ck0001683471-20210531
PROSPECTUS
Wahed
FTSE USA Shariah ETF
(HLAL)
Listed
on The NASDAQ Stock Market LLC
September 30,
2021
The
SEC has not approved or disapproved of these securities or passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
TABLE
OF CONTENTS
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Net
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WAHED
FTSE USA SHARIAH ETF – FUND SUMMARY
Investment Objective
The Wahed FTSE USA Shariah ETF (the
“Fund”) seeks to track the total return performance, before fees and expenses,
of the FTSE USA Shariah Index (the “Index”).
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees (fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
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Management
Fee |
0.50% |
Distribution
and/or Service (Rule 12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.50% |
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Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year: $51 |
3
Years: $160 |
5
Years:
$280 |
10
Years:
$628 |
Portfolio Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These costs, which are not reflected in the Total
Annual Fund Operating Expenses or in the Example, affect the Fund’s performance.
For
the fiscal year ended May 31, 2021, the Fund’s portfolio turnover rate was
19% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund uses a “passive management” (or indexing) approach to seek to track the
total return performance, before fees and expenses, of the Index. The Index is
composed of common stocks of large and mid-capitalization U.S. companies the
characteristics of which meet the requirements of the Shariah and are consistent
with Islamic principles as interpreted by subject-matter experts (each, a
“Shariah-compliant company”).
FTSE
USA Shariah Index
The
Index is constructed using an objective, rules-based methodology and is
comprised of those companies included in the FTSE USA Index that are determined
to be Shariah-compliant companies based on their business activities and certain
financial ratios, as described below. The Shariah-compliant companies are then
weighted in the Index according to their market capitalization.
Companies
that receive income in excess of 5% of their total revenue from
Shariah-prohibited activities are removed from the list of companies eligible
for inclusion in the Index. Examples of such activities include:
•Conventional
finance (non-Islamic banking, finance and insurance, etc.);
•Alcohol
production or sale;
•Pork
related products and non-halal food production, packaging, and processing or any
other activity related to pork and non-halal food;
•Casino
management, gambling, or adult entertainment;
•Tobacco
manufacturing or sale; and
•Weapons,
arms, and other defense manufacturing.
Only
those companies that pass the following financial ratios will be considered
Shariah-compliant:
•Debt
is less than 33.333% of total assets;
•Cash
and interest-bearing items are less than 33.333% of total assets;
•Accounts
receivable and cash are less than 50% of total assets; and
•Total
interest and non-compliant activities income should not exceed 5% of total
revenue.
The
Index constituents are reviewed on an ongoing and annual basis to ensure that
they continue to be Shariah-compliant companies. The Index is reconstituted
quarterly. If it is discovered during an ongoing review that a non-compliant
security has been included in the Index in error, the security is removed from
the Index and the Fund within two business days following the discovery of the
error. The Index’s constituent securities are also reviewed on both an on-going
basis and annual basis by a Shariah consultant, Yasaar Limited, to determine if
any of the constituents should be considered for potential income remediation or
Purification. Purification is the process by which an investor donates certain
income earned from his or her investment in the Fund because certain of the
Fund’s investments unintentionally earned small amounts of income deemed to be
prohibited by Shariah principles, such as interest income. As discussed
under “Dividend Purification,” the Fund publishes on its website the per share
amount to be purified on a quarterly basis.
The
Fund’s Investment Strategy
The
Fund attempts to invest all, or substantially all, of its assets in the
component securities that make up the Index. Under normal circumstances, at
least 80% of the Fund’s total assets will be invested in the component
securities of the Index. Wahed Invest LLC (the “Adviser”), the Fund’s investment
adviser, expects that, over time, the correlation between the Fund’s performance
and that of the Index, before fees and expenses, will be 95% or better.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning the Fund generally will invest in all of the component
securities of the Index in approximately the same proportions as in the Index.
However, the Fund may use a “representative sampling” strategy, meaning it may
invest in a sample of the securities in the Index whose risk, return and other
characteristics closely resemble the risk, return and other characteristics of
the Index as a whole, when the Adviser believes it is in the best interests of
the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable or less liquid,
or as a result of legal restrictions or limitations such as tax diversification
requirements that apply to the Fund but not to the Index).
The
Fund generally may invest up to 20% of its total assets in securities or other
investments not included in the Index, but which comply with Shariah principles
and which the Adviser believes will help the Fund track the Index. For example,
the Fund may invest in securities that are not components of the Index to
reflect various corporate actions and other changes to the Index (such as
reconstitutions, additions, and deletions). The Fund may also invest up to 20%
of its total assets in cash and other investments, such as cash equivalents and
shares of other investment companies, each of which will be compatible with
Shariah principles. Uninvested monies will be held in non-interest-bearing
accounts.
To
the extent the Index concentrates (i.e., holds more than 25% of its total assets)
in the securities of a particular industry or group of related industries, the
Fund will concentrate its investments to approximately the same extent as the
Index. The Fund is deemed to be “non-diversified,” which means that it may
invest a greater percentage of its assets in the securities of a single issuer
or a small number of issuers than if it was a diversified
fund.
As of June 30, 2021, the Index had 229
constituents, and the four largest stocks and their weightings in the Index were
Apple Inc. (16.11%), Tesla Inc. (3.96%), Johnson & Johnson (3.26%), and
Proctor & Gamble (2.46%).
Principal Investment Risks
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and/or ability to meet its
objective. The following risks could affect the value of your investment in
the Fund:
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, sectors or companies in which the Fund invests.
Common stocks are generally exposed to greater risk than other types of
securities, such as preferred stocks and debt obligations, because common
stockholders generally have inferior rights to receive payment from issuers.
•ETF
Risks.
The Fund is an exchange traded fund (“ETF”), and, as a result of an ETF’s
structure, it is exposed to the following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
◦Trading. Although
Shares are listed for trading on The NASDAQ Stock Market, LLC (the “Exchange”)
and may be traded on U.S. exchanges other than the Exchange, there can be no
assurance that Shares will trade with any volume, or at all, on any stock
exchange. In stressed market conditions, the liquidity of Shares may begin to
mirror the liquidity of the Fund’s underlying portfolio holdings, which can be
significantly less liquid than Shares.
•Market
Capitalization Risk
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion. Large-capitalization companies may also be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole.
•Market
Events Risk. U.S.
and international markets have experienced significant periods of volatility in
recent years due to a number of economic, political and global macro factors,
including the impact of the coronavirus (COVID-19) pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. These developments as well as other events could result in
further market volatility and negatively affect financial asset prices, the
liquidity of certain securities and the normal operations of securities
exchanges and other markets. As a result, the risk environment remains
elevated.
•Market
Risk.
The trading prices of equity securities and other instruments fluctuate in
response to a variety of factors. The Fund’s NAV and market price may fluctuate
significantly in response to these and other factors. As a result, an investor
could lose money over short or long periods of time. Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and in many cases unprecedented volatility and
severe losses due to the pandemic caused by COVID‑19, a novel coronavirus. It is
unknown how long circumstances related to the pandemic will persist, whether
they will reoccur in the future, whether efforts to support the economy and
financial markets will be successful, and what additional implications may
follow from the pandemic. The impact of these events and other epidemics or
pandemics in the future could adversely affect Fund performance.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a lesser number of issuers than if it was a diversified fund. As a result,
the Fund may be more exposed to the risks associated with and developments
affecting an individual issuer or a lesser number of issuers than a fund that
invests more widely. This may increase the Fund’s volatility and cause the
performance of a relatively small number of issuers to have a greater impact on
the Fund’s performance.
•Passive
Investment Risk.
The Fund is not actively managed and its Adviser would not sell shares of an
equity security due to current or projected underperformance of a security
industry or sector unless that security is removed from the Index or the selling
of shares of that security is otherwise required upon a rebalancing of the Index
as addressed in the Index methodology.
•Sector
Risk. To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors. The Fund may invest a significant portion of its assets in
the following sectors and, therefore, the performance of the Fund could be
negatively impacted by events affecting each of these sectors.
◦Energy
Sector Risk. The
Energy Sector is comprised of energy, industrial, infrastructure, and logistics
companies, and will therefore be susceptible to adverse economic, environmental,
business, regulatory, or other occurrences affecting that sector. The Energy
Sector has historically experienced substantial price volatility. At times, the
performance of these investments may lag the performance of other sectors or the
market as a whole. Companies operating in the Energy Sector are subject to
specific risks, including, among others, fluctuations in commodity prices;
reduced consumer demand for commodities such as oil, natural gas, or petroleum
products; reduced availability of natural gas or other commodities for
transporting, processing, storing, or delivering; slowdowns in new construction;
extreme weather or other natural disasters; and threats of attack by terrorists
on energy assets. Additionally, Energy Sector companies are subject to
substantial government regulation and changes in the regulatory environment for
energy companies may adversely impact their profitability. Over time, depletion
of natural gas reserves and other energy reserves may also affect the
profitability of energy companies.
◦Information
Technology Sector Risk. The
Information Technology Sector includes companies that offer software and
information technology services, manufacturers and distributors of technology
hardware and equipment such as communications equipment, cellular phones,
computers and peripherals, electronic equipment and related instruments and
semiconductors. The Fund is subject to the risk that the securities of such
issuers will underperform the market as a whole due to legislative or regulatory
changes, adverse market conditions and/or increased competition affecting the
Information Technology Sector. The prices of the securities of companies
operating in the Information Technology Sector are closely tied to market
competition, increased sensitivity to short product cycles and aggressive
pricing, and problems with bringing products to market.
◦Health
Care Sector Risk.
Companies in the Health Care Sector are subject to extensive government
regulation and their profitability can be significantly affected by restrictions
on government reimbursement for medical expenses, rising costs of medical
products and services, pricing pressure (including price discounting), limited
product lines and an increased emphasis on the delivery of healthcare through
outpatient services. Companies in the Health Care Sector are heavily dependent
on obtaining and defending patents, which may be time consuming and costly, and
the expiration of patents may also adversely affect the profitability of these
companies. Health care companies are also subject to extensive litigation based
on product liability and similar claims. In addition, their products can become
obsolete due to industry innovation, changes in technologies or other market
developments. Many new products in the Health Care Sector require significant
research and development and may be subject to regulatory approvals, all of
which may be time consuming and costly with no guarantee that any product will
come to market.
•Shariah-Compliant
Investing Risk.
Islamic principles restrict the Fund’s ability to invest in certain market
sectors, such as financial companies and conventional fixed-income securities,
and reduce the size of the overall universe in which the Fund can invest. The
strategy to reduce the investable universe may limit investment opportunities
and adversely affect the Fund’s performance, especially in comparison to a more
diversified fund. Because Islamic principles preclude the use of interest-paying
instruments, the Fund’s cash reserves do not earn income.
•Tracking
Error Risk. As
with all index funds, the performance of the Fund and its Index may differ from
each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
•Underlying
Index Risk. Neither the Adviser nor the Index
Provider is able to guarantee the continuous availability or timeliness of the
production of the Index. The calculation and dissemination of the Index values
may be delayed if the information technology or other facilities of the Index
Provider, data providers and/or relevant stock exchange malfunction for any
reason. A significant delay may cause trading in shares of the Fund to be
suspended. Errors in Index data, computation and/or the construction in
accordance with its methodology may occur from time to time and may not be
identified and corrected by the Index Provider or other applicable party for a
period of time or at all, which may have an adverse impact on the Fund and its
shareholders.
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for the most
recent calendar year ended December 31. The table illustrates how the Fund’s
average annual returns for the 1-year and since inception periods compare with
those of the Index. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at https://funds.wahedinvest.com
or by calling the Fund toll free at 1-855-976-4747.
Calendar Year Total
Return
The calendar year-to-date total return of the
Fund as of June 30, 2021 was
11.60%. During the period of time shown in the bar
chart, the highest quarterly return
was 23.83% for the quarter ended June 30, 2020, and the
lowest quarterly return was
-21.02% for the quarter ended March 31,
2020.
Average
Annual Total Returns
(for
periods ended December 31, 2020)
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Wahed
FTSE USA Shariah ETF |
1-Year |
Since
Inception
(7/15/2019) |
Return Before
Taxes |
24.70% |
24.70% |
Return After Taxes on
Distributions |
24.35% |
24.31% |
Return After Taxes on Distributions and
Sale of Shares |
14.78% |
18.95% |
FTSE
USA Shariah Index
(reflects no deduction for
fees, expenses, or taxes) |
25.48% |
25.52% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. After-tax returns shown are
not relevant to investors who hold their shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts.
Portfolio
Management
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Adviser |
Wahed
Invest LLC |
Portfolio
Manager |
Samim
Abedi, Global Head of Portfolios for the Adviser, has been the portfolio
manager of the Fund since its inception in
2019. |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities (the “Deposit Securities”) and/or a designated amount of U.S.
cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at https://funds.wahedinvest.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an
individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
ADDITIONAL
INFORMATION ABOUT THE INDEX
FTSE
International Limited is the index provider and calculation agent for the Index
(the “Index Provider”). The Index Provider is not affiliated with the Fund, the
Adviser, the Fund’s administrator, custodian, transfer agent, or distributor, or
any of their respective affiliates. The Index Provider provides information to
the Fund about the constituents of the Index and does not provide investment
advice with respect to the desirability of investing in, purchasing, or selling
securities.
Shariah
screening of the components in the Index is undertaken by Shariah consultants,
Yasaar Limited (“Yasaar”). Yasaar scholars represent all of the major Shariah
schools of thought, creating a best practices approach that has credibility
across the Islamic world. The Index has been fully certified as
Shariah-compliant through the issue of a Fatwa (Islamic legal opinion) by
Yasaar’s principals.
Dividend
Purification
For
investors seeking to purify investment income received from the Fund, the Fund
will publish on its website, https://funds.wahedinvest.com, the per share amount
to be purified on a quarterly basis. Such information will generally be posted
prior to the Fund’s quarterly distribution of any dividend income to
shareholders. For additional information about the Fund’s distribution policies,
see “Dividends, Distributions and Taxes” below in this Prospectus. The
purification calculation will be performed by Yasaar Limited.
ADDITIONAL
INFORMATION ABOUT THE FUND
Investment
Objective
The
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed without shareholder approval upon written notice to
shareholders.
Principal
Investment Strategies
The
Fund has adopted the following policy to comply with Rule 35d-1 under the
Investment Company Act of 1940. Such policy has been adopted as a
non-fundamental investment policy and may be changed without shareholder
approval upon 60 days’ written notice to shareholders. Under normal
circumstances, at least 80% of the Fund’s net assets, plus borrowings for
investment purposes, will be invested in securities that are traded principally
on a United States stock exchange.
Principal
Investment Risks
An
investment in the Fund entails risks. The Fund could lose money, or its
performance could trail that of other investment alternatives. The following
provides additional information about the Fund’s principal risks. It is
important that investors closely review and understand these risks before making
an investment decision. Just as in the Fund’s summary section, the principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with those of other funds. Each risk summarized below is
considered a “principal risk” of investing in the Fund, regardless of the order
in which it appears.
•Equity
Market Risk. Common
stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of
their issuers change. These investor perceptions are based on various and
unpredictable factors including: expectations regarding government, economic,
monetary and fiscal policies; inflation and interest rates; economic expansion
or contraction; and global or regional political, economic and banking crises.
If you held common stock, or common stock equivalents, of any given issuer, you
would generally be exposed to greater risk than if you held preferred stocks and
debt obligations of the issuer because common stockholders, or holders of
equivalent interests, generally have inferior rights to receive payments from
issuers in comparison with the rights of preferred stockholders, bondholders,
and other creditors of such issuers.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and in many cases unprecedented volatility and
severe losses due to the global pandemic caused by COVID‑19, a novel
coronavirus. The pandemic has resulted in a wide range of social and economic
disruptions, including closed borders, voluntary or compelled quarantines of
large populations, stressed healthcare systems, reduced or prohibited domestic
or international travel, supply chain disruptions, and so-called “stay-at-home”
orders throughout much of the United States and many other countries. The
fall-out from these disruptions has included the rapid closure of businesses
deemed “non-essential” by federal, state, or local governments and rapidly
increasing unemployment, as well as greatly reduced liquidity for certain
instruments at times. Some sectors of the economy and individual issuers have
experienced particularly large losses. Such disruptions may continue for an
extended period
of
time or reoccur in the future to a similar or greater extent. In response, the
U.S. government and the Federal Reserve have taken extraordinary actions to
support the domestic economy and financial markets, resulting in very low
interest rates and in some cases negative yields. It is unknown how long
circumstances related to the pandemic will persist, whether they will reoccur in
the future, whether efforts to support the economy and financial markets will be
successful, and what additional implications may follow from the pandemic. The
impact of these events and other epidemics or pandemics in the future could
adversely affect Fund performance.
•ETF
Risks.
The Fund is an ETF, and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, a relatively small investor base
in the Fund, asset swings in the Fund and/or increased market volatility may
cause increased bid/ask spreads. Due to the costs of buying or selling Shares,
including bid/ask spreads, frequent trading of Shares may significantly reduce
investment results and an investment in Shares may not be advisable for
investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility or periods of
steep market declines and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant. The market price of Shares during the trading day, like the price
of any exchange-traded security, includes a “bid/ask” spread charged by the
exchange specialist, market makers or other participants that trade Shares. In
times of severe market disruption, the bid/ask spread can increase
significantly. At those times, Shares are most likely to be traded at a discount
to NAV, and the discount is likely to be greatest when the price of Shares is
falling fastest, which may be the time that you most want to sell your Shares.
The Adviser believes that, under normal market conditions, large market price
discounts or premiums to NAV will not be sustained because of arbitrage
opportunities.
◦Trading.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500 Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than Shares.
•Market
Capitalization Risk
◦Large-Capitalization
Investing.
The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing.
The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole. Some medium capitalization companies have limited product
lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization companies.
•Market
Events Risk. U.S.
and international markets have experienced significant periods of volatility in
recent years due to a number of economic, political and global macro factors,
including public health issues, growth concerns in the U.S. and overseas,
uncertainties regarding interest rates, trade tensions and the threat of tariffs
imposed by the U.S. and other countries. These developments as well as other
events could result in further market volatility and negatively affect financial
asset prices, the liquidity of certain securities and the normal operations of
securities exchanges and other markets, which could have an adverse effect on
the Fund.
The
respiratory illness COVID-19 caused by a novel coronavirus has resulted in a
pandemic and major disruption to economies and markets around the world,
including the United States. Financial markets have experienced extreme
volatility and severe losses, and trading in many instruments has been
disrupted. Liquidity for many instruments has been greatly reduced for periods
of time. Some interest rates are very low and in some cases yields are negative.
Some sectors of the economy and individual issuers have experienced particularly
large losses. These circumstances may continue for an extended period of time,
and may continue to affect adversely the value and liquidity of the Fund’s
investments. As a result, the risk environment remains elevated.
•Market
Risk.
The trading prices of equity securities and other instruments fluctuate in
response to a variety of factors. The Fund’s NAV and market price may fluctuate
significantly in response to these and other factors. As a result, an investor
could lose money over short or long periods of time. Beginning in the first
quarter of 2020, financial markets in the United States and around the world
experienced extreme and in many cases unprecedented volatility and severe losses
due to the pandemic caused by COVID‑19, a novel coronavirus. It is unknown how
long circumstances related to the pandemic will persist, whether they will
reoccur in the future, whether efforts to support the economy and financial
markets will be successful, and what additional implications may follow from the
pandemic. The impact of these events and other epidemics or pandemics in the
future could adversely affect Fund performance.
• Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may invest a greater percentage of its
assets in the securities of a single issuer or a lesser number of issuers than
if it was a diversified fund. As a result, the Fund may be more exposed to the
risks associated with and developments affecting an individual issuer or a
lesser number of issuers than a fund that invests more widely. This may increase
the Fund’s volatility and cause the performance of a relatively small number of
issuers to have a greater impact on the Fund’s performance.
•Passive
Investment Risk. The
Fund invests in the securities included in, or representative of, its Index
regardless of its investment merit. The Fund does not attempt to outperform its
respective Index or take defensive positions in declining markets. As a result,
the Fund’s performance may be adversely affected by a general decline in the
market segments relating to its Index. The returns from the types of securities
in which the Fund invests may underperform returns from the various general
securities markets or different asset classes. This may cause the Fund to
underperform other investment vehicles that invest in different asset classes.
Different types of securities (for example, large-, mid- and
small-capitalization stocks) tend to go through cycles of doing better – or
worse – than the general securities markets. In the past, these periods have
lasted for as long as several years.
•Sector
Risk. The
Fund’s investing approach may dictate an emphasis on certain sectors,
industries, or sub-sectors of the market at any given time. To the extent the
Fund invests more heavily in one sector, industry, or sub-sector of the market,
it thereby presents a more concentrated risk and its performance will be
especially sensitive to developments that significantly affect those sectors,
industries, or sub-sectors. In addition, the value of Shares may change at
different rates compared to the value of shares of a fund with investments in a
more diversified mix of sectors and industries. An individual sector, industry,
or sub-sector of the market may have above-average performance during particular
periods, but may also move up and down more than the broader market. The several
industries that constitute a sector may all react in the same way to economic,
political or regulatory events. The Fund’s performance could also be affected if
the sectors, industries, or sub-sectors do not perform as expected.
Alternatively, the lack of exposure to one or more sectors or industries may
adversely affect performance. If such sectors underperform relative to the
broader equity market, or if the sectors to which the Fund has less exposure
relative to the broader equity market outperform relative to the broader equity
market, the Fund’s performance may lag that of the broader equity market. The
Fund may have significant exposure to the following sectors:
◦Energy
Sector Risk.
The Energy Sector is comprised of energy, energy industrial, energy
infrastructure, and energy logistics companies, and will therefore be
susceptible to adverse economic, environmental, business, regulatory, or other
occurrences affecting that sector. The Energy Sector has historically
experienced substantial price volatility. At times, the performance of these
investments may lag the performance of other sectors or the market as a whole.
Companies operating in the Energy Sector are subject to specific risks,
including, among others, fluctuations in commodity prices; reduced consumer
demand for commodities such as oil, natural gas, or petroleum products; reduced
availability of natural gas or other commodities for transporting, processing,
storing, or delivering; slowdowns in new construction; extreme weather or other
natural disasters; and threats of attack by terrorists on energy assets.
Additionally, Energy Sector companies are subject to substantial government
regulation and changes in the regulatory environment for energy companies may
adversely impact their profitability. Certain Energy Sector companies may incur
environmental costs and liabilities due to the nature of their
businesses
and the substances they handle. Changes in existing laws, regulations, or
enforcement policies governing the Energy Sector could significantly increase
the compliance costs of such companies. Such companies could, from time to time,
be held responsible for implementing remediation measures, the cost of which may
not be recoverable from insurance. Over time, depletion of natural gas reserves
and other energy reserves may also affect the profitability of energy companies.
The above factors may change quickly and without warning and may negatively
impact the value of the Fund and your investment.
◦Information
Technology Sector Risk. To
the extent that the Fund’s investments are exposed to issuers conducting
business in the Information Technology Sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting the Information Technology Sector. The prices of the
securities of Information Technology companies may fluctuate widely due to
competitive pressures, increased sensitivity to short product cycles and
aggressive pricing, problems relating to bringing their products to market, very
high price/earnings ratios, and high personnel turnover due to severe labor
shortages for skilled technology professionals
◦Health
Care Sector Risk.
Companies in the Health Care Sector are subject to extensive government
regulation and their profitability can be significantly affected by restrictions
on government reimbursement for medical expenses, rising costs of medical
products and services, pricing pressure (including price discounting), limited
product lines and an increased emphasis on the delivery of healthcare through
outpatient services. Companies in the Health Care Sector are heavily dependent
on obtaining and defending patents, which may be time consuming and costly, and
the expiration of patents may also adversely affect the profitability of these
companies. Health Care companies are also subject to extensive litigation based
on product liability and similar claims. In addition, their products can become
obsolete due to industry innovation, changes in technologies or other market
developments. Many new products in the Health Care Sector require significant
research and development and may be subject to regulatory approvals, all of
which may be time consuming and costly with no guarantee that any product will
come to market.
•Shariah-Compliant
Investing Risk.
Islamic principles restrict the Fund’s ability to invest in certain market
sectors, such as financial companies and conventional fixed-income securities.
The Adviser believes that Islamic and sustainable investing may mitigate
security-specific risks, but the screens used in connection with these
strategies reduce the investable universe, which may limit investment
opportunities and adversely affect the Fund’s performance. Because Islamic
principles preclude the use of interest-paying instruments, the Fund’s cash
reserves do not earn income.
•Tracking
Error Risk. As
with all index funds, the performance of the Fund and the Index may differ from
each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index. The use of sampling techniques
may affect the Fund’s ability to achieve close correlation with the Index. The
Fund may use a representative sampling strategy to achieve its investment
objective, if the Adviser believes it is in the best interest of the Fund, which
generally can be expected to produce a greater non-correlation
risk.
•Underlying
Index Risk.
Neither the Adviser nor the Index Provider is able to guarantee the continuous
availability or timeliness of the production of the Index. The calculation and
dissemination of the Index values may be delayed if the information technology
or other facilities of the Index Provider, data providers and/or relevant stock
exchange malfunction for any reason. A significant delay may cause trading in
shares of the Fund to be suspended. Errors in Index data, computation and/or the
construction in accordance with its methodology may occur from time to time and
may not be identified and corrected by the Index Provider other applicable party
for a period of time or at all, which may have an adverse impact on the Fund and
its shareholders.
PORTFOLIO
HOLDINGS INFORMATION
Information
about the Fund’s daily portfolio holdings is available at
https://funds.wahedinvest.com. A complete description of the Fund’s policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is
available in the Fund’s Statement of Additional Information
(“SAI”).
MANAGEMENT
Investment
Adviser
Wahed
Invest LLC, located at 12 East 49th Street, New York, New York 10017, serves as
the investment adviser for the Fund. The Adviser, subject to the oversight of
the Board, provides an investment management program for the Fund and manages
the day-to-day investment of the Fund’s assets. The Adviser also arranges for
transfer agency, custody, fund administration, distribution and all other
services necessary for the Fund to operate. The Adviser is an SEC-registered
investment adviser that offers digital advisory services based on a halal
investment platform to assist individuals with creating ethically responsible
investment portfolios, in addition to providing investment advisory services to
the Fund. As of May 31, 2021, the Adviser had approximately $203 million in
assets under management.
For
the services it provides to the Fund, the Adviser is entitled to a unified
management fee, which is calculated daily and paid monthly, at an annual rate
based on the Fund’s average daily net assets as set forth in the table
below.
|
|
|
|
|
|
Fund
|
Management
Fee |
Wahed
FTSE USA Shariah ETF |
0.50% |
Pursuant
to an investment advisory agreement between the Trust, on behalf of the Fund,
and the Adviser (the “Advisory Agreement”), the Adviser has agreed to pay all
expenses of the Fund except the fee paid to the Adviser under the Advisory
Agreement, interest charges on any borrowings, dividends, and other expenses on
securities sold short, taxes, brokerage commissions and other expenses incurred
in placing orders for the purchase and sale of securities and other investment
instruments, acquired fund fees and expenses, accrued deferred tax liability,
extraordinary expenses, and distribution (12b-1) fees and expenses (if any).
Portfolio
Manager
The
Fund is managed by Samim Abedi, Global Head of Portfolio Management of the
Adviser.
Mr.
Abedi has a decade of industry experience across institutional and retail asset
management. Mr. Abedi began his career at J.P. Morgan in New York, New York,
where he gained experience across asset management and investment banking
businesses. His roles and responsibilities included investment strategy and
research, portfolio construction and manager due diligence, as well as portfolio
management for non-profits (endowments and foundations), and sales and trading.
Prior to joining the Adviser, Mr. Abedi was part of the Trading & Investment
team at Google LLC, where he helped manage the company’s public investment
portfolio. He earned a Bachelors (B.A.) with honors from Williams College,
majoring in Economics and Anthropology, with a concentration in Middle Eastern
Studies.
The
Fund’s SAI provides additional information about the Portfolio Manager’s
compensation structure, other accounts managed by the Portfolio Manager, and the
Portfolio Manager’s ownership of Shares.
Shariah
Adviser
Shariyah
Review Bureau LLC (“SRB”) has been appointed as the Shariah adviser to advise
the Fund with regard to its interpretation of and compliance with Shariah
principles. SRB is one of the corporate world’s leading advisors on Islamic
financial ethics and practices with scholarly presence in more than 21 countries
across the United States, Europe, Africa, the Gulf Corporation Counsel, and
Asia. SRB provides professional Shariah advisory and audit services to public
and private businesses, including commercial and corporate debt, Sukuks and
Islamic equity markets, initial public offerings screening, investment banking
practices, energy firms and information providers.
SRB
does not make investment decisions, provide investment advice, or otherwise act
in the capacity of an investment adviser to the Fund. Additionally, SRB is not
involved in the maintenance of the Index and does not otherwise act in the
capacity of an index provider.
Other
Service Providers
Quasar
Distributors, LLC (the “Distributor”) is the principal underwriter and
distributor of the Fund’s shares. The Distributor’s principal address is 111
East Kilbourn Avenue, Suite 2200, Milwaukee, Wisconsin. The Distributor will not
distribute shares in less than whole Creation Units, and it does not maintain a
secondary market in the shares. The Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934 and a member of the Financial Industry
Regulatory Authority, Inc. (“FINRA”). The Distributor has no role in determining
the policies of the Fund or the securities that are purchased or sold by the
Fund and is not affiliated with the Adviser, or any of their respective
affiliates.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services,
located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the
administrator, transfer agent and index receipt agent for the Fund.
U.S.
Bank National Association, located at 1555 N. Rivercenter Drive, Suite 302,
Milwaukee, Wisconsin 53212, serves as the custodian for the Fund.
Morgan,
Lewis & Bockius LLP, located at 1111 Pennsylvania Avenue, N.W., Washington,
D.C. 20004, serves as legal counsel to the Trust.
Cohen
& Company, Ltd., located at 1350 Euclid Avenue, Suite 800, Cleveland, Ohio
44115, serves as the Fund’s independent registered public accounting firm. The
independent registered public accounting firm is responsible for auditing the
annual financial statements of the Fund.
HOW
TO BUY AND SELL SHARES
The
Fund issues and redeems Shares only in Creation Units at the NAV per share next
determined after receipt of an order from an AP. Only APs may acquire Shares
directly from the Fund, and only APs may tender their Shares for redemption
directly to the Fund, at NAV. APs must be a member or participant of a clearing
agency registered with the SEC and must execute a Participant Agreement that has
been agreed to by the Distributor, and that has been accepted by the Fund’s
transfer agent, with respect to purchases and redemptions of Creation Units.
Once created, Shares trade in the secondary market in quantities less than a
Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Individual Shares are listed for trading on the secondary market on the Exchange
and can be bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares, and receive less than NAV when you sell those Shares.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, frequent purchases and
redemptions for cash may increase tracking error and portfolio transaction costs
and may lead to the realization of capital gains. To minimize these potential
consequences of frequent purchases and redemptions, the Fund employs fair value
pricing and may impose transaction fees on purchases and redemptions of Creation
Units to cover the custodial and other costs incurred by the Fund in effecting
trades. In addition, the Fund and the Adviser reserve the right to reject any
purchase order at any time.
Determination
of Net Asset Value
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern time, each day the
NYSE is open for business. The NAV is calculated by dividing the Fund’s net
assets by its Shares outstanding.
In
calculating its NAV, the Fund generally values its assets on the basis of market
quotations, last sale prices, or estimates of value furnished by a pricing
service or brokers who make markets in such instruments. The values of non-U.S.
dollar denominated securities are converted to U.S. dollars using foreign
currency exchange rates generally determined as of 4:00 p.m., London time. If
such information is not available for a security held by the Fund or is
determined to be unreliable, the security will be valued at fair value estimates
under guidelines established by the Board (as described below).
Fair
Value Pricing
The
Board has adopted procedures and methodologies to fair value Fund securities
whose market prices are not “readily available” or are deemed to be unreliable.
For example, such circumstances may arise when: (i) a security has been
de-listed or has had its trading halted or suspended; (ii) a security’s primary
pricing source is unable or unwilling to provide a price; (iii) a security’s
primary trading market is closed during regular market hours; or (iv) a
security’s value is materially affected by events occurring after the close of
the security’s primary trading market. Generally, when fair valuing a security,
the Fund will take into account all reasonably available information that may be
relevant to a particular valuation including, but not limited to, fundamental
analytical data regarding the issuer, information relating to the issuer’s
business, recent trades or offers of the security, general and/or specific
market conditions and the specific facts giving rise to the need to fair value
the security. Fair value determinations are made in good faith and in accordance
with the fair value methodologies included in the Board-adopted valuation
procedures. Due to the subjective and variable nature of fair value pricing,
there can be no assurance that the Adviser will be able to obtain the fair value
assigned to the security upon the sale of such security.
Investments
by Registered Investment Companies
Section
12(d)(1) of the 1940 Act restricts investments by registered investment
companies in the securities of other investment companies. Registered investment
companies are permitted to invest in the Fund beyond the limits set forth in
section 12(d)(1), subject to certain terms and conditions, including that such
investment companies enter into an agreement with the Fund.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
The
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. The Fund will declare and
pay capital gain distributions, if any, in cash. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to you.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax adviser
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Fund intends to qualify each year for treatment as a regulated investment
company (a “RIC”). If it meets certain minimum distribution requirements, a RIC
is not subject to tax at the fund level on income and gains from investments
that are timely distributed to shareholders. However, the Fund’s failure to
qualify as a RIC or to meet minimum distribution requirements would result (if
certain relief provisions were not available) in fund-level taxation and,
consequently, a reduction in income available for distribution to
shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when the Fund makes distributions, when you sell your Shares listed
on the Exchange, and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions
The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long the Fund owned the investments that generated them,
rather than how long a shareholder has owned his or her Shares. Sales of assets
held by the Fund for more than one year generally result in long-term capital
gains and losses, and sales of assets held by the Fund for one year or less
generally result in short-term capital gains and losses. Distributions of the
Fund’s net capital gain (the excess of net long-term capital gains over net
short-term capital losses) that are reported by the Fund as capital gain
dividends (“Capital Gain Dividends”) will be taxable as long-term capital gains,
which for non-corporate shareholders are subject to tax at reduced rates of up
to 20% (lower rates apply to individuals in lower tax brackets). Distributions
of short-term capital gain will generally be taxable as ordinary income.
Dividends and distributions are generally taxable to you whether you receive
them in cash or reinvest them in additional Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that the Fund receives in respect of stock of certain
foreign corporations may be qualified dividend income if that stock is readily
tradable on an established U.S. securities market. Corporate shareholders may be
entitled to a dividends received deduction for the portion of dividends they
receive from the Fund that are attributable to dividends received by the Fund
from U.S. corporations, subject to certain limitations.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares from non-U.S. shareholders generally are not subject to U.S.
taxation, unless you are a nonresident alien individual who is physically
present in the U.S. for 183 days or more per year. The Fund may, under
certain
circumstances, report all or a portion of a dividend as an “interest-related
dividend” or a “short-term capital gain dividend,” which would generally be
exempt from this 30% U.S. withholding tax, provided certain other requirements
are met. Different tax consequences may result if you are a foreign shareholder
engaged in a trade or business within the United States or if a tax treaty
applies.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act),
the Fund is required to withhold 30% of certain ordinary dividends it pays to
shareholders that are foreign entities and that fail to meet prescribed
information reporting or certification requirements.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale or redemption proceeds paid to
any shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that he, she or it is not subject to such withholding.
Taxes
When Shares Are Sold on the Exchange
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares of a Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of Shares. The ability to deduct capital
losses may be limited.
The
cost basis of Shares of a Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Internal Revenue Code of 1986, as
amended. The difference between the selling price and the cost basis of Shares
generally determines the amount of the capital gain or loss realized on the sale
or exchange of Shares. Contact the broker through whom you purchased your Shares
to obtain information with respect to the available cost basis reporting methods
and elections for your account.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash sales” (for an AP who does not mark-to-market its
holdings) or on the basis that there has been no significant change in economic
position. APs exchanging securities should consult their own tax adviser with
respect to whether wash sale rules apply and when a loss might be
deductible.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Net
Investment Income Tax
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax adviser about the
potential tax consequences of an investment in Shares under all applicable tax
laws. For more information, please see the section entitled “Federal Income
Taxes” in the SAI.
DISTRIBUTION
PLAN
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year for certain
distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the future,
because the fees are paid out of Fund assets, over time these fees will increase
the cost of your investment and may cost you more than certain other types of
sales charges.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often Shares traded on the Exchange at a price above (i.e.,
at a premium) or below (i.e.,
at a discount) the NAV per share is available on the Fund’s website at
https://funds.wahedinvest.com.
ADDITIONAL
NOTICES
The
Fund has been developed solely by the Adviser. The Fund is not in any way
connected to or sponsored, endorsed, sold or promoted by the London Stock
Exchange Group plc and its group undertakings (collectively, the “LSE Group”).
FTSE Russell is a trading name of certain of the LSE Group
companies.
All
rights in the Index vest in the relevant LSE Group company which owns the Index.
“FTSE®” is a trade mark of the relevant LSE Group company and is used by any
other LSE Group company under license.
The
Index is calculated by or on behalf of FTSE International Limited or its
affiliate, agent or partner. The LSE Group does not accept any liability
whatsoever to any person arising out of (a) the use of, reliance on or any error
in the Index or (b) investment in or operation of the Fund. The LSE Group makes
no claim, prediction, warranty or representation either as to the results to be
obtained from the Fund or the suitability of the Index for the purpose to which
it is being used by the Adviser.
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange makes no
representation or warranty, express or implied, to the owners of Shares or any
member of the public regarding the ability of the Fund to track the total return
performance of its Index or the ability of the Index identified herein to track
the performance of its constituent securities. The Exchange is not responsible
for, nor has it participated in, the determination of the compilation or the
calculation of the Index, nor in the determination of the timing, prices, or
quantities of Shares to be issued, nor in the determination or calculation of
the equation by which the Shares are redeemable. The Exchange has no obligation
or liability to owners of Shares in connection with the administration,
marketing, or trading of Shares.
The
Exchange does not guarantee the accuracy and/or the completeness of the Index or
the data included therein. The Exchange makes no warranty, express or implied,
as to results to be obtained by the Fund, owners of Shares, or any other person
or entity from the use of the Index or the data included therein. The Exchange
makes no express or implied warranties, and hereby expressly disclaims all
warranties of merchantability or fitness for a particular purpose with respect
to the Index or the data included therein. Without limiting any of the
foregoing, in no event shall the Exchange have any liability for any lost
profits or indirect, punitive, special, or consequential damages even if
notified of the possibility thereof.
The
Adviser, the Exchange, and the Fund make no representation or warranty, express
or implied, to the owners of Shares or any member of the public regarding the
advisability of investing in securities generally or in the Fund particularly or
the ability of the Index to track general stock market performance. The Fund and
the Adviser do not guarantee the accuracy, completeness, or performance of the
Index or the data included therein and shall have no liability in connection
with the Index or Index calculation. The Index Provider maintains and calculates
the Index used by the Fund. The Index Provider shall have no liability for any
errors or omissions in calculating the Index.
FINANCIAL
HIGHLIGHTS
The
financial highlights table is intended to help you understand the Fund’s
financial performance for the Fund’s five most recent fiscal years (or the life
of the Fund, if shorter). Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Cohen & Company, Ltd., the Fund’s independent registered public
accounting firm, whose report, along with the Fund’s financial statements, is
included in the Fund’s annual report, which is available upon request.
For
a Share Outstanding Throughout Each Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended May 31, 2021 |
|
Period
Ended
May
31, 2020(1) |
|
Net
Asset Value, Beginning of Period |
$ |
26.00 |
|
|
$ |
25.00 |
|
|
|
|
|
|
|
Income
from investment operations: |
|
|
|
|
Net
investment income(2) |
0.36 |
|
|
0.40 |
|
|
Net
realized and unrealized gain on investments |
10.44 |
|
|
0.90 |
|
|
Total
from investment operations |
10.80 |
|
|
1.30 |
|
|
|
|
|
|
|
Less
distributions paid: |
|
|
|
|
From
net investment income |
(0.30) |
|
|
(0.28) |
|
|
From
net realized gains |
— |
|
|
(0.02) |
|
|
Total
distributions paid |
(0.30) |
|
|
(0.30) |
|
|
|
|
|
|
|
Net
Asset Value, End of Period |
$ |
36.50 |
|
|
$ |
26.00 |
|
|
|
|
|
|
|
Total
return, at NAV(3)(4) |
41.70 |
% |
|
5.30 |
% |
|
Total
return, at Market(3)(4) |
41.81 |
% |
|
5.39 |
% |
|
|
|
|
|
|
Supplemental
Data and Ratios: |
|
|
|
|
Net
assets, end of period (000’s) |
$ |
109,505 |
|
|
$ |
32,506 |
|
|
|
|
|
|
|
Ratio
of expenses to average net assets(5) |
0.50 |
% |
|
0.50 |
% |
|
|
|
|
|
|
Ratio
of net investment income to average net assets(5) |
1.08 |
% |
|
1.81 |
% |
|
|
|
|
|
|
Portfolio
turnover rate
(4)(6) |
19 |
% |
|
15 |
% |
|
(1)The
Fund commenced operations on July 15, 2019.
(2)Per
share net investment income was calculated using average shares
outstanding.
(3)Total
return in the table represents the rate that the investor would have earned or
lost on an investment in the Fund, assuming reinvestment of
distributions.
(4)Not
annualized for periods less than one year.
(5)Annualized
for periods less than one year.
(6)Excludes
in-kind transactions associated with creations and redemptions of the
Fund.
Wahed
FTSE USA Shariah ETF
|
|
|
|
|
|
|
|
|
|
|
|
Adviser |
Wahed
Invest LLC
12
East 49th
Street, 11th
Floor
New
York, New York 10017 |
Transfer
Agent, Index Receipt Agent, and Administrator |
U.S.
Bancorp Fund Services, LLC
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115 |
Distributor |
Quasar
Distributors, LLC
111
East Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202 |
Custodian |
U.S.
Bank National Association
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004-2541 |
Index
Provider and Calculation Agent |
FTSE
International Limited
10
Paternoster Square
London
EC4M 7LS
United
Kingdom |
|
|
Investors
may find more information about the Fund in the following
documents:
Statement
of Additional Information: The
Fund’s SAI provides additional details about the investments of the Fund and
certain other additional information. The
SAI is on file with the SEC and is herein incorporated by reference into this
Prospectus. It is legally considered a part of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments is available in the Fund’s annual and
semi-annual reports to shareholders. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at c/o U.S. Bank Global
Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or by calling
1-855-976-4747.
Shareholder
reports and other information about the Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov;
•Free
of charge from the Fund’s Internet web site at https://funds.wahedinvest.com;
or
(SEC
Investment Company Act File No. 811-23226)