining and/or enforcing legal judgments. Additionally, a
foreign issuer is not generally subject to uniform accounting, auditing and
financial reporting standards and practices comparable to those in the United
States. The Public Company Accounting Oversight Board, which regulates auditors
of U.S. public companies, is unable to inspect audit work papers in certain
foreign countries. Investors in foreign countries often have limited rights and
few practical remedies to pursue shareholder claims, including class actions or
fraud claims, and the ability of the U.S. Securities and Exchange Commission,
the U.S. Department of Justice and other authorities to bring and enforce
actions against foreign issuers or foreign persons is limited.
Equity Investing Risk (All Funds except Affordable
Housing ETF). The market prices of equity securities owned by a Fund may
go up or down, sometimes rapidly or unpredictably. The value of a security may
decline for a number of reasons that may directly relate to the issuer, such as
management performance, financial leverage, non‑compliance with regulatory
requirements, and reduced demand for the issuer’s goods or services. The values
of equity securities also may decline due to general industry or market
conditions that are not specifically related to a particular company, such as
real or perceived adverse economic conditions, changes in the general outlook
for corporate earnings, changes in interest or currency rates, or adverse
investor sentiment generally. In addition, equity markets tend to move in
cycles, which may cause stock prices to fall over short or extended periods of
time.
Ethnic Diversity Risk (Minority ETF only). The
returns on a portfolio of securities that excludes companies that are not
ethnically diverse may trail the returns on a portfolio of securities that
includes companies that are not ethnically diverse. Investing only in a
portfolio of securities that are ethnically diverse may affect the Fund’s
exposure to certain types of investments and may adversely impact the Fund’s
performance depending on whether such investments are in or out of favor in the
market.
Exchange-Traded Funds Risk (All Funds). The
value of ETFs can be expected to increase and decrease in value in proportion to
increases and decreases in the indices that they are designed to track. The
volatility of different index tracking stocks can be expected to vary in
proportion to the volatility of the particular index they track. ETFs are traded
similarly to stocks of individual companies. Although an ETF is designed to
provide investment performance corresponding to its index, it may not be able to
exactly replicate the performance of its index because of its operating expenses
and other factors. An investment in an ETF generally presents the same primary
risks as an investment in a conventional fund (i.e., one that is not
exchange-traded) that has the same investment objective, strategies, and
policies. The price of an ETF can fluctuate within a wide range, and a Fund
could lose money investing in an ETF if the prices of the securities owned by
the ETF go down. In addition, ETFs are subject to the following risks that do
not apply to conventional funds: (1) the market price of the ETF’s shares
may trade at a discount or a premium to their net asset value; (2) an
active trading market for an ETF’s shares may not develop or be maintained; and
(3) trading of an ETF’s shares may be halted by the activation of
individual or market wide “circuit breakers” (which halt trading for a specific
period of time when the price of a particular security or overall market prices
decline by a specified percentage), if the shares are delisted from the Exchange
without first being listed on another exchange, or if the listing exchange’s
officials deem such action appropriate in the interest of a fair and orderly
market or to protect investors. In addition, shareholders bear both their
proportionate share of a Fund’s expenses and similar expenses of the
57
underlying
investment company when such Fund invests in shares of another investment
company. Most ETFs are investment companies. Therefore, a Fund’s purchases of
ETF shares generally are subject to the limitations on, and the risks of, such
Fund’s investments in other investment companies.
Extension Risk (Affordable Housing ETF only).
Extension risk is the risk that, when interest rates rise, certain obligations
will be paid off by the issuer (or other obligated party) more slowly than
anticipated, causing the value of these debt securities to fall. Rising interest
rates tend to extend the duration of debt securities, making their market value
more sensitive to changes in interest rates. The value of longer-term debt
securities generally changes more in response to changes in interest rates than
shorter-term debt securities. As a result, in a period of rising interest rates,
securities may exhibit additional volatility and may lose value.
Fee Risk (All Funds). Because the fees paid by
a Fund to Impact Shares are based on the average daily value of the total assets
of such Fund, less all accrued liabilities of such Fund (other than the amount
of any outstanding borrowings constituting financial leverage), Impact Shares
has a financial incentive to cause the Funds to utilize leverage, which creates
a conflict of interest between Impact Shares, on the one hand, and the
shareholders of the Funds, on the other hand.
Foreign Securities Risk (Sustainable Development Goals
ETF only). Investments in securities of non‑U.S. issuers involve certain
risks not involved in domestic investments (for example, fluctuations in foreign
exchange rates (for non‑U.S. securities not denominated in U.S. dollars); future
foreign economic, financial, political and social developments; nationalization;
exploration or confiscatory taxation; smaller markets; different trading and
settlement practices; less governmental supervision; and different accounting,
auditing and financial recordkeeping standards and requirements) that may result
in the Fund experiencing more rapid and extreme changes in value than a fund
that invests exclusively in securities of U.S. companies. These risks are
magnified for investments in issuers tied economically to emerging markets, the
economies of which tend to be more volatile than the economies of developed
markets. In addition, investments by the Fund in non‑U.S. securities may be
subject to withholding and other taxes imposed by foreign countries on
dividends, interest, capital gains, or other income or proceeds. Those taxes
will reduce the Fund’s yield on any such securities.
Futures Contracts Risk (All Funds). Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of an underlying asset at a price, date and time specified
when the contract is made. Funds, such as the Funds, that use futures contracts,
which are a type of derivative, are subject to the risk of loss caused by
unanticipated market movements. In addition, there may at times be an imperfect
correlation between the movement in the prices of futures contracts and the
value of their underlying instruments or indexes and there may at times not be a
liquid secondary market for certain futures contracts. The Funds currently do
not use or intend to use derivatives and have adopted a policy prohibiting the
use of derivatives. If the Board deems it advisable and in the best interests of
shareholders of the Funds, the Funds may change this policy in the future and
allow derivatives transactions undertaken in compliance with the new SEC rules.
Geographic Risk (Sustainable Development Goals ETF
only). To the extent the Fund’s investments in a single country or a
limited number of countries represent a large percentage of the Fund’s assets,
the Fund will be subject to the risk that economic, political and social
conditions in those countries will have a significant impact on its investment
performance and the Fund’s shares may be subject to increased price volatility.
Gender Diversity Risk (Women’s ETF only). The
returns on a portfolio of securities that excludes companies that are not gender
diverse may trail the returns on a portfolio of securities that includes
companies that are not gender diverse. Investing only in a portfolio of
securities that are gender diverse may affect the Fund’s exposure to certain
types of investments and may adversely impact the Fund’s performance depending
on whether such investments are in or out of favor in the market.
58
Illiquid Securities Risk (All Funds). Illiquid
investments may be difficult to resell at approximately the price they are
valued in the ordinary course of business within seven days. When investments
cannot be sold readily at the desired time or price, a Fund may have to accept a
much lower price, may not be able to sell the investment at all or may be forced
to forego other investment opportunities, all of which may adversely impact a
Fund’s returns. Illiquid investments also may be subject to valuation risk.
Income Risk (Affordable Housing ETF only). The
Fund’s income may decline when interest rates fall or if there are defaults in
the mortgage loans underling the securities in its portfolio. This decline can
occur because the Fund may subsequently invest in lower-yielding securities as
debt securities in its portfolio mature, are near maturity or are called, or the
Fund otherwise needs to purchase additional debt securities
Index Performance Risk (All Funds except Affordable
Housing ETF). Each Fund seeks to track an index maintained by a third
party provider unaffiliated with the Funds or the Adviser. There can be no
guarantee or assurance that the methodology used by the third party provider to
create the index will result in the Funds achieving high, or even positive,
returns. Further, there can be no guarantee that the methodology underlying the
index or the daily calculation of the index will be free from error. It is also
possible that the value of the index may be subject to intentional manipulation
by third-party market participants. The particular indices used by the Funds may
underperform other asset classes and may underperform other similar indices.
Each of these factors could have a negative impact on the performance of the
Funds.
Industry Concentration Risk (All Funds).
Because a Fund may invest 25% or more of the value of its assets in an industry
or group of industries to the extent that the Underlying Index concentrates in
an industry or group of industries, a Fund’s performance may depend to a large
extent on the overall condition of such industry or group of industries and a
Fund may be susceptible to economic, political and regulatory risks or other
occurrences associated with that industry or group of industries. The
performance of a Fund if it invests a significant portion of its assets in a
particular sector or industry may be closely tied to the performance of
companies in a limited number of sectors or industries. Companies in a single
sector often share common characteristics, are faced with the same obstacles,
issues and regulatory burdens and their securities may react similarly to
adverse market conditions. The price movements of investments in a particular
sector or industry may be more volatile than the price movements of more broadly
diversified investments.
Inflation Risk (Affordable Housing ETF only).
Inflation risk is the risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the present value of the Fund’s assets and distributions
may decline.
Intellectual Property Risk (All Funds except Affordable Housing ETF). The
Funds rely on licenses that permit the Adviser to use the Underlying Indices and
associated trade names, trademarks and service marks, as well as the Partner
Nonprofits’ names and logos (the “Intellectual Property”) in connection with the
investment strategies of each respective Fund and/or in marketing and other
materials for each Fund. Such licenses may be terminated, and, as a result, the
relevant Fund may lose its ability to use the Intellectual Property. In the
event a license is terminated or the license provider does not have rights to
license the Intellectual Property, the operations of such Fund may be adversely
affected.
Interest Rate Risk (Affordable Housing ETF
only). Interest rate risk is the risk that the value of the debt
securities in the Fund’s portfolio will decline because of rising market
interest rates. Interest rate risk is generally lower for shorter term debt
securities and higher for longer-term debt securities. Duration is a reasonably
accurate measure of a debt security’s price sensitivity to changes in interest
rates and a common measure of interest rate risk. Duration measures a debt
security’s expected life on a present value basis, taking into account the debt
security’s yield, interest payments and final maturity. In general, duration
represents the expected percentage change in the value of a security for an
immediate 1% change in interest rates. For example, the price of a debt security
with a three-year duration would be expected to drop by approximately 3% in
response to a 1% increase in interest rates. Therefore, prices of debt
securities with shorter durations tend to be
59
less
sensitive to interest rate changes than debt securities with longer durations.
As the value of a debt security changes over time, so will its duration. As of
the date of this Prospectus, the United States is experiencing a rising market
interest rate environment, which may increase a Fund’s exposure to risks
associated with rising market interest rates. Rising market interest rates have
unpredictable effects on the markets and may expose fixed-income and related
markets to heightened volatility. To the extent that the Fund invests in
fixed-income securities, an increase in market interest rates may lead to
increased redemptions and increased portfolio turnover, which could reduce
liquidity for certain investments, adversely affect values, and increase costs.
Increased redemptions may cause the Fund to liquidate portfolio positions when
it may not be advantageous to do so and may lower returns. If dealer capacity in
fixed-income markets is insufficient for market conditions, it may further
inhibit liquidity and increase volatility in the fixed-income markets. Further,
recent and potential future changes in government policy may affect interest
rates.
Liquidity Risk (Affordable Housing ETF only).
The Fund may hold certain investments that may trade over‑the‑counter or in
limited volume or lack an active trading market. Accordingly, the Fund may not
be able to sell or close out of such investments at favorable times or prices
(or at all), or at the prices approximating those at which the Fund currently
values them. Illiquid securities may trade at a discount from comparable, more
liquid investments and may be subject to wide fluctuations in market value. The
prices of illiquid securities may be more volatile than more liquid investments.
The risks associated with illiquid securities may be greater in times of
financial stress.
Limited Fund Size Risk (All Funds). The Funds
may not attract sufficient assets to achieve or maximize investment and
operational efficiencies and remain viable. If a Fund fails to achieve
sufficient scale, it may be liquidated.
Management Risk (All Funds). Management risk is
the risk associated with the fact that the Funds rely on the Adviser’s ability
to achieve its investment objective. The Adviser is a non‑profit organization
with limited personnel and financial resources. The relative lack of resources
may increase the Funds’ management risk.
Market Price Variance Risk (All Funds). Each
Fund’s shares are listed for trading on NYSE Arca, Inc. (the “Exchange”) and are
bought and sold in the secondary market at prevailing market prices. The market
prices of shares will fluctuate in response to changes in the NAV of a Fund and
supply and demand for shares. As a result, the trading prices of shares may
deviate significantly from NAV of a Fund during periods of market volatility.
Differences between secondary market prices and the net asset value (“ NAV”) of
a Fund may be due largely to supply and demand forces in the secondary market,
which may not be the same forces as those influencing prices for securities held
by a Fund at a particular time. The Adviser cannot predict whether shares will
trade above, below or at their NAV. Given the fact that shares can be created
and redeemed in creation units, the Adviser believes that large discounts or
premiums to the NAV of shares should not be sustained in the long-term. There
may be times when the market price of a Fund’s shares and such Funds’ NAV vary
significantly and you may pay more than such Funds’ NAV when buying shares on
the secondary market, and you may receive less than such Fund’s NAV when you
sell those shares. While the creation/redemption feature is designed to make it
likely that shares normally will trade close to a Fund’s NAV, disruptions to
creations and redemptions may result in trading prices that differ significantly
from a Fund’s NAV. The market price of shares, like the price of any
exchange-traded security, includes a “bid‑ask spread” charged by the exchange
specialist, market makers or other participants that trade the particular
security. In addition, the securities held by a Fund may be traded in markets
that close at a different time than the Exchange. Liquidity in those securities
may be reduced after the applicable closing times. Accordingly, during the time
when the Exchange is open but after the applicable market closing, fixing or
settlement times, bid‑ask spreads and the resulting premium or discount to
shares’ NAV may widen. Further, secondary markets may be subject to irregular
trading activity, wide bid/ask spreads and extended trade settlement periods,
which could cause a material decline in a Fund’s NAV. In times of market stress,
market makers and authorized participants may step away from their respective
roles in making a market in a Fund’s shares or in executing purchase and
redemption orders, which could lead to variances
60
between
the market price of such Fund’s shares and the underlying value of those shares.
Also, in stressed market conditions, the market for a Fund’s shares may become
less liquid in response to deteriorating liquidity of such Fund’s portfolio
holdings, which could lead to differences between the market price of such
Fund’s shares and the underlying value of those shares. During periods of high
market volatility, a Fund share may trade at a significant discount to its NAV,
and in these circumstances certain types of brokerage orders may expose an
investor to an increased risk of loss. A “stop order,” sometimes called a
“stop-loss order,” may cause a Fund share to be sold at the next prevailing
market price once the “stop” level is reached, which during a period of high
volatility can be at a price that is substantially below NAV. By including a
“limit” criteria with your brokerage order, you may be able to limit the size of
the loss resulting from the execution of an ill‑timed stop order. The Funds’
shares may be listed or traded on U.S. and non‑U.S. stock exchanges other than
the U.S. stock exchange where the Funds’ primary listing is maintained, and may
otherwise be made available to non‑U.S. investors through funds or structured
investment vehicles similar to depositary receipts. There can be no assurance
that a Fund’s shares will continue to trade on any such stock exchange or in any
market or that a Fund’s shares will continue to meet the requirements for
listing or trading on any exchange or in any market. A Fund’s shares may be less
actively traded in certain markets than in others, and investors are subject to
the execution and settlement risks and market standards of the market where they
or their broker direct their trades for execution. Certain information available
to investors who trade a Fund’s shares on a U.S. stock exchange during regular
U.S. market hours may not be available to investors who trade in other markets,
which may result in secondary market prices in such markets being less
efficient.
A
Fund’s investment results are measured based upon the daily NAV of such Fund.
Investors purchasing and selling shares in the secondary market may not
experience investment results consistent with those experienced by those
purchasing and redeeming directly with the Fund.
Mid‑Cap Company Risk (All Funds except Affordable
Housing ETF). Investing in securities of mid‑cap companies may entail
greater risks than investments in larger, more established companies. Mid‑cap
companies tend to have more narrow product lines, more limited financial
resources and a more limited trading market for their stocks, as compared with
larger companies. As a result, their stock prices may decline significantly as
market conditions change.
Mortgage-Related Securities Risk (Affordable Housing
ETF only). Mortgage-related securities are subject to the same risks as
investments in other types of debt securities, including credit risk, interest
rate risk, liquidity risk and valuation risk. However, these investments make
the Fund more susceptible to adverse economic, political or regulatory events
that affect the value of real estate. Mortgage-related securities are also
significantly affected by the rate of prepayments and modifications of the
mortgage loans underlying those securities, as well as by other factors such as
borrower defaults, delinquencies, realized or liquidation losses and other
shortfalls. Mortgage-related securities are particularly sensitive to prepayment
risk, given that the term to maturity for mortgage loans is generally
substantially longer than the expected lives of those securities. As the timing
and amount of prepayments cannot be accurately predicted, the timing of changes
in the rate of prepayments of the mortgage loans may significantly affect the
Fund’s actual yield to maturity on any mortgage-related securities. Along with
prepayment risk, mortgage-related securities are significantly affected by
interest rate risk.
Non‑Diversification Risk (All Funds). Due to
the nature of the Funds’ investment strategies and their non‑diversified status
(for purposes of the 1940 Act), the Funds may invest a greater percentage of
their respective assets in the securities of fewer issuers than a “diversified”
fund, and accordingly may be more vulnerable to changes in the value of those
issuers’ securities. Since the Funds invest in the securities of a limited
number of issuers, the Funds are particularly exposed to adverse developments
affecting those issuers, and a decline in the market value of a particular
security held by a Fund is likely to affect such Fund’s performance more than if
such Fund invested in the securities of a larger number of issuers. Although the
Funds will be “non‑diversified” for purposes of the 1940 Act, the Funds intend
to comply with the diversification requirements under Subchapter M of the Code
in order to be eligible to qualify as a regulated investment company.
61
Operational and Technology Risk (All Funds).
The Funds, their service providers, index providers, Authorized Participants,
market makers and other market participants increasingly depend on complex
information technology and communications systems to conduct business functions.
These systems are subject to a number of different threats or risks that could
adversely affect the Funds and their shareholders, despite the efforts of the
Adviser, the Funds and their service providers to adopt technologies, processes,
and practices intended to mitigate these risks. For example, unauthorized third
parties may attempt to improperly access, modify, disrupt the operations of, or
prevent access to these systems of the Funds, the Funds’ service providers,
counterparties, or other market participants or data within them (a
“cyber-attack”). Power or communications outages, acts of god, information
technology equipment malfunctions, operational errors, and inaccuracies within
software or data processing systems may also disrupt business operations or
impact critical data. Market events also may trigger a volume of transactions
that overloads current information technology and communication systems and
processes, impacting the ability to conduct the Funds’ operations.
Cyber-attacks, disruptions, or failures that affect the Funds’ service providers
or counterparties may adversely affect the Funds and their shareholders,
including by causing losses for the Funds or impairing the Funds’ operations.
For example, the Funds or their service providers’ assets or sensitive or
confidential information may be misappropriated, data may be corrupted, and
operations may be disrupted (e.g., cyber-attacks or operational failures may
cause the release of private shareholder information or confidential Fund
information, interfere with the processing of shareholder transactions, impact
the ability to calculate each Fund’s NAV, and impede trading). In addition,
cyber-attacks, disruptions, or failures may cause reputational damage and
subject the Funds or their service providers to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or other compensation costs,
and/or additional compliance costs. While the Funds and their service providers
may establish business continuity and other plans and processes to address the
possibility of cyberattacks, disruptions, or failures, there are inherent
limitations in such plans and systems, including that they do not apply to third
parties, such as other market participants, as well as the possibility that
certain risks have not been identified or that unknown threats may emerge in the
future. Similar types of operational and technology risks are also present for
issuers of the Funds’ investments, which could have material adverse
consequences for such issuers, and may cause the Funds’ investments to lose
value. In addition, cyber-attacks involving a Fund’s counterparties could affect
such counterparty’s ability to meet its obligations to such Fund, which may
result in losses to such Fund and its shareholders. Furthermore, as a result of
cyber-attacks, disruptions or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market, which may result in
the Funds being, among other things, unable to buy or sell certain securities or
financial instruments or unable to accurately price its investments. The Funds
cannot directly control any cybersecurity plans and systems put in place by
their service providers, counterparties, issuers in which the Funds invest, or
securities markets and exchanges, and such third parties may have limited
indemnification obligations to the Adviser or the Funds, each of whom could be
negatively impacted as a result.
Options Risk (All Funds). The use of options is
a highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
For example, there are significant differences between the securities and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A
transaction in options or securities may be unsuccessful to some degree because
of market behavior or unexpected events. When a Fund writes a covered call
option, such Fund forgoes, during the option’s life, the opportunity to profit
from increases in the market value of the security covering the call option
above the sum of the premium and the strike price of the call, but retains the
risk of loss should the price of the underlying security decline. The writer of
an option has no control over the time when it may be required to fulfill its
obligation and once an option writer has received an exercise notice, it must
deliver the underlying security at the exercise price. When a Fund writes a
covered put option, such Fund bears the risk of loss if the value of the
underlying stock declines below the exercise price minus the put premium. If the
option is exercised, such Fund could incur a loss if it is required to purchase
the stock underlying the put option at a price greater than the market price of
the stock at the time of exercise plus the put premium the Fund received when it
wrote the option. While a Fund’s potential gain in writing a covered put option
is limited to distributions earned on the liquid assets securing the
62
put
option plus the premium received from the purchaser of the put option, such Fund
risks a loss equal to the entire exercise price of the option minus the put
premium.
Passive Investment Risk (All Funds except Affordable
Housing ETF). The Funds are not actively managed and may be affected by a
general decline in market segments included in the applicable Underlying
Indices. The Funds invest in securities included in, or representative of, each
Fund’s respective Underlying Index regardless of such securities’ investment
merits. Each Fund will likely lose value to the extent that the applicable
Underlying Index loses value. The Adviser does not attempt to take defensive
positions under any market conditions, including during declining markets.
Prepayment Risk (Affordable Housing ETF only).
Prepayment risk is the risk that the issuer of a debt security will repay
principal prior to the scheduled maturity date. Debt securities allowing
prepayment may offer less potential for gains during a period of declining
interest rates, as the Fund may be required to reinvest the proceeds of any
prepayment at lower interest rates. These factors may cause the value of an
investment in the Fund to change.
Securities Market Risk (All Funds). Securities
market risk is the risk that the value of securities owned by a Fund may go up
or down, sometimes rapidly or unpredictably, due to factors affecting particular
companies or the securities markets generally. The profitability of a Fund
substantially depends upon the Adviser correctly assessing the future price
movements of stocks, bonds, loans, options on stocks, and other securities and
the movements of interest rates. The Adviser cannot guarantee that it will be
successful in accurately predicting price movements. The market prices of
equities may decline for reasons that directly relate to the issuing company
(such as poor management performance or reduced demand for its goods or
services), factors that affect a particular industry (such as a decline in
demand, labor or raw material shortages, or increased production costs) or
general market conditions not specifically related to a company or industry
(such as real or perceived adverse economic conditions, changes in the general
outlook for corporate earnings, changes in interest or currency rates, or
adverse investor sentiment generally). In addition, the increasing popularity of
passive index-based investing may have the potential to increase security price
correlations and volatility. As passive strategies generally buy or sell
securities based simply on inclusion and representation in an index, securities
prices will have an increasing tendency to rise or fall based on whether money
is flowing into or out of passive strategies rather than based on an analysis of
the prospects and valuation of individual securities. This may result in
increased market volatility as more money is invested through passive
strategies. As a result of the nature of a Fund’s investment activities, it is
possible that such Fund’s financial performance may fluctuate substantially from
period to period. Additionally, at any point in time an investment in a Fund may
be worth less than the original investment, even after taking into account the
reinvestment of dividends and distributions.
Significant Exposure Risk (Affordable Housing ETF
only). To the extent that the Fund invests a large percentage of its
assets in a single asset class or the securities of issuers within the same
country, state, region, industry or sector, an adverse economic, business or
political development may affect the value of the Fund’s investments more than
if the Fund were more broadly diversified. A significant exposure makes the Fund
more susceptible to any single occurrence and may subject the Fund to greater
market risk than a fund that is more broadly diversified.
Small‑Cap Company Risk (All Funds except Affordable
Housing ETF). Investing in the securities of small‑cap companies either
directly or indirectly through investments in ETFs, closed‑end funds or mutual
funds may pose greater market and liquidity risks than larger, more established
companies, because of limited product lines and/or operating history, limited
financial resources, limited trading markets, and the potential lack of
management depth. In addition, the securities of such companies are typically
more volatile than securities of larger capitalization companies.
Specified Pools Risk (Affordable Housing ETF
only). The Fund is expected to primarily invest in specified pools of
mortgage loans. This may cause the Fund to take longer to fully achieve its
principal investment strategy
63
Swaps Risk (All Funds). The use of swaps is a
highly specialized activity which involves investment techniques, risk analyses
and tax planning different from those associated with ordinary portfolio
securities transactions. These transactions can result in sizeable realized and
unrealized capital gains and losses relative to the gains and losses from a
Fund’s direct investments in securities. Transactions in swaps can involve
greater risks than if a Fund had invested in the reference assets directly
since, in addition to general market risks, swaps may be leveraged and are also
subject to illiquidity risk, counterparty risk, credit risk and pricing risk.
However, certain risks may be reduced (but not eliminated) if a Fund invests in
cleared swaps. Regulators also may impose limits on an entity’s or group of
entities’ positions in certain swaps. Because bilateral swap agreements are
two‑party contracts and because they may have terms of greater than seven days,
these swaps may be considered to be illiquid. Moreover, a Fund bears the risk of
loss of the amount expected to be received under a swap in the event of the
default or bankruptcy of a swap counterparty. Many swaps are complex and valued
subjectively. Swaps and other derivatives may also be subject to pricing or
“basis” risk, which exists when the price of a particular derivative diverges
from the price of corresponding cash market instruments. Under certain market
conditions it may not be economically feasible to initiate a transaction or
liquidate a position in time to avoid a loss or take advantage of an
opportunity. If a swap transaction is particularly large or if the relevant
market is illiquid, it may not be possible to initiate a transaction or
liquidate a position at an advantageous time or price, which may result
insignificant losses. The value of swaps can be very volatile, and a variance in
the degree of volatility or in the direction of securities prices from the
Adviser’s expectations may produce significant losses in a Fund’s investments in
swaps. In addition, a perfect correlation between a swap and a reference asset
may be impossible to achieve. As a result, the Adviser’s use of swaps may not be
effective in fulfilling the investment adviser’s investment strategies and may
contribute to losses that would not have been incurred otherwise. Certain
separately managed accounts (“SMAs”) that are designed to track the performance
of an index may serve as the underlying reference asset for total return swaps
used by the Funds (“SMA Total Return Swaps”). This investment technique provides
a Fund with synthetic long investment exposure to the performance of the index
the SMAs seek to track, and thus, any underlying SMAs, through payments made by
a swap counterparty to such Fund that reflect the positive total return, net of
fees of the SMA, which may be netted against the payment of transaction fees. In
exchange, such Fund makes periodic payments to the counterparty under the swap
based on certain upfront and/or monthly transaction fees as well as payments
reflecting any negative total return on the SMA. The swap generally provides a
Fund with the economic equivalent of ownership of the portfolio of the SMA
through an entitlement to receive any gains realized by the SMA and an
obligation to pay any losses realized by the SMA, which may be netted against
the financing expenses of the swap. This investment technique is intended to
provide the Funds with exposure to the performance of the SMA and, indirectly,
the performance of the index the SMA is designed to track. The performance of an
SMA Total Return Swap is subject to the performance and the risks of the index
the SMA seeks to track, and ultimately, of the underlying SMA and its investment
portfolio. If the performance of the SMA underlying the SMA Total Return Swap is
negative or is not sufficiently positive to offset the periodic payment due to
the counterparty, then the performance of the relevant Funds will be negatively
impacted. Additionally, the performance of the underlying SMA may deviate from
the performance of the index it is designed to track. To the extent that the
SMA’s performance deviates from that of the relevant index, the performance of
the SMA Total Return Swap, and in, turn, the performance of the relevant Fund,
will deviate from the performance of the relevant index as well. The expenses
paid by the underlying SMA holder (including fees paid on the basis of the
performance of the underlying account manager) reduce the performance returns of
the SMA’s investments and those expenses are embedded in the returns of the SMA
Total Return Swap are based on the net returns of the SMA. The Funds’ use of SMA
Total Return Swaps may also subject the Funds to the risks of leverage, to the
extent utilized by the SMAs. The SEC recently adopted a rule under the 1940 Act
regulating the use by registered investment companies of derivatives and many
related instruments. That rule, among other things, restricts a Fund’s ability
to engage in derivatives transactions or so increase the cost of derivatives
transactions such that the Fund would be unable to implement its investment
strategy. The Funds do not currently engage in derivative transactions and have
adopted a policy prohibiting derivatives transactions. If the Board deems it
advisable and in the best interests of shareholders of the Funds, the Funds may
change this policy in the future and allow derivatives transactions undertaken
in compliance with the new SEC rules.
64
Tracking Error Risk (All Funds except Affordable
Housing ETF). Imperfect correlation between a Fund’s portfolio securities
and those in the applicable Underlying Indices, rounding of prices, changes to
the Underlying Indices and regulatory requirements may cause tracking error,
which is the divergence of a Fund’s performance from that of its Underlying
Index. This risk may be heightened during times of increased market volatility
or other unusual market conditions. Tracking error also may result because a
Fund incurs fees and expenses, while its Underlying Index does not. For example,
a Fund incurs a number of operating expenses not applicable to its Underlying
Index and incurs costs associated with buying and selling securities, especially
when rebalancing such Fund’s securities holdings to reflect changes in the
composition of its Underlying Index and raising cash to meet redemptions or
deploying cash in connection with newly created creation units. Because a Fund
bears the costs and risks associated with buying and selling securities while
such costs are not factored into the return of its Underlying Index, such Fund’s
returns may deviate significantly from the return of its Underlying Index.
Because the Funds each employ a representative sampling strategy, the Funds may
experience tracking error to a greater extent than funds that seeks to replicate
an index. The Adviser may not be able to cause a Fund’s performance to correlate
to that of such Fund’s benchmark, either on a daily or aggregate basis. Because
the Underlying Index rebalances quarterly but a Fund is not obligated to do the
same, the risk of tracking error may increase following the rebalancing of such
Fund’s Underlying Index.
Trading Issues Risk (All Funds). Although the
shares of the Fund 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 shares on the Exchange may be halted due to market
conditions or for reasons that, in the view of the Exchange, make trading in
shares inadvisable. In addition, trading in shares on the Exchange is subject to
trading halts caused by extraordinary market volatility pursuant to the
Exchange’s “circuit breaker” rules. Market makers are under no obligation to
make a market in the Fund’s shares, and authorized participants are not
obligated to submit purchase or redemption orders for Creation Units. In the
event market makers cease making a market in the Fund’s shares or authorized
participants stop submitting purchase or redemption orders for Creation Units,
Fund shares may trade at a larger premium or discount to their net asset value.
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
Transactions Risk (Affordable Housing ETF
only). The Fund may purchase securities via to‑be‑announced (“TBA”
Transactions. In such a transaction, the purchase price of the securities is
typically fixed at the time of the commitment, but delivery and payment can take
place a month or more after the date of the commitment. At the time of delivery
of the securities, the value may be more or less than the purchase or sale
price. Purchasing securities in a TBA Transaction may give rise to investment
leverage and may increase the Fund’s volatility. Default by, or bankruptcy of, a
counterparty to a TBA Transaction would expose the Fund to possible losses
because of an adverse market action, expenses or delays in connection with the
purchase or sale of the pools specified in such transaction.
U.S. Government Securities Risk (Affordable Housing
ETF only). U.S. government securities are subject to interest rate risk
but generally do not involve the credit risks associated with investments in
other types of debt securities. As a result, the yields available from U.S.
government securities are generally lower than the yields available from other
debt securities. U.S. government securities are guaranteed only as to the timely
payment of interest and the payment of principal when held to maturity. While
securities issued or guaranteed by U.S. federal government agencies (such as
Ginnie Mae) are backed by the full faith and credit of the U.S. Department of
the Treasury, securities issued by government sponsored entities (such as Fannie
Mae and Freddie Mac) are solely the obligation of the issuer and generally do
not carry any guarantee from the U.S. government.
Obligations
of U.S. government agencies, authorities, instrumentalities and sponsored
enterprises (such as Fannie Mae and Freddie Mac) have historically involved
little risk of loss of principal if held to maturity. However, the maximum
potential liability of the issuers of some of these securities may greatly
exceed their current resources and no assurance can be given that the U.S.
government would provide financial support to any of these entities if it were
not obligated to do so by law.
65
Fannie
Mae and Freddie Mac have been operating under conservatorship, with the Federal
Housing Finance Administration (“FHFA”) acting as their conservator, since 2008.
The entities are dependent upon the continued support of the U.S. Department of
the Treasury and FHFA in order to continue their business operations. These
factors, among others, could affect the future status and role of Fannie Mae or
Freddie Mac and the value of their securities and the securities that they
guarantee. Additionally, the U.S. government and its agencies and
instrumentalities do not guarantee the market values of their securities, which
may fluctuate.
Valuation Risk (All Funds). The Fund is subject
to the risk of mispricing or improper valuation of its investments, in
particular to the extent that its securities are fair valued.
MANAGEMENT
OF THE FUNDS
Board of Trustees
The
Board of Trustees (the “Board” or “Trustees”) has overall management
responsibility for the Funds. See “Management” in the SAI for the names of and
other information about the Trustees and officers of the Funds.
Investment Adviser
Impact
Shares, Corp. (“Impact Shares” or the “Adviser”) serves as the investment
adviser to the Funds. The address of the Adviser is 5950 Berkshire Lane, Suite
1420, Dallas, Texas 75225. Impact Shares provides the day‑to‑day management of
each Fund’s portfolio of securities, which includes buying and selling
securities for each Fund and conducting investment research. Additionally,
Impact Shares furnishes offices, necessary facilities, equipment and personnel.
Organized in February 2014, Impact Shares is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended. Impact Shares is an ETF
sponsor and investment manager that is creating a platform for clients seeking
maximum social impact with market returns. As of October 5, 2022, the
Adviser had approximately $160,000,000 in assets under management.
Impact
Shares’ goal is to build a capital markets bridge between leading nonprofits,
investors and corporate America to direct capital and social engagement on
societal priorities.
The
Adviser is a tax‑exempt organization under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended (the “Code”). With respect to the
Equity ETFs, the Adviser intends to make charitable contributions to an Equity
ETF’s relevant Partner Nonprofit equal to the excess, if any, of Impact Shares’
fees with respect to the relevant Equity ETF over Impact Shares’ operating
expenses and a reserve for working capital. The Adviser’s intent is to provide
financial support to further the causes championed by each Partner Nonprofit.
Due to the relatively small size of each Equity ETF, Impact Shares’ fees with
respect to each Equity ETF have not yet exceeded its related operating expenses.
Accordingly, Impact Shares has not yet made any charitable contributions from
such fees. There can be no assurance that Impact Shares’ fees with respect to an
Equity ETF will exceed operating expenses in the future. For additional
information see “Partner Nonprofits,” below.
Sub‑Adviser to the Affordable Housing ETF
The
Adviser has engaged a sub‑adviser, Community Capital Management, LLC. (“CCM” or
the “Sub‑Adviser”) to provide the day‑to‑day management of the portfolio of the
Affordable Housing ETF. The Sub‑Adviser is a registered investment adviser
founded in November 1998, with headquarters at 2500 Weston Road, Suite 101,
Weston, Florida 33331. The Sub‑Adviser was originally organized to provide
investment advice to other registered investment trusts and separate accounts.
As of March 30, 2022, the Sub‑Adviser had approximately $4.2 billion
in assets under management. The following individuals are jointly and primarily
responsible for the day‑to‑day management of the Affordable Housing ETF.
Portfolio Managers
The
portfolio of each Equity ETF is managed by Ethan Powell. Mr. Powell has
managed each Equity ETF since its inception.
66
Mr. Powell
has spent over two decades in financial services, primarily in hedge funds and
private equity. Most recently Mr. Powell founded Impact Shares. Impact
Shares is a collaboration of leading financial service and nonprofit
organizations providing single social issue ETFs. Additionally, Mr. Powell
serves as the Chairman of the board for a $5 billion mutual fund complex.
Previously, Mr. Powell was the Chief of Product and Strategy at Highland
Capital Management Fund Advisors, L.P. In this role he was responsible for
evaluating and optimizing the registered product lineup offered by Highland
Mr. Powell also served as the portfolio manager of the Highland ETFs and
worked with other portfolio managers and wholesalers on the appropriate
positioning of strategies in the marketplace. Prior to joining Highland in April
2007, Mr. Powell spent most of his career with Ernst and Young providing
audit and merger and acquisition services. Mr. Powell received an MS in
Management Information Systems and a BS in Accounting from Texas A&M
University. Mr. Powell has earned the right to use the Chartered Financial
Analyst designation and is a licensed Certified Public Accountant.
The
portfolio of the Affordable Housing ETF is managed by Elliot Gilfarb, Andy
Kaufman, Jessica Botelho and Shonali Pal, employees of the Sub‑Adviser.
Mr. Gilfarb, Mr. Kaufman and Ms. Botelho have managed the
portfolio of the Affordable Housing ETF since its inception. Ms. Pal has
been managing the portfolio of the Affordable Housing ETF since June 2022.
Elliot
Gilfarb, CFA, Head of Fixed Income of the Sub‑Adviser, serves as Senior
Portfolio Manager for the Affordable Housing ETF. He is responsible for
portfolio management, research and trading. Mr. Gilfarb has been with the
Sub‑Adviser since 2006.
Andy
Kaufman, Chief Investment Officer of the Sub‑Adviser, serves as Senior Portfolio
Manager of the Affordable Housing ETF. He is responsible for portfolio
management, research and trading. Mr. Kaufman joined the Sub‑Adviser in
2015 as Senior Portfolio Manager. From 2014 to 2015, Mr. Kaufman was a
portfolio manager at Mercantil Commercebank and from 2004 to 2014, he was a
portfolio manager at BlackRock Financial Management.
Jessica
Botelho, Director of CRA & Impact Research, serves as portfolio manager
of the Affordable Housing ETF. She is responsible for overseeing and gathering
all impact research as well as impact reporting. Ms. Botelho joined the
Sub‑Adviser in 2013 as an impact research associate. From 2008 to 2012,
Ms. Botelho was an assistant vice president and senior client service
associate at Acadian Asset Management.
Shonali
Pal serves as a portfolio manager of the Affordable Housing ETF. Ms. Pal
has been with the Sub‑Adviser since 2020. Prior to joining the Sub‑Advisor,
Ms. Pal worked as an analyst leading deals and assisting clients through
all stages of the M&A process at Cross Keys Capital. Prior to that, she was
an associate at Bella Private Markets, a research and consulting firm focused on
the private capital industry.
The
SAI provides additional information about each portfolio manager’s compensation,
other accounts managed by each portfolio manager, and each portfolio manager’s
ownership of securities in any Fund.
Investment Advisory Agreement for the Equity ETFs.
Each
Equity ETF has entered into an investment advisory agreement with Impact Shares
(the “Investment Advisory Agreements”), pursuant to which Impact Shares either
provides the day‑to‑day management of the Equity ETF’s portfolio of securities,
which includes buying and selling securities for each Equity ETF and conducting
investment research, or hires a sub‑adviser to do so, subject to Impact Shares’
general oversight.
For
the services provided to the Equity ETF under the Investment Advisory Agreement,
the Equity ETFs pay the Adviser an annual unitary fee, payable monthly, at the
rate of 0.75% of the Equity ETF’s Average Daily Managed Assets (as defined
below) in the case of the Women’s ETF and the Sustainable Development ETF and
0.49% of the Fund’s Average Daily Managed Assets in the case of the Minority
ETF. “Average Daily Managed
67
Assets”
of an Equity ETF means the average daily value of the total assets of such
Equity ETF, less all accrued liabilities of such Equity ETF (other than the
aggregate amount of any outstanding borrowings constituting financial leverage).
From time to time, the Adviser may waive all or a portion of its fee, although
it does not currently intend to do so. Pursuant to the Investment Advisory
Agreements, the Adviser is responsible for substantially all expenses of each
Equity ETF, including the cost of transfer agency, custody, fund administration,
legal, audit and other services except for: (i) distribution and service
fees payable pursuant to a Rule 12b‑1 plan, if any; (ii) taxes and
governmental fees, if any, levied against a Equity ETF; (iii) brokerage
fees and commissions, and other portfolio transaction expenses incurred by or
for an Equity ETF; (iv) expenses of an Equity ETF’s securities lending (if
any), including any securities lending agent fees, as governed by a separate
securities lending agreement; costs, including interest expenses, of borrowing
money or engaging in other types of leverage financing; (v) extraordinary
expenses, including extraordinary legal expenses, as may arise, including,
without limitation, expenses incurred in connection with litigation,
proceedings, other claims, contractual arrangements with Partner Nonprofits and
the legal obligations of an Equity ETF to indemnify its Trustees, officers,
employees, shareholders, distributors, and agents with respect thereto; and
(vi) expenses of an Equity ETF which are capitalized in accordance with
generally accepted accounting principles. Any officer or employee of the Adviser
or of any entity controlling, controlled by or under common control with the
Adviser, who may also serve as officers, trustees or employees of the Trust
shall not receive any compensation from the Trust for their services.
The
Adviser has agreed to assume the Equity ETFs’ organization and offering costs.
The Equity ETFs do not have an obligation to reimburse the Adviser for
organization and offering costs paid on their behalf.
Each
Equity ETF is a party to contractual arrangements with various parties,
including, among others, the Equity ETF’s investment adviser, administrator,
distributor, and shareholder servicing agent, who provide services to the Equity
ETF. Shareholders are not parties to, or intended (“third-party”) beneficiaries
of, any such contractual arrangements, and such contractual arrangements are not
intended to create in any individual shareholder or group of shareholders any
right to enforce them against the service providers or to seek any remedy under
them against the service providers, either directly or on behalf of the Equity
ETF.
Investment Advisory Agreement for the Affordable
Housing ETF
The
Fund has entered into an investment advisory agreement with Impact Shares (the
“OWNS Investment Advisory Agreement”), pursuant to which Impact Shares either
provides the day‑to‑day management of the Affordable Housing ETF’s portfolio of
securities, which includes buying and selling securities for the Affordable
Housing ETF and conducting investment research, or hires a sub‑adviser to do so,
subject to Impact Shares’ general oversight. The Adviser has hired CCM to act as
Sub‑Adviser to the Affordable Housing ETF.
For
the services provided to the Affordable Housing ETF under the OWNS Investment
Advisory Agreement, the Affordable Housing ETF pays the Adviser an annual fee,
payable monthly, at the rate of 0.30% of the Fund’s Average Daily Managed Assets
(as defined below). “Average Daily Managed Assets” of the Affordable Housing ETF
means the average daily value of the total assets of the Affordable Housing ETF,
less all accrued liabilities of the Affordable Housing ETF (other than the
aggregate amount of any outstanding borrowings constituting financial leverage).
The Adviser has voluntarily agreed to waive all advisory fees payable by the
Affordable Housing ETF under the OWN Investment Advisory Agreement in excess of
0.25% of the average daily managed net assets of the Affordable Housing ETF
until the Affordable Housing ETF’s net assets are greater than
$100 million. The Adviser will pay all expenses incurred by it in
connection with its activities under the OWNS Investment Advisory Agreement,
except such expenses as are assumed by the Affordable Housing ETF and such
expenses as are assumed by a sub‑adviser under its sub‑advisory agreement.
The
Sub‑Adviser has agreed to assume the Affordable Housing ETF’s organization and
offering costs. The Affordable Housing ETF does not have an obligation to
reimburse the Sub‑Adviser for organization and offering costs paid on its
behalf.
68
A
discussion regarding the Board’s approval of the OWNS Investment Advisory
Agreement for the Affordable Housing ETF is available in the Affordable Housing
ETF’s annual report to shareholders. The OWNS Investment Advisory Agreement may
be terminated by the Affordable Housing ETF or by vote of a majority of the
outstanding voting securities of the Affordable Housing ETF, without the payment
of any penalty, on not more than 60 days’ nor less than 30 days written notice.
In addition, the OWNS Investment Advisory Agreement automatically terminates in
the event of its “assignment” (as defined in the 1940 Act).
The
Affordable Housing ETF is a party to contractual arrangements with various
parties, including, among others, the Affordable Housing ETF’s investment
adviser, administrator, distributor, and shareholder servicing agent, who
provide services to the Affordable Housing ETF. Shareholders are not parties to,
or intended (“third-party”) beneficiaries of, any such contractual arrangements,
and such contractual arrangements are not intended to create in any individual
shareholder or group of shareholders any right to enforce them against the
service providers or to seek any remedy under them against the service
providers, either directly or on behalf of the Affordable Housing ETF.
Sub‑Advisory Agreement for the Affordable Housing ETF
The
Adviser has entered into a Sub‑advisory Agreement with CCM (the “Sub‑Advisory
Agreement”). Under the terms of the Sub‑Advisory Agreement, CCM acts as
Sub‑Adviser to the Affordable Housing ETF. In such capacity, CCM, subject to the
supervision of the Adviser and the Board, provides the Affordable Housing ETF
with portfolio management, investment research, advice, and supervision and
shall furnish an investment program, consistent with the investment objective
and policies of the Affordable Housing ETF. The Sub‑Adviser shall determine,
from time to time, what securities shall be purchased for the Affordable Housing
ETF, what securities shall be held or sold by the Affordable Housing ETF, and
what portion of the Affordable Housing ETF’s assets shall be held uninvested in
cash, subject always to the investment objective, policies, and restrictions of
the Affordable Housing ETF, as each of the same from time to time shall be in
effect. To carry out these obligations, the Sub‑Adviser can exercise full
discretion and act for the Adviser in the same manner and with the same force
and effect as the Adviser itself might or could do with respect to purchases,
sales, or other transactions.
The
Adviser pays the Sub‑Adviser, as compensation for the Sub‑Adviser’s services, a
fee equal to 0.25% of the Affordable Housing ETF’s Average Daily Managed Assets.
The Fund has no responsibility for any fee payable to the Sub‑Adviser.
Management
Fees Paid
The
following table shows the management fees that the Adviser received from each
Fund for the fiscal year ended June 30, 2022 and the Fund’s contractual
management fee:
|
|
|
| |
Fund |
|
Management Fees Paid as a Percentage of Average Daily Managed
Assets for the Fiscal Year Ended June 30, 2022 |
|
Impact
Shares NAACP Minority Empowerment ETF |
|
|
0.49 |
% |
Impact
Shares YWCA Women’s Empowerment ETF |
|
|
0.75 |
% |
Impact
Shares Sustainable Development Goals Global Equity ETF |
|
|
0.75 |
% |
Impact
Shares Affordable Housing MBS ETF |
|
|
0.30 |
% |
PARTNER
NONPROFITS OF THE EQUITY ETFS
As
discussed above, the Adviser intends to make charitable contributions to the
Equity ETFs’ partner nonprofits (the “Partner Nonprofits”) equal to the excess,
if any, of Impact Shares’ fees with respect to the
69
applicable
Equity ETF over Impact Shares’ operating expenses (including the license fee
referred to below) and a reserve for working capital. Each Partner Nonprofit, in
its sole discretion, may use the license fee and any portion of the Adviser’s
charitable contributions made directly to such Partner Nonprofit to support its
own programs or may make its own donations to identified charitable
organizations that support such Partner Nonprofit’s mission. Due to the
relatively small size of each equity ETF Impact Shares’ fees with respect to
each Equity ETF have not yet exceeded its related operating expenses.
Accordingly, Impact Shares has not yet made any charitable contributions from
such fees. There can be no assurance that Impact Shares’ fees with respect to an
Equity ETF will exceed operating expenses in the future.
The
Partner Nonprofit for the Impact Shares NAACP Minority Empowerment ETF and the
Impact Shares YWCA Women’s Empowerment ETF is or will be tax‑exempt under
Section 501(c)(3) of the Code. The
Partner Nonprofit for the Impact Shares Sustainable Development Goals Global
Equity ETF is a subsidiary organ of the United Nations, an intergovernmental
organization established by its member states. Each Partner Nonprofit has
entered into a license agreement (a “License Agreement”) with the Adviser.
Pursuant to the relevant License Agreement, each Partner Nonprofit will grant
the Adviser a license permitting the applicable Equity ETF to use the applicable
Partner Nonprofit’s name and logo. The Adviser will pay a license fee to the
Partner Nonprofit on a quarterly basis out of the applicable Equity ETF’s
unitary fee, calculated as a percentage (expressed in basis points) of the
assets under management of such Equity ETF. Each Partner Nonprofit will identify
and compile certain social criteria to be incorporated into the applicable
Equity ETF’s “social screen” – criteria that seek to measure corporate
performance against a range of social impact benchmarks relevant to each Equity
ETF. The Partner Nonprofits will not: (i) select any individual companies
for inclusion or exclusion from the Underlying Indices or (ii) have any
right to approve or modify the Indices, once constructed. The Partner Nonprofits
will not have any influence on the day‑to‑day operations of the Equity ETFs or
the Adviser’s management of the Equity ETFs. The Partner Nonprofits will not
provide any investment advisory services to the Adviser, the Equity ETFs or any
potential or current investors in the Equity ETFs. The Partner Nonprofits will
have no equity ownership or other financial interest in the Adviser. Each Equity
ETF’s right to use the name and logo of its Partner Nonprofit would terminate in
the event that such Equity ETF’s Investment Advisory Agreement is terminated.
About the NAACP
Founded
on February 12, 1909, the NAACP is the nation’s oldest, largest and most
widely recognized grassroots-based civil rights organization. Its more than
half-million members and supporters throughout the United States and the world
are the premier advocates for civil rights in their communities, campaigning for
equal opportunity and conducting voter mobilization. The NAACP seeks:
|
• |
|
To
ensure the political, educational, social, and economic equality of all
citizens; |
|
• |
|
To
achieve equality of rights and eliminate race prejudice among the citizens
of the United States; |
|
• |
|
To
remove all barriers of racial discrimination through democratic processes;
|
|
• |
|
To
seek enactment and enforcement of federal, state, and local laws securing
civil rights; |
|
• |
|
To
inform the public of the adverse effects of racial discrimination and to
seek its elimination; and |
|
• |
|
To
educate persons as to their constitutional rights and to take all lawful
action to secure the exercise thereof, and to take any other lawful action
in furtherance of these objectives, consistent with the NAACP’s Articles
of Incorporation and this Constitution. |
Shares of the Impact Shares NAACP Minority
Empowerment ETF are not sponsored, endorsed or promoted by NAACP. NAACP makes no
representation or warranty, express or implied, to the owners of shares of this
Fund or any member of the public regarding the ability of this Fund to track the
performance of its Underlying Index or the ability of its Underlying Index to
meet or exceed stock market performance. NAACP has no obligation or liability in
connection with the administration, marketing or trading of shares of this Fund.
NAACP is not an investment adviser. Inclusion of a security within this Fund’s
Underlying Index is not a
70
recommendation by NAACP to buy, sell or hold such
security, nor is it considered to be investment advice. NAACP does not guarantee
the accuracy and/or the completeness of the Underlying Index or any data
included therein.
About YWCA USA
Founded
in 1858 as a voice for women’s issues, YWCA USA represents 213 YWCA associations
in 46 States and the District of Columbia. Each year YWCAs serves over
2 million women and children in over 1200 communities across the United
States. For over 160 years YWCA has delivered social impact through its many
direct services and community-based programs. YWCA USA is dedicated to
eliminating racism, empowering women and promoting peace, freedom and dignity
for all. YWCA USA focuses its mission-driven work to achieve three signature
outcomes:
|
• |
|
Increasing
equal protection and equal opportunities, paying close attention to the
intersectionality of race and gender; |
|
• |
|
Increasing
economic opportunities for women and girls throughout the US, especially
communities of color, recognizing the importance of the race and gender
inequities that exist for historically disenfranchised and contemporarily
marginalized communities; and |
|
• |
|
Improving
the disproportionately negative health and safety outcomes for women and
girls by increasing and improving access to high quality health and safety
resources and support systems. |
The role of the YWCA is similar to that of an
advisory board in that it has no power to determine that any security or other
investment shall be purchased or sold by the Impact Shares YWCA Women’s
Empowerment ETF.
Shares of the Impact Shares YWCA Women’s Empowerment
ETF (the “Fund”) are not sponsored, endorsed or promoted by YWCA USA, Inc. or
any of its affiliates or local associations (“YWCA”). YWCA makes no
representation or warranty, express or implied, to the owners of shares of the
Fund or any member of the public regarding the ability of the Fund to track the
performance of the Morningstar® Women’s Empowerment Index
(“Underlying Index”) or the ability of the Underlying Index to meet or exceed
stock market performance. YWCA has no obligation or liability in connection with
the administration, marketing or trading of shares of the Fund. YWCA is not an
investment adviser. Inclusion of a security within the Underlying Index is not a
recommendation by YWCA to buy, sell or hold such security, nor is it considered
to be investment advice. YWCA does not guarantee the accuracy and/or the
completeness of the Underlying Index or any data included therein.
About the United Nations Capital Development Fund
The
United Nations Capital Development Fund (“UNCDF”) is a subsidiary organ of the
United Nations, an intergovernmental organization established by its member
states, with its headquarters in New York, New York. With its capital mandate
and instruments, UNCDF offers “last mile” finance models that unlock public and
private resources, especially at the domestic level, to reduce poverty and
support local economic development. By identifying those market segments where
innovative financing models can have transformational impact in helping to reach
the last mile and address exclusion and inequalities of access, UNCDF
contributes to a number of different Sustainable Development Goals (“SDGs”).
The role of the UNCDF is similar to that of an
advisory board in that it has no power to determine that any security or other
investment shall be purchased or sold by the Impact Shares Sustainable
Development Goals Global Equity ETF.
UNCDF does not endorse and/or recommend any
commercial or other products including financial products, goods, or services.
UNCDF does not endorse Impact Shares or any other commercial entity. UNCDF makes
no representations and gives no warranties of whatever nature in respect of
these documents, including
71
but not limited to the accuracy or completeness of
any information, facts and/or opinions contained therein. UNCDF does not make
any claim, prediction, warranty or representation whatsoever, expressly or
impliedly, either as to the result to be obtained from the use of information in
the present documents or the fitness or suitability of the referred information
for any particular purpose for which they may be put. UNCDF cannot be held
financially or legally liable for the use of and reliance of the opinions,
estimates, forecasts and findings in these documents. No reference to UNCDF
should be considered as an advice or recommendation by UNCDF to investors or
potential investors in relation to holding, purchasing or selling securities or
financial products or instruments. The UNCDF name and emblem are the exclusive
property of UNCDF. They are protected under international law. Unauthorized use
is prohibited. They may not be copied or reproduced in any way without the prior
written permission of UNCDF. Nothing herein shall constitute or be considered to
be a limitation upon or a waiver of, express or implied, the privileges and
immunities of the United Nations, including UNCDF, which are specifically
reserved.
DISTRIBUTOR
OF THE FUNDS
The
Funds’ shares are offered for sale through SEI Investments Distribution Co. (the
“Distributor”), One Freedom Valley Drive, Oaks, PA 19456. The Distributor does
not maintain a secondary market in shares of the Funds. The Distributor has no
role in determining the policies of the Funds or the securities that are
purchased or sold by the Funds.
DISTRIBUTION
(12B‑1) PLAN
Under
a Rule 12b‑1 Distribution Plan (the “Plan”) adopted by the Board, the Funds may
pay the Distributor and financial intermediaries, such as broker-dealers and
investment advisors, up to 0.25% on an annualized basis of the average daily net
assets of each Fund as reimbursement or compensation for distribution related
activities and other services with respect to the applicable Fund. Because these
fees are paid out of the applicable Fund’s assets on an on‑going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges. No payments have yet been authorized
by the Board, nor are any such expected to be made by the Fund under the Plan
during the current fiscal year.
Distribution
fees paid to the Distributor in the future may be spent on any activities or
expenses primarily intended to result in the sale of the Funds’ shares including
(but not limited to) to compensate the Distributor, the Funds’ investment
adviser or any of their affiliates, as well as any banks, broker/dealers or
other financial institutions for distribution or sales support services
rendered, and related expenses incurred, for or on behalf of the Funds. The
Distributor may also use any distribution fees paid in the future for the
provision of personal services to investors in the shares and/or the maintenance
of shareholder accounts. The Plan is considered a compensation type plan, which
means that each Fund pays the Distributor the entire fee, if authorized by the
Board in the future, regardless of the Distributor’s expenditures. Even if the
Distributor’s actual expenditures exceed the fee payable under the Plan, if
authorized by the Board in the future, at any given time, each Fund will not be
obligated to pay more than that fee under the Plan. If the Distributor’s actual
expenditures are less than the fee payable under the Plan, if authorized by the
Board in the future, at any given time, the Distributor may realize a profit
from the arrangement.
DISCLOSURE
OF PORTFOLIO HOLDINGS
A
description of the Funds’ policies and procedures with respect to the disclosure
of a Fund’s portfolio securities is available (i) in the SAI and
(ii) on the Funds’ website at www.impactetfs.org.
HOW
TO BUY AND SELL SHARES
The
Funds issue and redeem shares of the Fund only in aggregations of Creation
Units. A Creation Unit is comprised of 50,000 shares or such other amount as may
be from time to time determined to be in the best interests of a Fund by the
President of the Fund.
72
See
the section of this Prospectus entitled “Creation and Redemption of Shares” for
more information.
Shares
of the Funds are exchange traded and available for purchase on the Exchange by
any investors (not only members of the Partner Nonprofits) seeking social impact
consistent with the goals of the Partner Nonprofit.
Shares
of the Funds are listed on the Exchange for trading on any day that the Exchange
is open for business. Shares can be bought and sold throughout the trading day
like shares of other publicly-traded companies. The Funds do not impose any
minimum investment for shares of the Funds purchased on an exchange. Buying or
selling Funds’ shares on an exchange involves two types of costs that may apply
to all securities transactions. When buying or selling shares of the Funds
through a broker, you will likely incur a brokerage commission or other charges
determined by your broker. In addition, you may incur the cost of the “spread” –
that is, any difference between the bid price and the ask price. The commission
is frequently a fixed amount and may be a significant proportional cost for
investors seeking to buy or sell small amounts of shares. The spread varies over
time for shares of the Funds based on each Fund’s trading volume and market
liquidity, and is generally lower if the applicable Fund has a lot of trading
volume and market liquidity and higher if the applicable Fund has little trading
volume and market liquidity. Shares of the Funds trade on NYSE Arca, Inc. The
Board has adopted a policy of not monitoring for frequent purchases and
redemptions of Fund shares (“frequent trading”) that appear to attempt to take
advantage of a potential arbitrage opportunity presented by a lag between a
change in the value of the Funds’ portfolio securities after the close of the
primary markets for the Funds’ portfolio securities and the reflection of that
change in each Funds’ NAV (“market timing”), because the Funds’ shares are
listed for trading on a national securities exchange.
Because
secondary market trades do not involve the Funds directly, it is unlikely those
trades would cause many of the harmful effects of market timing, including
dilution, disruption of portfolio management, increases in the Funds’ trading
costs and the realization of capital gains.
Section 12(d)(1)
of the 1940 Act restricts investments by investment companies in the securities
of other investment companies. Registered investment companies are permitted to
invest in the Funds beyond the limits set forth in Section 12(d)(1),
subject to certain terms and conditions set forth in SEC rules or in an SEC
exemptive order issued to the Trust. In order for a registered investment
company to invest in shares of the Funds pursuant to the exemptive relief
obtained by the Trust from the limitations of Section 12(d)(1), the company
must enter into an agreement with the Trust.
Book
Entry
Shares
of the 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 or
registered owner of all outstanding shares of the Funds.
Investors
owning shares of the Funds are beneficial owners as shown on the records of DTC
or its participants. DTC serves as the securities depository for shares of the
Fund. DTC participants include securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. Beneficial owners of
shares are not entitled to receive physical delivery of stock certificates or to
have shares registered in their names, and they are not considered a registered
owner of shares. Therefore, to exercise any right as an owner of shares, a
beneficial owner must rely upon the procedures of DTC and its participants.
These procedures are the same as those that apply to any other securities that a
beneficial owner holds in book-entry or “street name” form.
Creation
and Redemption of Shares
The
Funds issue and sell Creation Units on a continuous basis through the
Distributor, without a sales load, at NAV plus a transaction fee next determined
after receipt of a purchase order, on any day that the Exchange is
73
open
for business. Creation units of shares may be purchased only by or through a DTC
participant that has entered into an Authorized Participant agreement with the
Distributor. Investors who are not Authorized Participants must make appropriate
arrangements with an Authorized Participant. The Funds may direct portfolio
transactions to certain Authorized Participants or their affiliates in certain
circumstances, such as to achieve best execution, but do not direct transactions
based on the purchase/sale of Funds’ shares. Due to the nature of the Funds’
investments, Authorized Participants may deposit cash, a portfolio of securities
constituting a representative sample of the applicable Underlying Index or a
combination of cash and a portfolio of securities constituting a representative
sample of the applicable Underlying Index in exchange for a specified amount of
Creation Units.
Redemptions
of Creation Units for securities will be subject to compliance with applicable
federal and state securities laws, and the Funds reserve the right to redeem
Creation Units for cash if the Funds could not lawfully deliver specific Fund
securities upon redemptions or could not do so without first registering the
securities under such laws. An Authorized Participant or an investor for which
it is acting subject to a legal restriction with respect to a particular
security included in the Fund securities applicable to the redemption of a
Creation Unit may be paid an equivalent amount of cash. This would specifically
prohibit delivery of Fund securities that are not registered in reliance upon
Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) to
a redeeming investor that is not a “qualified institutional buyer,” as such term
is defined under Rule 144A of the Securities Act. The Authorized Participant may
request the redeeming beneficial owner of the shares to complete an order form
or to enter into agreements with respect to such matters as compensating cash
payments.
Investors
should be aware that their particular broker may not be a DTC participant or may
not have executed an Authorized Participant agreement, in which case orders to
purchase creation units of shares may have to be placed by the investor’s broker
through an Authorized Participant. As a result, purchase orders placed through
an Authorized Participant may result in additional charges to such investor. The
Fund expects to enter into Authorized Participant agreements with only a small
number of DTC participants.
Purchases
through and outside the Clearing Process
An
Authorized Participant may place an order to purchase (or redeem) creation units
(i) through the Continuous Net Settlement clearing processes of the
National Securities Clearing Corporation (“NSCC”) as such processes have been
enhanced to effect purchases (and redemptions) of creation units, such processes
being referred to herein as the “Clearing Process,” or (ii) outside the
Clearing Process. To purchase or redeem through the Clearing Process, an
Authorized Participant must be a member of NSCC that is eligible to use the
Continuous Net Settlement system. For purchase orders placed through the
Clearing Process, the Authorized Participant agreement authorizes the
Distributor to transmit through the Funds’ transfer agent (the “Transfer Agent”)
to NSCC, on behalf of an Authorized Participant, such trade instructions as are
necessary to effect the Authorized Participant’s purchase order.
Pursuant
to such trade instructions to NSCC, the Authorized Participant agrees to deliver
the requisite deposit securities and the balancing amount to the applicable
Fund, together with the Transaction Fee and such additional information as may
be required by the Distributor.
An
Authorized Participant that wishes to place an order to purchase Creation Units
outside the Clearing Process must state that it is not using the Clearing
Process and that the purchase instead will be effected through a transfer of
securities and cash directly through DTC. Purchases (and redemptions) of
Creation Units settled outside the Clearing Process will be subject to a higher
Transaction Fee (as defined below) than those settled through the Clearing
Process.
Whether
placed through the Clearing Process or outside the Clearing Process, a purchase
order must be received by the Distributor by 4:00 p.m. Eastern Time if
transmitted by telephone, facsimile or other electronic means permitted under
the Participant Agreement in order to receive that day’s closing NAV per share.
74
Rejection
of Purchase Orders
The
Fund reserves the absolute right to reject a purchase order transmitted to it by
the Distributor in respect of the Funds if (a) the order is not in proper
form; (b) the purchaser or group of purchasers, upon obtaining the shares
ordered, would own 80% or more of the currently outstanding shares of the
applicable Fund; (c) the deposit securities delivered are not as specified
by the Adviser and the Adviser has not consented to acceptance of an in‑kind
deposit that varies from the designated deposit securities; (d) acceptance
of the purchase transaction order would have certain adverse tax consequences to
the applicable Fund; (e) the acceptance of the purchase transaction order
would, in the opinion of counsel, be unlawful; (f) the acceptance of the
purchase order transaction would otherwise, in the discretion of the applicable
Fund or the Adviser, have an adverse effect on the applicable Fund or the rights
of beneficial owners; (g) the value of a cash purchase amount, or the value
of the balancing amount to accompany an in‑kind deposit, exceeds a purchase
authorization limit extended to an Authorized Participant by the custodian and
the Authorized Participant has not deposited an amount in excess of such
purchase authorization with the custodian prior to the relevant cut‑off time for
the applicable Fund on the Transmittal Date; or (h) in the event that
circumstances outside the control of the Fund, the Distributor and the Adviser
make it impractical to process purchase orders. A Fund shall notify a
prospective purchaser of its rejection of the order of such person. The Funds
and the Distributor are under no duty, however, to give notification of any
defects or irregularities in the delivery of purchase transaction orders nor
shall either of them incur any liability for the failure to give any such
notification.
Redemptions
Similarly,
shares may be redeemed only in Creation Units at their NAV next determined after
receipt of a redemption request in good order by the Distributor on any day on
that the Exchange is open for business. All redemption requests, whether placed
through or outside the Clearing Process, must be received by the Distributor by
4:00 p.m. Eastern Time in order to receive that day’s Closing NAV per Share. The
Fund reserves the right to reject any redemption request that is not in good
order. Contact Impact Shares you have any questions about your particular
circumstances. In general, a purchase order is in “good order” if: (i) a
request in form satisfactory to the applicable Fund is received by the
Distributor or its agent from the Authorized Participant on behalf of itself or
another redeeming investor within the time periods specified herein; and
(ii) all other procedures set forth in the Authorized Participant Agreement
are properly followed. The Funds reserve the right to require additional
information at any time for a purchase order to be in “good order.”
The
Funds will not redeem shares in amounts less than Creation Units.
Beneficial
owners also may sell shares in the secondary market, but must accumulate enough
shares to constitute a Creation Unit in order to have such shares redeemed by
the Funds. There can be no assurance, however, that there will be sufficient
liquidity in the public trading market at any time to permit assembly of a
Creation Unit of shares. Investors should expect to incur brokerage and other
costs in connection with assembling a sufficient number of shares to constitute
a redeemable Creation Unit.
The
Funds may suspend the right of redemption and postpone payment for more than
seven days: (i) during periods when trading on the Exchange is closed on
days other than weekdays or holidays; (ii) during periods when trading on
the Exchange is restricted; (iii) during any emergency which makes it
impractical for the Funds to dispose of its securities or fairly determine the
NAV of the Funds; and (iv) during any other period permitted by the SEC for
your protection.
Because
new shares may be created and issued on an ongoing basis, at any point during
the life of the Funds, a “distribution,” as such term is used in the Securities
Act, may be occurring. Broker-dealers and other persons are cautioned that some
activities on their part may, depending on the circumstances, result in their
being deemed participants in a distribution in a manner that could render them
statutory underwriters and subject to the prospectus delivery and liability
provisions of the Securities Act. Any determination of whether one is an
underwriter must take into account all the relevant facts and circumstances of
each particular case.
75
Broker-dealers
should also note that dealers who are not “underwriters” but are participating
in a distribution (as contrasted to ordinary secondary transactions), and thus
dealing with shares that are part of an “unsold allotment” within the meaning of
Section 4 (3)(C) of the Securities Act, would be unable to take advantage
of the prospectus delivery exemption provided by Section 4(3) of the
Securities Act. For delivery of prospectuses to exchange members, the prospectus
delivery mechanism of Rule 153 under the Securities Act is available only with
respect to transactions on a national securities exchange.
Redemption
Proceeds
A
redemption request received by a Fund will be effected at the NAV per share next
determined after such Fund receives the request in good order. While a Fund will
generally pay redemptions proceeds wholly or partially in portfolio securities,
such Fund may pay your redemption proceeds in cash. In this event, the portfolio
of securities a Fund will deliver upon redemption of Fund shares may differ from
the portfolio of securities required for purchase of a Creation Unit. You will
be exposed to market risk until you convert these portfolio securities into
cash, you will likely pay commissions upon any such conversion, and you may
recognize taxable gain or loss resulting from fluctuations in value of the
portfolio securities between the conversion date and the redemption date. If you
receive illiquid securities, you could find it more difficult to sell such
securities and may not be able to sell such securities at prices that reflect
the Adviser’s or your assessment of their fair value or the amount paid for them
by the Fund. Illiquidity may result from the absence of an established market
for such securities as well as legal, contractual or other restrictions on their
resale and other factors.
Transaction
Fees
Authorized
Participants are charged standard creation and redemption transaction fees
(“Transaction Fees”) to offset transfer and other transaction costs associated
with the issuance and redemption of Creation Units. There is a fixed and a
variable component to the total Transaction Fee. A fixed Transaction Fee of $500
($3,500 in the case of the Impact Shares Sustainable Development Goals Global
Equity ETF) is applicable to each creation or redemption transaction, regardless
of the number of Creation Units purchased or redeemed. Creations and redemptions
are also subject to an additional variable charge of up to 1% of the net asset
value per Creation Unit, inclusive of the standard transaction fee, for
(i) in‑kind creations or redemptions effected outside the normal Clearing
Process, (ii) in whole or partial cash creations, (iii) in whole or
partial cash redemptions or (iv) non‑standard orders. The variable
component is primarily designed to cover non‑standard charges, e.g., brokerage,
taxes, foreign exchange, execution, market impact and other costs and expenses
related to the execution of trades resulting from such transaction. In all
cases, the Transaction Fee will be limited in accordance with the requirements
of the SEC applicable to management investment companies offering redeemable
securities. A Fund may determine not to charge the variable portion of a
Transaction Fee on certain orders when Impact Shares has determined that doing
so is in the best interests of Fund shareholders, e.g., for redemption orders
that facilitate the rebalance of a Fund’s portfolio in a more tax efficient
manner than could be achieved without such order. The variable portion of a
Transaction Fee may be higher or lower than the trading expenses incurred by a
Fund with respect to the transaction.
No
redemption fee will exceed 2% of the value of the Creation Unit redeemed.
Net
Asset Value
The
NAV per share of the Fund is calculated as of 4:00 p.m., Eastern Time, on each
day that the Exchange is open for business, except on days on which regular
trading on the Exchange is scheduled to close before 4:00, when the Fund
calculates NAV as of the scheduled close of regular trading. The Exchange is
open Monday through Friday, but currently is scheduled to be closed on New
Year’s Day, Dr. Martin Luther King, Jr. Day, Presidents’ Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day or
on the preceding Friday or subsequent Monday when a holiday falls on a Saturday
or Sunday, respectively.
76
The
NAV per share is computed by dividing the value of a Fund’s net assets (i.e.,
the value of its securities and other assets less its liabilities, including
expenses payable or accrued but excluding capital stock and surplus)
attributable to such Fund by the total number of shares of such Fund outstanding
at the time the determination is made.
The
Funds’ portfolio securities are valued in accordance with the Funds’ valuation
policies approved by the Board. The value of a Fund’s investments is generally
determined as follows:
|
• |
|
Portfolio
securities for which market quotations are readily available are valued at
their current market value. When market quotations are not readily
available (or are deemed unreliable) for one or more portfolio securities,
the 1940 Act requires the Funds to use the investment’s fair value, as
determined in good faith. Pursuant to Rule 2a‑5 under the 1940 Act, has
designated the Adviser as the valuation designee to perform fair value
determinations , subject to Board oversight. |
|
• |
|
Foreign
securities listed on foreign exchanges are valued based on quotations from
the primary market in which they are traded and are translated from the
local currency into U.S. dollars using current exchange rates. Foreign
securities may trade on weekends or other days when the Funds does not
calculate NAV. As a result, the market value of these investments may
change on days when you cannot buy or redeem shares of the Funds.
|
|
• |
|
Investments
by the Funds in any mutual fund are valued at their respective NAVs as
determined by those mutual funds each business day. The prospectuses for
those mutual funds explain the circumstances under which those funds will
use fair value pricing and the effects of using fair value pricing.
|
|
• |
|
Pursuant
to the Valuation Designee’s fair value policies and procedures, securities
for which market quotations are not readily available or for which the
market price is determined to be unreliable, may include but are not
limited to securities that are subject to legal or contractual
restrictions on resale, securities for which no or limited trading
activity has occurred for a period of time, or securities that are
otherwise deemed to be illiquid (i.e., securities that cannot be disposed
of within seven days at approximately the price at which the security is
currently priced by the Fund which holds the security). Market quotations
may also be not “readily available” if a significant event occurs after
the close of the principal exchange on which a portfolio security trades
(but before the time for calculation of such Fund’s NAV) if that event
affects or is likely to affect (more than minimally) the NAV per share of
such Fund. In determining the fair value price of a security, the
Valuation Designee may use a number of other methodologies, including
those based on discounted cash flows, multiples, recovery rates, yield to
maturity or discounts to public comparables. The Valuation Designee may
also employ independent pricing services. Fair value pricing involves
judgments that are inherently subjective and inexact; as a result, there
can be no assurance that fair value pricing will reflect actual market
value, and it is possible that the fair value determined for a security
will be materially different from the value that actually could be or is
realized upon the sale of that asset. Valuing the Funds’ investments using
fair value pricing will result in using prices for those investments that
may differ from current market valuations. Use of fair value prices and
certain current market valuations could result in a difference between the
prices used to calculate each Fund’s NAV and the prices used by each
applicable Underlying Index, which, in turn, could result in a difference
between a Fund’s performance and the performance of its Underlying Index.
|
Share
Prices
The
trading prices of the Funds’ shares in the secondary market generally differ
from each Fund’s daily NAV and are affected by market forces such as supply and
demand, economic conditions and other factors. Information regarding the
intraday value of shares of a Fund, also known as the “indicative optimized
portfolio value” (“IOPV”), is disseminated every 15 seconds throughout the
trading day by the national securities exchange on which the Funds’ shares are
listed or by market data vendors or other information providers. The
77
IOPV
is based on the current market value of the securities and/or cash required to
be deposited in exchange for a Creation Unit. The IOPV does not reflect
operating expenses or other accruals. The IOPV does not necessarily reflect the
precise composition of the current portfolio of securities held by a Fund at a
particular point in time or the best possible valuation of the current
portfolio. Therefore, the IOPV should not be viewed as a “real-time” update of a
Fund’s NAV, which is computed only once a day. The IOPV is generally determined
by using both current market quotations and/or price quotations obtained from
broker-dealers that may trade in the portfolio securities held by a Fund. The
quotations of certain Fund holdings may not be updated during U.S. trading hours
if such holdings do not trade in the U.S. The Funds are not involved in, or
responsible for, the calculation or dissemination of the IOPV and make no
representation or warranty as to its accuracy.
Premium/Discount
Information
The
NAV of each Fund will fluctuate with changes in the market value of each Fund’s
portfolio holdings. The market price of each Fund will fluctuate in accordance
with changes in its NAV, as well as market supply and demand. Shareholders may
pay more than NAV when they buy a Fund’s shares and receive less than NAV when
they sell those shares, because shares are bought and sold at current Market
Prices.
Premiums
or discounts are the differences (expressed as a percentage) between the NAV and
market price of a Fund on a given day, generally at the time the NAV is
calculated. A premium is the amount that a Fund is
trading
above the reported NAV, expressed as a percentage of the NAV. A discount is the
amount that a Fund is trading below the reported NAV, expressed as a percentage
of the NAV. Further information about the premium and discounts for the Fund is
available at www.impactetfs.org.
Dividends
and Other Distributions
The
Funds intend to declare and pay dividends of net investment income quarterly and
to pay any capital gain distributions on an annual basis. There is no fixed
dividend rate, and there can be no assurance that the Funds will pay any
dividends or make any capital gain distributions.
No
dividend reinvestment service is provided by the Funds. Broker-dealers may make
available the DTC book-entry Dividend Reinvestment Service for use by beneficial
owners of the Funds for reinvestment of its dividend distributions. Beneficial
owners should contact their broker to determine the availability and costs of
the service and the details of participation therein. Brokers may require
beneficial owners 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 of
the Funds purchased in the secondary market. Dividends and other taxable
distributions are taxable to you, whether received in cash or reinvested in
additional shares of the Funds pursuant to DTC’s Dividend Reinvestment Service.
Shareholders using the Dividend Reinvestment Service should consult their
broker-dealer for more information about the specific terms of the service,
including potential tax consequences to such shareholders in light of their
particular circumstances.
Capitalization
Criteria
The
Funds are subject to market capitalization criteria, such as policies adopted
pursuant to Rule 35d‑1 under the 1940 Act (the so‑called “names rule”), that are
tied to specific securities indices (“reference indices”). When each Fund’s
reference index is periodically rebalanced or reconstituted, the applicable Fund
may require a reasonable time period to align its investment portfolio with any
new market capitalization criteria that result from changes to the reference
index.
INDEX
PROVIDER FOR THE EQUITY ETFS
The
Index Provider for the Equity ETFs shall not be liable (whether in negligence or
otherwise) to the parties or any other person for any error in the applicable
Underlying Index, and the Index Provider is under no
78
obligation
to advise the parties or any person of any error therein. The Index Provider
makes no representation whatsoever, whether express or implied, as to the
advisability of purchasing or selling the Equity ETFs, the ability of the
Underlying Indices to track relevant markets’ performances, or otherwise
relating to the Underlying Indices or any transaction or product with respect
thereto, or of assuming any risks in connection therewith. The Index Provider
has no obligation to take the needs of any party into consideration in
determining, composing or calculating the Underlying Indices. No party
purchasing or selling the Equity ETFs, nor the Index Provider, shall have any
liability to any party for any act or failure to act by the Index Provider in
connection with the determination, adjustment, calculation or maintenance of the
Underlying Indices. The Index Provider and its affiliates may deal in any
obligations that compose the Underlying Indices, and may, where permitted,
accept deposits from, make loans or otherwise extend credit to, and generally
engage in any kind of commercial or investment banking or other business with
the issuers of such obligations or their affiliates, and may act with respect to
such business as if the Underlying Indices did not exist, regardless of whether
such action might adversely affect the Underlying Indices or the Equity ETFs.
Morningstar,
Inc. (“Morningstar”) is the Index Provider to the Equity ETFs. Morningstar is a
provider of independent investment research in North America, Europe, Australia,
and Asia. The company offers an extensive line of products and services for
individual investors, financial advisors, asset managers, retirement plan
providers and sponsors, and institutional investors in the private capital
markets. Morningstar provides data and research insights on a wide range of
investment offerings, including managed investment products, publicly listed
companies, private capital markets, and real-time global market data.
Morningstar also offers investment management services through its investment
advisory subsidiaries, with more than $200 billion in assets under
advisement and management as of December 31, 2017. The company has
operations in 27 countries. Morningstar is not affiliated with the Funds,
Adviser, or the Distributor. SPDJ is the calculation agent for each Underlying
Index. SPDJ is not affiliated with Morningstar, Trust, Adviser, or the
Distributor, or any of their respective affiliates.
TAXATION
The
following discussion is a summary of some of the important U.S. federal income
tax considerations generally applicable to an investment in the Funds. Your
investment may have other tax implications. The discussion reflects provisions
of the Code, existing Treasury regulations, rulings published by the Internal
Revenue Service (“IRS”), and other applicable authorities, as of the date of
this Prospectus. These authorities may be changed, possibly with retroactive
effect, or subject to new legislative, administrative or judicial
interpretations. No attempt is made to present a detailed explanation of all
U.S. federal, state, local and foreign tax law concerns affecting the Funds and
their shareholders (including shareholders owning large positions in the Funds)
or to address all aspects of taxation that may apply to Authorized Participants,
individual shareholders or to specific types of shareholders, such as foreign
persons, that may qualify for special treatment under U.S. federal income tax
laws. The discussion set forth herein does not constitute tax advice. Please
consult your tax advisor about foreign, federal, state, local or other tax laws
applicable to you. For more information, please see “Income Tax Considerations”
in the SAI.
The
Funds intend to elect to be treated and intend to qualify annually as a
regulated investment company (“RIC”) under Subchapter M of the Code including by
complying with the applicable qualifying income and diversification
requirements. If the Funds so qualify and satisfy certain distribution
requirements, the Funds generally will not be subject to U.S. federal income tax
on income and gains that the Funds distribute to their shareholders in a timely
manner in the form of dividends or capital gain dividends (as defined below). As
described in “Dividends and Other Distributions” above, the Funds intend to
distribute at least annually all or substantially all of its net investment
income and net realized capital gains. The Funds will be subject to a Fund-level
income tax at regular corporate income tax rates on any taxable income or gains
that they does not timely distribute to their shareholders.
If
a Fund were to fail to distribute in a calendar year at least an amount equal to
the sum of (i) 98% of its ordinary income for such year, (ii) 98.2% of its
capital gains in excess of its capital losses (adjusted for certain
79
ordinary
losses) for the one‑year period ending on October 31 of such year (or
November 30 or December 31 of that year if a Fund is permitted to
elect and so elects), and (iii) any such amounts retained from the prior
year, such Fund would be subject to a nondeductible 4% excise tax on the
undistributed amounts. For these purposes, a Fund will be treated as having
distributed any amount on which it is subject to corporate income tax for the
taxable year ending within the calendar year .While the Funds intend to
distribute any income and capital gain in the manner necessary to minimize
imposition of the 4% U.S. federal excise tax, there can be no assurance that
sufficient amounts of a Fund’s taxable income and capital gain will be
distributed to avoid entirely the imposition of the tax. In that event, such
Fund will be liable for the excise tax only on the amount by which it does not
meet the foregoing distribution requirement.
Additionally,
if for any taxable year a Fund was not to qualify as a RIC and was ineligible to
or otherwise did not cure such failure, all of its taxable income and gain would
be subject to a Fund-level tax at regular corporate income tax rates without any
deduction for distributions to shareholders. This treatment would reduce such
Fund’s net income available for investment or distribution to its shareholders.
In addition, all distributions from earnings and profits, including any net
long-term capital gains, would be taxable to shareholders as ordinary income.
Some portions of such distributions may be eligible for the dividends-received
deduction in the case of corporate shareholders or to be treated as “qualified
dividend income” in the case of individual shareholders. Such Fund also could be
required to recognize unrealized gains, pay substantial taxes and interest and
make substantial distributions before requalifying as a RIC that is accorded
special tax treatment.
The
tax rules applicable to certain derivative instruments in which the Funds may
invest are uncertain under current law, including the provisions applicable to
RICs under Subchapter M of the Code. For instance, the timing and character of
income or gains arising from certain derivatives can be uncertain, including for
Subchapter M purposes. Accordingly, while the Funds intend to account for such
transactions in a manner they deem to be appropriate, an adverse determination
or future guidance by the IRS with respect to one or more of these rules (which
determination or guidance could be retroactive) may adversely affect the Funds’
ability to meet one or more of the relevant requirements to maintain their
qualification as RICs, as well as to avoid Fund-level taxes. See the “Statement
of Additional Information” for additional detail regarding the Funds’
investments in derivatives.
The
Funds’ investments in foreign securities, if any, may be subject to foreign
withholding or other taxes. Tax treaties between the U.S. and other countries
may reduce or eliminate such taxes. Foreign taxes paid by the Funds will reduce
the return from the Funds’ investments. Shareholders generally will not be
entitled to a claim or deductions for such taxes on their own returns.
Distributions
paid to you by a Fund from net capital gain (that is, the excess of any net
long-term capital gain over net short-term capital loss, in each case with
reference to any loss carryforwards) that such Fund properly reports to you as a
capital gain dividend (“capital gain dividends”) generally are taxable to you as
long-term capital gain includible in net capital gain and taxed to individuals
at reduced rates, regardless of how long you have held your shares. All other
dividends paid to you by a Fund (including dividends from short-term capital
gain (that is, the excess of any net short-term capital gain over any net
long-term capital loss)) from its current or accumulated earnings and profits
generally are taxable to you as ordinary income. Distributions of investment
income reported by a Fund as derived from “qualified dividend income” will be
taxed in the hands of individuals at the rates applicable to long-term capital
gains, provided holding periods and other requirements are met at both the
shareholder and Fund level.
A
Medicare contribution tax of 3.8% is imposed on the “net investment income” of
certain individuals, estates and trusts to the extent their income exceeds
certain threshold amounts. Net investment income generally includes for this
purpose dividends paid by a Fund, including any capital gain dividends, and
capital gains recognized on the taxable sale, redemption or exchange of shares
of such Fund. Shareholders are advised to consult their tax advisors regarding
the possible implications of this additional tax on their investment in a Fund.
80
If,
for any taxable year, a Fund’s total distributions exceed both current earnings
and profits and accumulated earnings and profits, the excess will generally be
treated as a tax‑free return of capital up to the amount of your tax basis in
the shares. The amount treated as a tax‑free return of capital will reduce your
tax basis in the shares, thereby increasing your potential gain or reducing your
potential loss on the subsequent sale of the shares. Any amounts distributed to
you in excess of your tax basis in the shares will be taxable to you as capital
gain (assuming the shares are held as a capital asset).
Dividends
and other taxable distributions are taxable to you, whether received in cash or
reinvested in additional shares of a Fund pursuant to DTC’s Dividend
Reinvestment Service (see “Dividends and Other Distributions”). Dividends and
other distributions paid by a Fund generally are treated as received by you at
the time the dividend or distribution is made. If, however, a Fund pays you a
dividend in January that was declared in the previous October, November or
December and you were a shareholder of record on a specified record date in one
of those months, then such dividend will be treated for tax purposes as being
paid by such Fund and received by you on December 31 of the year in which
the dividend was declared.
The
price of shares purchased at any time may reflect the amount of a forthcoming
distribution. If you purchase shares just prior to the ex‑dividend date for a
distribution, you generally will receive a distribution that will be taxable to
you even though it represents in part a return of your invested capital.
The
Funds (or your broker or other financial intermediary through which you own your
shares) will send information after the end of each calendar year setting forth
the amount and tax status of any dividends or other distributions paid to you by
the Funds. Dividends and other distributions may also be subject to state, local
and other taxes.
If
you sell or otherwise dispose of any of your shares of a Fund, you will
generally recognize a gain or loss in an amount equal to the difference between
your tax basis in such shares of the Fund and the amount you receive upon
disposition of such shares. If you hold your shares as capital assets, any such
gain or loss will generally be long-term capital gain or loss if you have held
(or are treated as having held) such shares for more than one year at the time
of sale. All or a portion of any loss you realize on a taxable sale or exchange
of your shares of a Fund will be disallowed if you acquire other shares of such
Fund (whether through the reinvestment of dividends or otherwise) within a
61‑day period beginning 30 days before and ending 30 days after your sale or
exchange of the shares. In such case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. In addition, any loss realized upon a
taxable sale or exchange of Fund shares held (or deemed held) by you for six
months or less will be treated as long-term, rather than short-term, to the
extent of any capital gain dividends received (or deemed received) by you with
respect to those shares. Present law taxes both long-term and short-term capital
gains of corporations at the rates applicable to ordinary income.
The
Funds (or your broker or other financial intermediary through which you own your
shares) may be required to withhold, for U.S. federal backup withholding tax
purposes, a portion of the dividends, distributions and redemption proceeds
payable to you if: (i) you fail to provide the Funds (or the intermediary)
with your correct taxpayer identification number (in the case of an individual,
generally, such individual’s social security number) or to make the required
certification; or (ii) the Funds (or the intermediary) has been notified by
the IRS that you are subject to backup withholding. Certain shareholders are
exempt from backup withholding. Backup withholding is not an additional tax and
any amount withheld may be refunded or credited against your U.S. federal income
tax liability, if any, provided that you furnish the required information to the
IRS.
Authorized Participant Taxes Purchase and Redemption
of Creation Units
Authorized
Participants should consult their tax advisors about the federal, state, local
or foreign tax consequences of purchasing and redeeming Creation Units in the
Funds.
81
THE
FOREGOING IS A GENERAL AND ABBREVIATED SUMMARY OF THE PROVISIONS OF THE CODE AND
THE TREASURY REGULATIONS IN EFFECT AS THEY DIRECTLY GOVERN THE TAXATION OF THE
FUNDS AND THEIR SHAREHOLDERS. THESE PROVISIONS ARE SUBJECT TO CHANGE BY
LEGISLATIVE OR ADMINISTRATIVE ACTION, AND ANY SUCH CHANGE MAY BE RETROACTIVE. A
MORE COMPLETE DISCUSSION OF THE TAX RULES APPLICABLE TO THE FUNDS AND THEIR
SHAREHOLDERS, INCLUDING FOREIGN SHAREHOLDERS, CAN BE FOUND IN THE STATEMENT OF
ADDITIONAL INFORMATION, WHICH IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS REGARDING SPECIFIC
QUESTIONS AS TO U.S. FEDERAL, STATE, LOCAL AND FOREIGN INCOME OR OTHER TAXES.
82
FINANCIAL
HIGHLIGHTS
The
tables that follow present performance information about the shares of each
Fund, as applicable. This information is intended to help you understand the
financial performance of each Fund during the period of its operations. All per
share information reflects financial information for a single Fund share. Total
returns in the tables represent the rate that you would have earned (or lost) on
an investment in the relevant Fund over the period covered, assuming you
reinvested all of your dividends and distributions.
The
information has been derived from financial statements audited by
Ernst & Young LLP, an Independent Registered Public Accounting Firm,
whose report, along with each Fund’s financial statements, is included in each
Fund’s annual report to shareholders dated June 30, 2022, and is
incorporated by reference into the SAI.
You
can obtain a copy of the Fund’s 2022 Annual Report, which contain more
performance information, at no charge, at the Funds’ website at
www.impactetfs.org or by calling 844‑448‑3383 (844‑GIVE‑ETF).
83
Impact
Shares Trust I
Financial
Highlights
Selected
Per Share Data & Ratios
For
the year/period ended June 30,
For
a Share Outstanding Throughout the Year/Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net
Asset Value, Beginning of Period ($) |
|
|
Net Investment Income ($)* |
|
|
Net Realized and Unrealized Gain
(Loss) on Investments ($) |
|
|
Total
from Operations ($) |
|
|
Distributions from
Net Investment Income ($) |
|
|
Distributions from
Net Realized Capital Gains ($) |
|
|
Return of Capital ($) |
|
Total Distributions ($) |
|
|
Net Asset Value, End of Period ($) |
|
|
Market Price, End of
Period ($) |
|
|
Total Return(%)(1) |
|
|
Net Assets End
of Period ($) (000) |
|
|
Ratio
of Expenses to Average Net Assets (%) |
|
|
Ratio of Net Investment Income
to Average Net Assets (%) |
|
|
Portfolio Turnover (%)(2) |
|
Impact
Shares YWCA Women’s Empowerment ETF |
|
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
2022 |
|
|
32.85 |
|
|
|
0.27 |
|
|
|
(3.99 |
) |
|
|
(3.72 |
) |
|
|
(0.27 |
) |
|
|
(0.89 |
) |
|
— |
|
|
(1.16 |
) |
|
|
27.97 |
|
|
|
27.92 |
|
|
|
(11.98 |
) |
|
|
30,069 |
|
|
|
0.75 |
|
|
|
0.83 |
|
|
|
36 |
|
2021 |
|
|
22.81 |
|
|
|
0.21 |
|
|
|
11.59 |
|
|
|
11.80 |
|
|
|
(0.47 |
) |
|
|
(1.29 |
) |
|
— |
|
|
(1.76 |
) |
|
|
32.85 |
|
|
|
32.88 |
|
|
|
52.85 |
|
|
|
29,562 |
|
|
|
0.75 |
(9) |
|
|
0.73 |
|
|
|
39 |
|
2020 |
|
|
20.63 |
|
|
|
0.28 |
|
|
|
2.16 |
|
|
|
2.44 |
|
|
|
(0.26 |
) |
|
|
— |
|
|
— |
|
|
(0.26 |
) |
|
|
22.81 |
|
|
|
22.77 |
|
|
|
11.92 |
|
|
|
7,414 |
|
|
|
0.75 |
(8) |
|
|
1.30 |
|
|
|
47 |
|
2019(3) |
|
|
20.00 |
|
|
|
0.27 |
|
|
|
0.63 |
|
|
|
0.90 |
|
|
|
(0.25 |
) |
|
|
(0.02 |
) |
|
—^ |
|
|
(0.27 |
) |
|
|
20.63 |
|
|
|
20.62 |
|
|
|
4.71 |
|
|
|
4,126 |
|
|
|
0.76 |
(4)(5) |
|
|
1.60 |
(4) |
|
|
7 |
|
Impact
Shares NAACP Minority Empowerment ETF |
|
2022 |
|
|
32.69 |
|
|
|
0.33 |
|
|
|
(4.25 |
) |
|
|
(3.92 |
) |
|
|
(0.32 |
) |
|
|
(0.81 |
) |
|
— |
|
|
(1.13 |
) |
|
|
27.64 |
|
|
|
27.70 |
|
|
|
(12.70 |
) |
|
|
35,236 |
|
|
|
0.49 |
|
|
|
1.00 |
|
|
|
35 |
|
2021 |
|
|
23.17 |
|
|
|
0.30 |
|
|
|
9.68 |
|
|
|
9.98 |
|
|
|
(0.35 |
) |
|
|
(0.11 |
) |
|
— |
|
|
(0.46 |
) |
|
|
32.69 |
|
|
|
32.76 |
|
|
|
43.35 |
|
|
|
31,875 |
|
|
|
0.50 |
(10) |
|
|
1.03 |
|
|
|
49 |
|
2020 |
|
|
21.16 |
|
|
|
0.28 |
|
|
|
1.97 |
|
|
|
2.25 |
|
|
|
(0.24 |
) |
|
|
— |
|
|
— |
|
|
(0.24 |
) |
|
|
23.17 |
|
|
|
23.23 |
|
|
|
10.71 |
|
|
|
5,792 |
|
|
|
0.75 |
(8) |
|
|
1.27 |
|
|
|
25 |
|
2019(6) |
|
|
20.00 |
|
|
|
0.28 |
|
|
|
1.17 |
|
|
|
1.45 |
|
|
|
(0.28 |
) |
|
|
(0.01 |
) |
|
— |
|
|
(0.29 |
) |
|
|
21.16 |
|
|
|
21.11 |
|
|
|
7.37 |
|
|
|
2,222 |
|
|
|
0.75 |
(4)(7) |
|
|
1.46 |
(4) |
|
|
19 |
|
Amounts
designated as “-” are $0.
* |
Per
share data calculated using average shares method.
|
^ |
Amount
is less than $0.005. |
(1) |
Total
return is based on the change in net asset value of a share during the
year or period and assumes reinvestment of dividends and distributions at
net asset value. Total return is for the period indicated and periods of
less than one year have not been annualized. The return shown does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. |
(2) |
Portfolio
turnover rate is for the period indicated and has not been annualized.
Excludes effect of in-kind transfers. |
(3) |
Commenced
operations on August 24, 2018. |
(5) |
The
ratio of Expenses to Average Net Assets includes the voluntary expense
reimbursements (See Note 3). If these reimbursements were excluded, the
ratio would have been 2.24% for the period ended June 30, 2019.
|
(6) |
Commenced
operations on July 18, 2018. |
(7) |
The
ratio of Expenses to Average Net Assets includes the voluntary expense
reimbursements (See Note 3). If these reimbursements were excluded, the
ratio would have been 1.66% for the period ended June 30, 2019.
|
(8) |
The
ratio of Expenses to Average Net Assets includes the voluntary expense
reimbursements (See Note 3). If these reimbursements were excluded, the
ratio would have been 1.11% for the year ended June 30, 2020.
|
(9) |
The
ratio of Expenses to Average Net Assets includes the voluntary expense
reimbursements (See Note 3). If these reimbursements were excluded, the
ratio would have been 0.86% for the year ended June 30, 2021.
|
(10) |
The
ratio of Expenses to Average Net Assets includes the voluntary expense
reimbursements (See Note 3). If these reimbursements were excluded, the
ratio would have been 0.61% for the year ended June 30, 2021.
|
84
Impact
Shares Trust I
Financial
Highlights
Selected
Per Share Data & Ratios
For
the year/period ended June 30,
For
a Share Outstanding Throughout the Year/Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net
Asset Value, Beginning of Period ($) |
|
|
Net Investment Income ($)* |
|
|
Net Realized and Unrealized Gain
(Loss) on Investments ($) |
|
|
Total
from Operations ($) |
|
|
Distributions from
Net Investment Income ($) |
|
|
Distributions from
Net Realized Capital Gains ($) |
|
|
Total Distributions ($) |
|
|
Net Asset Value, End of Period ($) |
|
|
Market Price, End
of Period ($) |
|
|
Total Return(%)(1) |
|
|
Net Assets End
of Period ($) (000) |
|
|
Ratio
of Expenses to Average Net Assets (%) |
|
|
Ratio of Net Investment Income
to Average Net Assets (%) |
|
|
Portfolio Turnover (%)(2) |
|
Impact
Shares Sustainable Development Goals Global Equity ETF |
|
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
2022 |
|
|
27.28 |
|
|
|
0.43 |
|
|
|
(3.27 |
) |
|
|
(2.84 |
) |
|
|
(0.39 |
) |
|
|
(2.48 |
) |
|
|
(2.87 |
) |
|
|
21.57 |
|
|
|
21.78 |
|
|
|
(12.29 |
) |
|
|
5,391 |
|
|
|
0.75 |
|
|
|
1.65 |
|
|
|
30 |
|
2021 |
|
|
20.05 |
|
|
|
0.30 |
|
|
|
7.33 |
|
|
|
7.63 |
|
|
|
(0.35 |
) |
|
|
(0.05 |
) |
|
|
(0.40 |
) |
|
|
27.28 |
|
|
|
27.51 |
|
|
|
38.16 |
|
|
|
5,455 |
|
|
|
0.75 |
(7) |
|
|
1.21 |
|
|
|
77 |
|
2020 |
|
|
20.54 |
|
|
|
0.35 |
|
|
|
(0.70 |
) |
|
|
(0.35 |
) |
|
|
(0.14 |
) |
|
|
— |
|
|
|
(0.14 |
) |
|
|
20.05 |
|
|
|
20.00 |
|
|
|
(1.75 |
) |
|
|
3,008 |
|
|
|
0.75 |
(6) |
|
|
1.72 |
|
|
|
41 |
|
2019(3) |
|
|
20.00 |
|
|
|
0.32 |
|
|
|
0.60 |
|
|
|
0.92 |
|
|
|
(0.38 |
) |
|
|
— |
|
|
|
(0.38 |
) |
|
|
20.54 |
|
|
|
20.66 |
|
|
|
4.67 |
|
|
|
1,027 |
|
|
|
0.75 |
(4)(5) |
|
|
2.08 |
(4) |
|
|
25 |
|
Impact
Shares Affordable Housing MBS ETF |
|
2022(8) |
|
|
20.00 |
|
|
|
0.14 |
|
|
|
(1.97 |
) |
|
|
(1.83 |
) |
|
|
(0.34 |
) |
|
|
— |
|
|
|
(0.34 |
) |
|
|
17.83 |
|
|
|
17.88 |
|
|
|
(9.22 |
) |
|
|
91,812 |
|
|
|
0.30 |
(4)(9) |
|
|
0.81 |
(4) |
|
|
78 |
|
Amounts
designated as “-” are $0.
* |
Per
share data calculated using average shares method.
|
(1) |
Total
return is based on the change in net asset value of a share during the
year or period and assumes reinvestment of dividends and distributions at
net asset value. Total return is for the period indicated and periods of
less than one year have not been annualized. The return shown does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. |
(2) |
Portfolio
turnover rate is for the period indicated and has not been annualized.
Excludes effect of in-kind transfers. |
(3) |
Commenced
operations on September 20, 2018. |
(5) |
The
ratio of Expenses to Average Net Assets includes the voluntary expense
reimbursements (See Note 3). If these reimbursements were excluded, the
ratio would have been 1.38% for the period ended June 30, 2019.
|
(6) |
The
ratio of Expenses to Average Net Assets includes the voluntary expense
reimbursements (See Note 3). If these reimbursements were excluded, the
ratio would have been 1.27% for the year ended June 30, 2020.
|
(7) |
The
ratio of Expenses to Average Net Assets includes the voluntary expense
reimbursements (See Note 3). If these reimbursements were excluded, the
ratio would have been 0.86% for the year ended June 30, 2021.
|
(8) |
Commenced
operations on July 26, 2021. |
(9) |
The
ratio of Expenses to Average Net Assets excluding waivers is 0.53% for the
period ended June 30, 2022. |
85
www.impactetfs.org
More
information about the Fund is available without charge upon request through the
following:
Statement of Additional Information (SAI): The
SAI, as it may be amended or supplemented from time to time, includes more
detailed information about the Fund and is available, free of charge, on the
Fund’s website at www.impactetfs.org. The SAI is on file with the SEC and is
incorporated by reference into this Prospectus. This means that the SAI, for
legal purposes, is a part of this Prospectus.
Annual and Semi-Annual Reports: Additional
information about the Fund’s investments is available in the Fund’s annual and
semi-annual reports to shareholders, which will be available, free of charge, on
the Fund’s website at www.impactetfs.org.
To
Obtain More Information:
By
Internet:
www.impactetfs.org
By
Telephone:
Call
844‑448‑3383 (844‑GIVE‑ETF)
By
Mail:
Impact
Shares Trust I
2189
Broken Bend
Frisco,
Texas 75034
From
the SEC:
You
can also obtain the SAI or the annual and semi-annual reports, as well as other
information about the Fund, from the EDGAR Database on the SEC’s website
(http://www.sec.gov). You may request documents from the SEC, upon payment of a
duplicating fee, by e‑mailing the SEC at
[email protected].
The
Trust’s Investment Company Act
Registration
Number: 811‑23312