ck0001540305-20220531
ClearShares OCIO ETF
(OCIO)
ClearShares Ultra-Short Maturity ETF
(OPER)
ClearShares Piton Intermediate Fixed Income
ETF
(PIFI)
Listed
on NYSE Arca, Inc.
PROSPECTUS
September 30,
2022
The
U.S. Securities and Exchange Commission (“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.
The
Funds offered through this Prospectus are not money market funds and do not seek
to maintain a fixed or stable NAV of $1.00 per share.
Investment Objective
The ClearShares OCIO ETF (the
“Fund”) seeks to outperform a traditional 60/40 mix of global equity and fixed
income investments.
Fees and Expenses of the Fund
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
0.55% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Acquired
Fund Fees and Expenses1 |
0.08% |
Total
Annual Fund Operating Expenses |
0.63% |
Less
Fee Waiver2 |
0.01% |
Total
Annual Fund Operating Expenses Less Fee Waiver |
0.62% |
1
Acquired Fund Fees
and Expenses are the indirect costs of investing in other investment companies.
Total Annual Fund Operating Expenses do not correlate to the expense ratios in
the Fund’s Financial Highlights because the Financial Highlights include only
the direct operating expenses incurred by the Fund and exclude Acquired Fund
Fees and Expenses.
2
ClearShares
LLC, the Fund’s investment adviser (the “Adviser”), has contractually agreed to
waive certain amounts of the Fund’s management fee when the Fund invests in the
ClearShares Ultra-Short Maturity ETF (the “Ultra-Short Maturity ETF”), for which
the Adviser also serves as investment adviser. With respect to assets of the
Fund invested in the Ultra-Short Maturity ETF, the Adviser will waive the Fund’s
management fee in an amount equal to the management fee of the Ultra-Short
Maturity ETF, at least through September 30,
2023. This arrangement may only be changed or eliminated by the
Fund’s Board of Trustees upon 60 days’ written notice to the Adviser.
Expense Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then continue to hold or redeem all of
your Shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The Example does not take into account brokerage commissions
that you may pay on your purchases and sales of Shares. The management fee
waiver discussed in the table above is reflected only for the first
year. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1 Year |
3
Years |
5
Years |
10
Years |
$63 |
$201 |
$350 |
$785 |
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 annual fund operating expenses or in the
Example, affect the Fund’s performance. For the fiscal year ended May 31, 2022,
the Fund’s portfolio turnover rate was 51% of the average value of its
portfolio.
Principal Investment
Strategies
The Fund is an actively managed
“fund of funds” and seeks to achieve its objective by investing primarily in
other registered investment companies, including other actively managed
exchange-traded funds (“ETFs”) and index-based ETFs (collectively, “Underlying
Investments”), that provide exposure to a broad range of asset classes. The
Underlying Investments may invest in equity securities of U.S. or foreign
companies, debt obligations of U.S. or foreign companies or governments, or
other assets. The Fund may also invest directly in such U.S. equity securities.
The Fund allocates its assets across asset classes, industries, and geographic
regions, subject to certain diversification and liquidity considerations. The
Underlying Investments may provide exposure to foreign countries, including
emerging markets.
The
Fund is expected to typically invest approximately 40% to 70% of its total
assets in equity securities (of any market capitalization), either through
Underlying Investments that principally invest in U.S. or foreign equity
securities, or directly in U.S. equity securities.
Such
Underlying Investments may invest principally in specific sectors of the
economy, such as healthcare, financials, real estate, and energy, or in broader
swaths of domestic, foreign, or global equity markets. Underlying Investments
used for real estate exposure may invest some or all of their assets in real
estate investment trusts (“REITs”), and Underlying Investments used for energy
exposure may invest some or all of their assets in master limited partnerships
(“MLPs”).
The
Fund is expected to typically invest approximately 20% to 50% of its total
assets in Underlying Investments that principally invest in debt obligations.
Such Underlying Investments may invest in U.S. government debt, sovereign debt,
U.S. and foreign corporate debt, high-yield debt (also known as “junk bonds”),
mortgage debt, and structured debt, such as asset-backed securities. Such
Underlying Investments may hold debt denominated in U.S. dollars or foreign
currencies. The Fund has no limitation on the range of maturities or credit
quality of the debt in which Underlying Investments may invest.
Blueprint
Investment Partners LLC, the Fund’s investment sub-adviser (“Blueprint” or the
“Sub-Adviser”), uses both “top-down” and “bottom-up” analyses in determining
whether to purchase or sell a particular Underlying Investment or individual
security.
The
Sub-Adviser’s quantitative trend-based analysis focuses on identifying the
investment styles, sectors, geographic regions and asset classes with the
greatest potential for positive absolute returns and the highest returns
relative to other styles, sectors, regions, and asset classes. Additionally, the
Sub-Adviser’s analysis seeks to identify markets, asset classes, and strategies
that are likely to encounter headwinds (i.e.,
negative economic factors) and negative returns over the next three to twelve
months. The factors incorporated into the Sub-Adviser’s quantitative analysis
include the price series and trend of each holding, credit spread levels
(i.e.,
differences in yields among bonds of similar maturities but varying credit
qualities), market volatility, the shape of the yield curve, energy prices,
market correlations, and currency exchange rates amongst others.
The
Sub-Adviser’s bottom-up fundamental analysis employs a rigorous research process
designed to identify those asset classes with attractive absolute values and
values relative to other asset classes. The valuation metrics and factors
included in such analysis for equity-based Underlying Investments and individual
securities include volatility, correlation, expected return, and dividend
yields. For debt-based Underlying Investments and individual securities, the
metrics used in such analysis include yield, credit spreads, duration, credit
quality, and geographic location of issuers. For alternative investment
Underlying Investments, the Sub-Adviser’s analysis considers levels of interest
rates, equity and bond valuations, inflation rates, market volatility, market
sentiment, and capital flows.
The
Sub-Adviser selects specific Underlying Investments based on an evaluation of
their market exposure, liquidity, cost, and historic tracking error relative to
their underlying index or benchmark. The Sub-Adviser may adjust the Fund’s
allocation to Underlying Investments as often as daily to take advantage of
return opportunities or to avoid perceived downside market risks. The size of
the Fund’s allocation to a particular Underlying Investment or a specific
industry, sector, or region will generally reflect whether the Sub-Adviser
considers the investment opportunity to be a shorter-term tactical investment (a
medium conviction idea) or a longer-term cyclical opportunity (a high conviction
idea).
Underlying
Investments do not include ETFs or ETPs that employ high levels of leverage,
derivatives, or illiquid investments or that seek to return the inverse of an
underlying index or benchmark. The Fund will typically invest no more than 5% of
its total assets in any single Underlying Investment or individual
security.
The Fund may lend its portfolio securities
to brokers, dealers, and other financial organizations. These loans, if and when
made, may not exceed 33 1/3% of the total asset value of the Fund (including the
loan collateral). By lending its securities, the Fund may increase its income by
receiving payments from the borrower.
Principal Risks of Investing in the Fund
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with 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 per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Funds.”
•Asset
Allocation Risk. The
Fund may favor an asset category or investment strategy that performs poorly
relative to other asset categories and investment strategies for short or long
periods of time.
•Currency
Exchange Rate Risk. The
Fund may invest in Underlying Investments that invest primarily in securities
denominated in non-U.S. currencies. Changes in currency exchange rates and the
relative value of non-U.S. currencies may affect the value of such investments
and the value of your Shares. Currency exchange rates can be very volatile and
can change quickly and unpredictably. As a result, the value of an investment in
the Fund may change quickly and without warning and you may lose
money.
•Emerging
Markets Risk. The
Fund’s Underlying Investments that provide exposure to securities traded in
developing or emerging markets, and individual securities with such exposure,
may involve substantial risk with respect to such securities due to limited
information; different accounting, auditing, and financial reporting standards;
a country’s dependence on revenue from particular commodities or international
aid; and expropriation, nationalization, or other adverse political or economic
developments. Political and economic structures in many emerging market
countries may be undergoing significant evolution and rapid development, and
such countries may lack the social, political and economic stability
characteristics of more developed countries. Some of these countries may have
failed to recognize private property rights in the past and, at times, have
nationalized or expropriated the assets of private companies.
•Equity
Market Risk.
The Fund may invest directly or in Underlying Investments that invest primarily
in common stocks. Common stocks are generally exposed to greater risk than other
types of securities, such as preferred stock and debt obligations, because
common stockholders generally have inferior rights to receive payment from
specific issuers. Equity securities 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
industries, sectors or companies in which the Fund or its Underlying Investment
invest. In addition, local, regional or global events such as war, including
Russia’s invasion of Ukraine, acts of terrorism, spread of infectious diseases
or other public health issues, recessions, rising inflation, or other events
could have a significant negative impact on the Fund and its investments. For
example, the global pandemic caused by COVID-19, a novel coronavirus, and the
aggressive responses taken by many governments, including closing borders,
restricting international and domestic travel, and the imposition of prolonged
quarantines or similar restrictions, has had negative impacts, and in many cases
severe impacts, on markets worldwide. The COVID-19 pandemic has caused prolonged
disruptions to the normal business operations of companies around the world and
the impact of such disruptions is hard to predict. Such events may affect
certain geographic regions, countries, sectors and industries more significantly
than others. Such events could adversely affect the prices and liquidity of the
Fund’s portfolio securities or other instruments and could result in disruptions
in the trading markets.
•ETF
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. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums and discounts greater than those of domestic ETFs.
◦Trading. Although
Shares are listed for trading on NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares, and this could lead to differences between the market price of the
Shares and the underlying value of those Shares.
•Fixed
Income Securities Risk. The
Fund may invest in Underlying Investments that invest primarily in fixed income
securities. Fixed income securities, such as bonds and certain asset-backed
securities, involve certain risks, which include:
◦Call
Risk. During
periods of falling interest rates, an issuer of a callable bond held by the Fund
may “call” or repay the security prior to its stated maturity, and the Fund may
have to reinvest the proceeds at lower interest rates, resulting in a decline in
the Fund’s income.
◦Credit
Risk. Credit
risk refers to the possibility that the issuer of a security will not be able to
make payments of interest and principal when due. Changes in an issuer’s credit
rating or the market’s perception of an issuer’s creditworthiness may also
affect the value of an investment in that issuer.
◦Duration
Risk. Prices
of fixed income securities with longer durations are more sensitive to interest
rate changes than those with shorter durations.
◦Event
Risk. Event
risk is the risk that corporate issuers may undergo restructurings, such as
mergers, leveraged buyouts, takeovers, or similar events financed by increased
debt. As a result of the added debt, the credit quality and market value of a
company’s bonds and/or other debt securities may decline
significantly.
◦Extension
Risk. When
interest rates rise, certain obligations will be paid off by the obligor more
slowly than anticipated, causing the value of these securities to
fall.
◦Interest
Rate Risk. Generally,
the value of fixed income securities will change inversely with changes in
interest rates. As interest rates rise, the market value of fixed income
securities tends to decrease. Conversely, as interest rates fall, the market
value of fixed income securities tends to increase. This risk will be greater
for long-term securities than for short-term securities. In recent periods,
governmental financial regulators, including the U.S. Federal Reserve, have
taken steps to maintain historically low interest rates, which may increase
interest rate risk. Changes in government intervention may have adverse effects
on investments, volatility, and illiquidity in debt markets.
◦Maturity
Risk. The
value of fixed income investments is also dependent on their maturity.
Generally, the longer the maturity of a fixed income security, the greater its
sensitivity to changes in interest rates.
◦Prepayment
Risk. When
interest rates fall, certain obligations will be paid off by the obligor more
quickly than originally anticipated, and the proceeds may have to be invested in
securities with lower yields.
◦Variable
and Floating Rate Instrument Risk.
Floating or variable rate securities pay interest at rates that adjust in
response to changes in a specified interest rate or reset at predetermined dates
(such as the end of a calendar quarter). Securities with floating or variable
interest rates are generally less sensitive to interest rate changes than
securities with fixed interest rates, but may decline in value if their interest
rates do not rise as much, or as quickly, as comparable market interest rates.
Although floating or variable rate securities are generally less sensitive to
interest rate risk than fixed rate securities, they are subject to credit,
liquidity and default risk and may be subject to legal or contractual
restrictions on resale, which could impair their value.
•Foreign
Securities Risk. The
Fund may invest in Underlying Investments that invest primarily in foreign
securities. Investments in foreign securities involve certain risks that may not
be present with investments in U.S. securities. For example, investments in
foreign securities may be subject to risk of loss due to foreign currency
fluctuations or to political or economic instability. Investments in foreign
securities also may be subject to withholding or other taxes and may be subject
to additional trading, settlement, custodial, and operational risks. These and
other factors can make investments in the Fund more volatile and potentially
less liquid than other types of investments. These risks may be enhanced for
securities of companies organized in emerging market nations.
•Government
Obligations Risk. The
Fund may invest in Underlying Investments that primarily invest in securities
issued by the U.S. or other governments. There can be no guarantee that the
United States or another country will be able to meet its payment obligations
with respect to such securities. Additionally, market prices and yields of
securities supported by the full faith and credit of the U.S. government or
other countries may decline or be negative for short or long periods of time.
•High-Yield
Securities Risk. The
Fund may invest in Underlying Investments that primarily invest in high-yield
securities (also known as “junk bonds”). Although high-yield securities
generally pay higher rates of interest than investment grade bonds, high-yield
securities are speculative, high risk investments that may cause income and
principal losses for the Fund or its Underlying Investments and, consequently,
negatively affect the value of the Fund. High-yield securities may be issued by
companies that are restructuring, are smaller and less creditworthy, or are more
highly
indebted
than other companies. This means that they may have more difficulty making
scheduled payments of principal and interest. Changes in the value of high-yield
securities are influenced more by changes in the financial and business position
of the issuing company than by changes in interest rates when compared to
investment grade securities. The Fund’s exposure to high-yield securities may
subject it to a substantial degree of credit risk.
•Investment
Company Risk. The
risks of investing in investment companies, such as the Underlying Investments,
typically reflect the risks of the types of instruments in which the investment
companies invest. By investing in another investment company, the Fund becomes a
shareholder of that investment company and bears its proportionate share of the
fees and expenses of the other investment company. The Fund may be subject to
statutory limits with respect to the amount it can invest in other ETFs, which
may adversely affect the Fund’s ability to achieve its investment objective.
Investments in ETFs are also subject to the “ETF Risks” described above.
•Management
Risk. The
Fund is actively managed and may not meet its investment objective based on the
portfolio managers’ success or failure to implement investment strategies for
the Fund.
•MLP
Risk. The
Fund may invest in Underlying Investments that principally invest in MLPs. MLP
investment returns are enhanced during periods of declining or low interest
rates and tend to be negatively influenced when interest rates are
rising. In addition, most MLPs are fairly leveraged and typically carry a
portion of a “floating” rate debt. As such, a significant upward swing in
interest rates would also drive interest expense higher. Furthermore, most
MLPs grow by acquisitions partly financed by debt, and higher interest rates
could make it more difficult to make acquisitions. MLP investments also
entail many of the general tax risks of investing in a partnership. Limited
partners in an MLP typically have limited control and limited rights to vote on
matters affecting the partnership. Additionally, there is always the risk
that an MLP will fail to qualify for favorable tax treatment.
•Mortgage-
and Asset-Backed Securities Risk. The
Fund may invest in Underlying Investments that principally invest in mortgage-
and asset-backed securities. Such securities are subject to credit, interest
rate, prepayment, and extension risks (see “Fixed Income Securities Risk”
above). These securities also are subject to risk of default on the underlying
mortgage or asset, particularly during periods of economic downturn. Small
movements in interest rates may quickly and significantly reduce the value of
certain mortgage-backed securities.
•REIT
Investment Risk. The
Fund may invest in Underlying Investments that primarily invest in REITs.
Investments in REITs involve unique risks. REITs may have limited financial
resources, may trade less frequently and in limited volume, and may be more
volatile than other securities. The risks of investing in REITs include certain
risks associated with the direct ownership of real estate and the real estate
industry in general. REITs are also subject to heavy cash flow dependency,
defaults by borrowers, and self-liquidation.
•Sector
Risk. To
the extent the Fund invests, either directly or through Underlying Investments,
more heavily in particular sectors of the economy, its performance will be
especially sensitive to developments that significantly affect those sectors.
•Securities
Lending Risk. There
are certain risks associated with securities lending, including the risk that
the borrower may fail to return the securities on a timely basis or even the
loss of rights in the collateral deposited by the borrower, if the borrower
should fail financially. The Fund could also lose money in the event of a
decline in the value of collateral provided for loaned securities or a decline
in the value of any investments made with cash collateral. As a result the Fund
may lose money.
•Small
and Mid-Sized Company Stock Risk. The
Fund may invest directly or in Underlying Investments that primarily invest in
the common stock of small- or mid-sized companies. Small to mid-sized company
stocks have historically been subject to greater investment risk than large
company stocks. The prices of small- to mid-sized company stocks tend to be more
volatile and less liquid than large company
stocks.
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for calendar
years 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 a broad
measure of market performance. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.clear-shares.com.
Calendar Year Total Return
For the year-to-date period ended
June 30, 2022, the
Fund’s total return was -13.74%. During the period of time shown in the bar
chart, the Fund’s highest quarterly return
was 12.43% for the quarter ended June 30, 2020 and the
lowest quarterly return was
-13.08% for the quarter ended March 31,
2020.
Average
Annual Total Returns
For
the Period Ended December 31, 2021
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ClearShares
OCIO ETF |
1
Year |
Since
Inception
(6/26/17) |
Return Before
Taxes |
13.00% |
9.01% |
Return After Taxes on
Distributions |
12.16% |
8.27% |
Return After Taxes on Distributions and
Sale of Shares |
8.14% |
6.90% |
S&P
Target Risk Growth Index
(reflects no deduction for
fees, expenses, or taxes) |
11.37% |
9.31% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. After-tax returns shown are
not relevant to investors who hold their Shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts.
Management
Investment
Adviser:
ClearShares LLC serves as investment adviser to the Fund.
Investment
Sub-Adviser:
Blueprint Investment Partners LLC serves as the investment sub-adviser to the
Fund.
Portfolio
Managers
Jonathan
Robinson (Chief Executive Officer of Blueprint) and Brandon Langley (Chief
Compliance Officer of Blueprint) have been the portfolio managers of the Fund
since October 2021.
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.clear-shares.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser, Sub-Adviser, or their
affiliates may pay Intermediaries for certain activities related to the Fund,
including participation in activities that are designed to make Intermediaries
more knowledgeable about exchange traded products, including the Fund, or for
other activities, such as marketing, educational training or other initiatives
related to the sale or promotion of Shares. These payments may create a conflict
of interest by influencing the Intermediary and your salesperson to recommend
the Fund over another investment. Any such arrangements do not result in
increased Fund expenses. Ask your salesperson or visit the Intermediary’s
website for more information.
Investment Objective
The ClearShares Ultra-Short
Maturity ETF (the “Fund”) seeks current income.
Fees and Expenses of the Fund
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
0.20% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.20% |
Expense Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then continue to hold or 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. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1 Year |
3
Years |
5
Years |
10
Years |
$20 |
$64 |
$113 |
$255 |
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 annual fund operating expenses or in the
Example, affect the Fund’s performance. This rate excludes the value of
portfolio securities whose maturities or expiration dates at the time of
acquisition were one year or less. For the fiscal year ended May 31, 2022, the
Fund’s portfolio turnover rate was 0% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund is an actively managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective primarily by investing in repurchase agreements
collateralized by U.S. government securities. The
Fund is not a money market fund and does not seek to maintain a stable net asset
value (“NAV”) of $1.00 per share.
A
repurchase agreement is an agreement under which the Fund acquires a financial
instrument (e.g.,
a security issued by the U.S. government or an agency thereof) from a seller. At
the time of purchase, the seller (usually a commercial bank, broker, or dealer)
agrees to repurchase the underlying security at a mutually agreed-upon price on
a designated future date (normally, the next business day). The securities
acquired by the Fund pursuant to repurchase agreement transactions will
generally have a total value (including accrued interest earned thereon) in
excess of the repurchase agreement’s value and will be held by the Fund’s
custodian until the securities are repurchased. As a result, repurchase
agreements may be considered a loan collateralized by securities.
The
Fund may also invest in U.S. government securities, such as U.S. Treasuries and
U.S. agency securities, which may include mortgage-backed securities (“MBS”)
issued or guaranteed by the U.S. government, federal agencies, or U.S.
government sponsored instrumentalities, such as the Government National Mortgage
Administration (“Ginnie Mae”), the Federal Housing Administration (“FHA”), the
Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan
Mortgage Corporation (“Freddie Mac”).
The
effective duration of the Fund’s portfolio will be one year or less, and the
dollar-weighted average maturity of the Fund’s portfolio will be less than one
year. Effective duration is a measure of the Fund’s price sensitivity to changes
in yields or interest rates and a higher duration indicates greater sensitivity
to interest rates. Weighted average maturity refers to the length of time until
a bond’s principal is repaid with interest.
The Fund’s portfolio may also include cash
and cash equivalents, as well as investments in ETFs and other investment
companies that provide exposure to securities similar to those securities in
which the Fund may invest in directly. While the Fund will invest, under normal
circumstances, in a conservative, liquid portfolio, the Fund may invest up to
15% of net assets in illiquid investments, including illiquid repurchase
agreements.
Principal Risks of Investing in the Fund
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with 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 per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Funds.”
•Agency
Debt Risk.
The Fund invests in unsecured bonds or debentures issued by U.S. government
agencies, including Fannie Mae and Freddie Mac. Bonds or debentures issued by
U.S. government agencies, government-sponsored entities, or government
corporations, including, among others, Fannie Mae and Freddie Mac, are generally
backed only by the general creditworthiness and reputation of the U.S.
government agency, government-sponsored entity, or government corporation
issuing the bond or debenture and are not guaranteed by the U.S. Department of
the Treasury (“U.S. Treasury”) or backed by the full faith and credit of the
U.S. government. As a result, there is uncertainty as to the current status of
many obligations of Fannie Mae, Freddie Mac and other agencies that are placed
under conservatorship of the federal government. Ginnie Mae securities are
generally backed by the full faith and credit of the U.S. government.
•ETF
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.
◦Cash
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. The Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used. In addition, cash redemptions may incur
higher brokerage costs than in-kind redemptions, and these added costs may be
borne by the Fund and negatively impact Fund performance.
◦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 NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares, and this could lead to differences between the market price of the
Shares and the underlying value of those Shares.
•Fixed
Income Securities Risk. The
Fund invests in fixed income securities, such as bonds and certain asset-backed
securities, that involve certain risks, including:
◦Call
Risk. During
periods of falling interest rates, an issuer of a callable bond held by the Fund
may “call” or repay the security prior to its stated maturity, and the Fund may
have to reinvest the proceeds at lower interest rates, resulting in a decline in
the Fund’s income.
◦Credit
Risk. Credit
risk refers to the possibility that the issuer of a security will not be able to
make payments of interest and principal when due. Changes in an issuer’s credit
rating or the market’s perception of an issuer’s creditworthiness may also
affect the value of an investment in that issuer.
◦Duration
Risk. Prices
of fixed income securities with longer durations are more sensitive to interest
rate changes than those with shorter durations.
◦Event
Risk. Event
risk is the risk that corporate issuers may undergo restructurings, such as
mergers, leveraged buyouts, takeovers, or similar events financed by increased
debt. As a result of the added debt, the credit quality and market value of a
company’s bonds and/or other debt securities may decline significantly.
◦Extension
Risk. When
interest rates rise, certain obligations will be paid off by the obligor more
slowly than anticipated, causing the value of these securities to fall.
◦Interest
Rate Risk. Generally,
the value of fixed income securities will change inversely with changes in
interest rates. As interest rates rise, the market value of fixed income
securities tends to decrease. Conversely, as interest rates fall, the market
value of fixed income securities tends to increase. This risk will be greater
for long-term securities than for short-term securities. Changes in government
intervention may have adverse effects on investments, volatility, and
illiquidity in debt markets.
◦Maturity
Risk. The
value of fixed income investments is also dependent on their maturity.
Generally, the longer the maturity of a fixed income security, the greater its
sensitivity to changes in interest rates.
◦Prepayment
Risk. When
interest rates fall, certain obligations will be paid off by the obligor more
quickly than originally anticipated, and the proceeds may have to be invested in
securities with lower yields.
•Government
Obligations Risk. The
Fund invests in securities issued, sponsored, or guaranteed by the U.S.
government, its agencies or instrumentalities. There can be no guarantee that
the United States will be able to meet its payment obligations with respect to
such securities where it is not obligated by law to do so. Additionally, market
prices and yields of securities supported by the full faith and credit of the
U.S. government or other countries may decline or be negative for short or long
periods of time.
•Illiquid
Investments Risks. The
Fund may invest in repurchase agreements that are deemed illiquid because they
cannot be expected to be sold or disposed of in current market conditions,
within seven calendar days, without significantly impacting the market value of
the investment. The Fund could lose money if it is unable to dispose of such
investments at a time or price that is most beneficial to the Fund.
•Management
Risk. The
Fund is actively managed and may not meet its investment objective based on the
portfolio managers’ success or failure to implement investment strategies for
the Fund.
•Market
Risk. The
trading prices of debt 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.
•Mortgage-Backed
Securities Risk. The
Fund invests in MBS issued or guaranteed by the U.S. government. Such securities
are subject to credit, interest rate, prepayment, and extension risks (see
“Fixed Income Securities Risk” above). These securities also are subject to risk
of default on the underlying mortgage or asset, particularly during periods of
economic downturn. Small movements in interest rates may quickly and
significantly reduce the value of certain MBS.
•Repurchase
Agreement Risk.
Repurchase agreements may be construed to be collateralized loans by the Fund,
and if so, the underlying securities relating to the repurchase agreement will
only constitute collateral for the seller’s obligation to pay the repurchase
price. If the seller defaults on its obligation under the agreement, the Fund
may suffer delays and incur costs or lose money in exercising its rights under
the agreement. A seller failing to repurchase the security coupled with a
decline in the market value of the security may result in the Fund losing
money.
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
calendar year ended December 31. The table illustrates how the Fund’s average
annual returns for the 1-year and since inception periods compared with those of
a broad measure of market performance. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is also available on the
Fund’s website at www.clear-shares.com.
Calendar Year Total
Return
For the year-to-date period ended
June 30, 2022, the
Fund’s total return was 0.26%. During the period of time shown in the bar
chart, the Fund’s highest quarterly return
was 0.60% for the quarter ended June 30, 2019 and the
lowest quarterly return was
0.09% for the quarter ended December 31,
2021.
Average
Annual Total Returns
For
the Period Ended December 31, 2021
|
|
|
|
|
|
|
| |
ClearShares
Ultra-Short Maturity ETF |
1
Year |
Since
Inception
(7/10/18) |
Return Before
Taxes |
0.37% |
1.17% |
Return After Taxes on
Distributions |
0.22% |
0.70% |
Return After Taxes on Distributions and
Sale of Shares |
0.22% |
0.70% |
ICE
BofA Merrill Lynch 3 Month Treasury Bill Index
(reflects no deduction for
fees, expenses, or taxes) |
0.05% |
1.15% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. After-tax returns shown are
not relevant to investors who hold their Shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts.
Management
Investment
Adviser:
ClearShares LLC serves as investment adviser to the Fund (the “Adviser”).
Investment
Sub-Adviser: Piton
Investment Management, L.P. serves as the investment sub-adviser to the Fund
(“Piton” or the “Sub-Adviser”).
Portfolio
Managers
Frank
Codey (Chief Operating Officer of ClearShares) has been a portfolio manager of
the Fund since June 2019, and James Fortescue (Senior Portfolio Manager of
Piton) has been a portfolio manager of the Fund since December
2019.
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.clear-shares.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser, Sub-Adviser, or their
affiliates may pay Intermediaries for certain activities related to the Fund,
including participation in activities that are designed to make Intermediaries
more knowledgeable about exchange traded products, including the Fund, or for
other activities, such as marketing, educational training or other initiatives
related to the sale or promotion of Shares. These payments may create a conflict
of interest by influencing the Intermediary and your salesperson to recommend
the Fund over another investment. Any such arrangements do not result in
increased Fund expenses. Ask your salesperson or visit the Intermediary’s
website for more information.
Investment Objective
The ClearShares Piton
Intermediate Fixed Income ETF (the “Fund”) seeks current income consistent with
the long term preservation of capital.
Fees and Expenses of the Fund
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
|
|
|
|
| |
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
|
Management
Fees |
0.45% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Acquired
Fund Fees and Expenses1 |
0.01% |
Total
Annual Fund Operating Expenses |
0.46% |
| |
| |
1
Acquired Fund Fees
and Expenses are the indirect costs of investing in other investment companies.
Total Annual Fund Operating Expenses do not correlate to the expense ratios in
the Fund’s Financial Highlights because the Financial Highlights include only
the direct operating expenses incurred by the Fund and exclude Acquired Fund
Fees and Expenses.
Expense Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then continue to hold or redeem all of
your Shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The Example does not take into account brokerage commissions
that you may pay on your purchases and sales of Shares.
Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
1 Year |
3
Years |
5
Years |
10
Years |
$47 |
$148 |
$258 |
$579 |
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 annual fund operating expenses or in the
Example, affect the Fund’s performance. For the fiscal year ended May 31,
2022, the Fund’s portfolio turnover rate was 42% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund is an actively managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective by investing, under normal market conditions, at least
80% of its net assets (plus borrowings for investment purposes) in debt
securities and other instruments that have economic characteristics similar to
such securities. The Fund principally invests in U.S.-dollar denominated,
investment-grade securities and seeks to typically maintain a dollar-weighted
average portfolio maturity of zero to ten years. The Fund may invest in
instruments with a range of maturities, including short-, medium- or long-term
maturities.
The
Fund seeks to typically maintain an average portfolio duration of three to five
years. Duration is the weighted-average time in years for an investor to recoup
the cost of an investment from the cash flows associated with a bond or
portfolio of bonds. It can be used as a measure of price sensitivity to changes
in yields or interest rates with a lower duration indicating less sensitivity to
interest rates. For example, the price of a security with a three-year duration
would be expected to drop by approximately 3% in response to a 1% increase in
interest rates.
Piton
Investment Management, L.P. (“Piton” or the “Sub-Adviser”) selects securities
for the Fund’s portfolio based on its analysis of how an instrument contributes
to the Fund’s overall credit, liquidity, duration, and interest rate risks. The
Sub-Adviser will generally select instruments from issuers with at least $1
billion in outstanding debt issuances.
Piton’s
approach to identifying attractive securities for the Fund includes a top-down
macroeconomic investment thesis and bottom-up security analysis to drive
investment decisions. The firm’s investment thesis is generally derived from
consideration of core macroeconomic factors such as economic data and trends,
monetary, fiscal, and regulatory policy measures, market valuations and
volatility, inflation, supply and demand, and intangible elements that Piton
believes may influence markets. Piton’s portfolio management team then combines
its assessment of the above information into the team’s outlook for interest
rates, sector strengths or weaknesses, and liquidity, along with external
research to set the current thesis. The combined analysis determines the overall
risk profile for the Fund, including its targeted duration range, relative asset
allocation decisions, and credit exposure. This investment thesis is typically
revisited weekly as part of the ongoing management of the Fund.
Once
the Fund’s investment thesis is identified, Piton’s portfolio management team
conducts an analysis of individual securities or issuers to screen to identify
appropriate investment opportunities at the individual security level. The
investment team narrows the list of potential investments based on a variety of
screens, including forward-looking assessments of a security’s contribution to
the Fund’s duration and sector allocation.
The
Fund may invest in a variety of fixed income instruments with a fixed or
floating (variable) interest rate. The Fund’s investments may include
investment-grade U.S. corporate and government debt obligations (including
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities), as well as mortgage-backed, commercial mortgage-backed and
asset-backed securities. The Fund’s investments may also include cash and cash
equivalents, money market mutual funds, taxable or tax-exempt municipal
securities, and shares of other ETFs that principally invest in debt
securities.
“Investment-grade”
debt securities are those rated “Baa3” or “BBB-” or better by Moody’s Investors
Service, Inc. (Moody’s) or S&P Global Ratings (S&P), each of which is a
nationally recognized statistical ratings organization. The Fund may also invest
in unrated securities, in which case the Sub-Adviser may internally assign
ratings to certain of those securities, after assessing their credit quality.
The Fund is considered to be
non-diversified, which means that it may invest more of its assets in the
securities of a single issuer or a smaller number of issuers than if it were a
diversified fund. The Fund will generally limit its investment in securities
issued by a single issuer to 10% of the Fund’s total assets.
Principal Risks of Investing in the Fund
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with 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 per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Funds.”
•ETF
Risks. The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Cash
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. The Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used. In addition, cash redemptions may incur
higher brokerage costs than in-kind redemptions, and these added costs may be
borne by the Fund and negatively impact Fund performance.
◦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 NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares, and this could lead to differences between the market price of the
Shares and the underlying value of those Shares.
•Fixed
Income Securities Risk. The
value of investments in fixed income securities fluctuates with changes in
interest rates. Typically, a rise in interest rates causes a decline in the
value of fixed income securities owned indirectly by the Fund. On the other
hand, if rates fall, the value of the fixed income securities generally
increases. The Fund may be subject to a greater risk of rising interest rates
due to the current period of historically low rates and the effect of potential
government fiscal policy initiatives and resulting market reaction to those
initiatives. Below are several specific risks associated with investments in
fixed income securities.
◦Call
Risk.
During periods of falling interest rates, an issuer of a callable bond held by
the Fund may “call” or repay the security prior to its stated maturity, and the
Fund may have to reinvest the proceeds at lower interest rates, resulting in a
decline in the Fund’s income.
◦Credit
Risk.
Credit risk refers to the possibility that the issuer of a security will not be
able to make payments of interest and principal when due. Changes in an issuer’s
credit rating or the market’s perception of an issuer’s creditworthiness may
also affect the value of an investment in that issuer.
◦Duration
Risk. Prices
of fixed income securities with longer durations are more sensitive to interest
rate changes than those with shorter durations.
◦Event
Risk.
Event risk is the risk that corporate issuers may undergo restructurings, such
as mergers, leveraged buyouts, takeovers, or similar events financed by
increased debt. As a result of the added debt, the credit quality and market
value of a company’s bonds and/or other debt securities may decline
significantly.
◦Extension
Risk. When
interest rates rise, certain obligations will be paid off by the obligor more
slowly than anticipated, causing the value of these securities to fall.
◦Interest
Rate Risk. Generally,
the value of fixed income securities will change inversely with changes in
interest rates. As interest rates rise, the market value of fixed income
securities tends to decrease. Conversely, as interest rates fall, the market
value of fixed income securities tends to increase. This risk will be greater
for long-term securities than for short-term securities. In recent periods,
governmental financial regulators, including the U.S. Federal Reserve, have
taken steps to maintain historically low interest rates. Changes in government
intervention may have adverse effects on investments, volatility, and
illiquidity in debt markets.
◦Maturity
Risk. The
value of fixed income investments is also dependent on their maturity.
Generally, the longer the maturity of a fixed income security, the greater its
sensitivity to changes in interest rates.
◦Prepayment
Risk.
When interest rates fall, certain obligations will be paid off by the obligor
more quickly than originally anticipated and the proceeds may have to be
invested in securities with lower yields.
◦Variable
and Floating Rate Instrument Risk.
Floating or variable rate securities pay interest at rates that adjust in
response to changes in a specified interest rate or reset at predetermined dates
(such as the end of a calendar quarter). Securities with floating or variable
interest rates are generally less sensitive to interest rate changes than
securities with fixed interest rates, but may decline in value if their interest
rates do not rise as much, or as quickly, as comparable market interest rates.
Although floating or variable rate securities are generally less sensitive to
interest rate risk than fixed rate securities, they are subject to credit,
liquidity and default risk and may be subject to legal or contractual
restrictions on resale, which could impair their value.
•Government
Obligations Risk. The
Fund may invest in securities issued by the U.S. government or its agencies or
instrumentalities. There can be no guarantee that the United States will be able
to meet its payment obligations with respect to such securities. Further, not
all obligations issued by a U.S. government-related entity are backed by the
full
faith
and credit of the U.S. government. Additionally, market prices and yields of
securities supported by the full faith and credit of the U.S. government or
other countries may decline or be negative for short or long periods of
time.
•Investment
Company Risk. The
risks of investing in investment companies typically reflect the risks of the
types of instruments in which the investment companies invest. By investing in
another investment company, the Fund becomes a shareholder of that investment
company and bears its proportionate share of the fees and expenses of the other
investment company. Investments in ETFs are also subject to the “ETF Risks”
described above.
•LIBOR
Transition Risk. Instruments
in which the Fund invests may pay interest at floating rates based on the London
Inter-Bank Offered Rate (“LIBOR”) or may be subject to interest caps or floors
based on LIBOR. The Fund and issuers of instruments in which the Fund invests
may also obtain financing at floating rates based on LIBOR. Most maturities and
currencies of LIBOR were phased out at the end of 2021, with the remaining ones
to be phased out on June 30, 2023. There remains uncertainty regarding the
nature of any replacement rate and the impact of the transition from LIBOR on
the Fund and the financial markets generally. The Secured Overnight Funding Rate
(“SOFR”) has been selected by a committee established by the Board of Governors
of the Federal Reserve System and the Federal Reserve Bank of New York to
replace LIBOR as a reference rate in the United States. Other countries have
undertaken similar initiatives to identify replacement reference rates in their
respective markets. Abandonment of or modifications to LIBOR may affect the
value, liquidity or return on certain Fund investments that reference LIBOR
without including fallback provisions and may result in costs incurred in
connection with closing out positions and entering into new trades. Any pricing
adjustments to the Fund’s investments resulting from a substitute reference rate
may also adversely affect the Fund’s performance and/or NAV. The effect of
a phase out of LIBOR on instruments in which the Fund may invest is
currently unclear.
•Management
Risk. The
Fund is actively managed and may not meet its investment objective based on the
Sub-Adviser’s success or failure to implement investment strategies for the
Fund.
•Market
Risk.
The
trading prices of debt 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.
•Mortgage-
and Asset-Backed Securities Risk.
The
Fund may invest in U.S. government agency-backed mortgage- and asset-backed
securities. Mortgage- and asset-backed securities are subject to interest rate
risk. Modest movements in interest rates (both increases and decreases) may
quickly and significantly reduce the value of certain types of these securities.
When interest rates fall, mortgage- and asset-backed securities may be subject
to prepayment risk. When interest rates rise, certain types of mortgage- and
asset-backed securities are subject to extension risk. Mortgage- and
asset-backed securities can also be subject to the risk of default on the
underlying residential or commercial mortgage(s) or other assets.
•Municipal
Securities Risk.
Municipal securities can be significantly affected by political or economic
changes, including changes made in the law after issuance of the securities, as
well as uncertainties in the municipal market related to taxation, legislative
changes or the rights of municipal security holders, including in connection
with an issuer insolvency. Municipal securities backed by current or anticipated
revenues from a specific project or specific assets can be negatively affected
by the inability to collect revenues from the project or the
assets.
•Non-Diversification
Risk. The Fund is considered to be non-diversified,
which means that it may invest more of its assets in the securities of a single
issuer or a smaller number of issuers than if it were a diversified fund. As a
result, the Fund may be more exposed to the risks associated with and
developments affecting an individual issuer or a smaller number of issuers than
a fund that invests more widely. This may increase the Fund’s volatility and
cause the performance of a relatively smaller number of issuers to have a
greater impact on the Fund’s performance. However, the Fund intends to satisfy
the asset diversification requirements under Subchapter M of the Internal
Revenue Code of 1986, as amended (“Code”) for qualification as a regulated
investment company (“RIC”).
•Rating
Agencies Risks. Ratings
are not an absolute standard of quality. Ratings are general indicators that
reflect only the view of the originating rating agencies from which an
explanation of the significance of such ratings may be obtained. There is no
assurance that a particular rating will continue for any given period of time or
that any such rating will not be revised downward or withdrawn entirely. Such
changes may negatively affect the liquidity or market price of the securities in
which the Fund invests. The ratings of securitized assets may not adequately
reflect the credit risk of those assets due to their structure.
•Sector
Risk.
At times the Fund may increase the relative emphasis of its investments in a
particular group of industries or sector. The prices of securities of issuers in
a particular sector may be more susceptible to fluctuations due to changes
in
economic or business conditions, government regulations, availability of basic
resources or supplies, or other events that affect that industry or sector more
than securities of issuers in other industries and sectors. To the extent that
the Fund increases the relative emphasis of its investments in a particular
industry or sector, the value of Shares may fluctuate in response to events
affecting that industry or sector.
•Valuation
Risk. The
prices provided by the Fund’s pricing services or independent dealers or the
fair value determinations made by the Adviser may be different from the prices
used by other investment companies or from the prices at which debt obligations
are actually bought and sold. The prices of certain debt obligations provided by
pricing services may be subject to frequent and significant change, and will
vary depending on the information that is
available.
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for calendar
years 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 a broad
measure of market performance. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.clear-shares.com.
Calendar Year Total
Return
For the year-to-date period ended
June 30, 2022, the
Fund’s total return was -5.54%. During the period of time shown in the bar
chart, the Fund’s highest quarterly return
was 0.78% for the quarter ended June 30, 2021 and the
lowest quarterly return was
-1.61% for the quarter ended March 31,
2021.
Average
Annual Total Returns
For
the Period Ended December 31, 2021
|
|
|
|
|
|
|
| |
ClearShares
Piton Intermediate Fixed Income ETF |
1
Year |
Since
Inception
(10/1/20) |
Return Before
Taxes |
-1.23% |
-0.92% |
Return After Taxes on
Distributions |
-1.33% |
-1.00% |
Return After Taxes on Distributions and
Sale of Shares |
-0.73% |
-0.73% |
Bloomberg
U.S. Intermediate Government/Credit Bond Index
(reflects no deduction for
fees, expenses, or taxes) |
-1.44% |
-0.79% |
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. In certain cases, the figure
representing “Return After Taxes on Distributions and Sale of Shares” may be
higher than the other return figures for the same period. A higher after-tax
return results when a capital loss occurs upon redemption and provides an
assumed tax deduction that benefits the
investor.
Management
Investment
Adviser:
ClearShares LLC serves as investment adviser to the Fund.
Investment
Sub-Adviser: Piton
Investment Management, L.P. serves as the investment sub-adviser to the
Fund.
Portfolio
Managers
Brian
Lockwood (Head of Fixed Income for Piton) and Ralph Chan (Senior Vice President
of Piton) have been the Fund’s portfolio managers since its inception in October
2020.
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.clear-shares.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, Sub-Adviser, or their
affiliates may pay Intermediaries for certain activities related to the Fund,
including participation in activities that are designed to make Intermediaries
more knowledgeable about exchange traded products, including the Fund, or for
other activities, such as marketing, educational training or other initiatives
related to the sale or promotion of Shares. These payments may create a conflict
of interest by influencing the Intermediary and your salesperson to recommend
the Fund over another investment. Any such arrangements do not result in
increased Fund expenses. Ask your salesperson or visit the Intermediary’s
website for more information.
Investment
Objective
Each
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.
Temporary
Defensive Positions (ClearShares
OCIO ETF (the “OCIO ETF”) and the ClearShares Piton Intermediate Fixed Income
ETF (the “Piton Intermediate Fixed Income ETF”) only)
From
time to time, the Fund may take temporary defensive positions that are
inconsistent with its principal investment strategies in attempting to respond
to adverse market, economic, political, or other conditions. In such instances,
the Fund may hold up to 100% of its assets in cash; short-term U.S. government
securities and government agency securities; investment grade money market
instruments; money market mutual funds; investment grade fixed income
securities; repurchase agreements; commercial paper; cash equivalents; and ETFs
that principally invest in the foregoing instruments. As a result of engaging in
these temporary measures, the Fund may not achieve its investment
objective.
Manager
of Managers Structure
The
Funds and the Adviser have received an exemptive order from the SEC permitting
the Adviser (subject to certain conditions and the approval of the Funds’ Board
of Trustees (the “Board”)) to change or select new sub-advisers without
obtaining shareholder approval. The order also permits the Adviser to materially
amend the terms of agreements with a sub-adviser (including an increase in the
fee paid by the Adviser to the sub-adviser (and not paid by the Funds)) or to
continue the employment of a sub-adviser after an event that would otherwise
cause the automatic termination of services with Board approval, but without
shareholder approval. Shareholders will be notified of any sub-adviser changes.
Principal
Risks of Investing in the Funds
This
section provides additional information regarding the principal risks described
in each Fund Summary. As in each Fund Summary, the principal risks below are
presented in alphabetical order to facilitate finding particular risks and
comparing them with other funds. Each risk described below is considered a
“principal risk” of investing in the applicable Fund, regardless of the order in
which it appears. Each of the factors below could have a negative impact on the
applicable Fund’s performance and trading prices.
Agency
Debt Risk
(ClearShares
Ultra-Short Maturity ETF (the “Ultra-Short Maturity ETF”) only). The
Fund invests in unsecured bonds or debentures issued by U.S. government
agencies. Bonds or debentures issued by U.S. government agencies,
government-sponsored entities, or government corporations, including, among
others, Fannie Mae and Freddie Mac, are generally backed only by the general
creditworthiness and reputation of the U.S. government agency,
government-sponsored entity, or government corporation issuing the bond or
debenture and are not guaranteed by the U.S. Treasury or backed by the full
faith and credit of the U.S. government. Ginnie Mae securities are generally
backed by the full faith and credit of the U.S. government.
Some
U.S. government agencies, including Fannie Mae and Freddie Mac, purchase and
guarantee residential mortgages and form MBS that they issue to the market.
These agencies also hold their own MBS as well as those of other institutions
with funding from the agency debentures they issue. The market for MBS has been
adversely affected by the value of those MBS held and/or issued by these
agencies. These securities are subject to more credit risk than U.S. government
securities that are supported by the full faith and credit of the U.S.
(e.g.,
U.S. Treasury bonds). If a U.S. government agency that is the issuer of
securities in which the Fund invests is unable to meet its obligations or ceases
to exist and no plan is made for repayment of securities, the performance of the
Fund will be adversely impacted.
Asset
Allocation Risk
(OCIO
ETF only).
The Fund may favor an asset category or investment strategy that performs poorly
relative to other asset categories and investment strategies for short or long
periods of time. The portfolio managers’ decisions as to the allocation of
assets may be based on historic information and may not reflect more recent
technical or fundamental metrics. Additionally, because a Fund may weight
certain asset categories or investment strategies at zero, a Fund may miss
positive changes in an asset category’s or investment strategy’s performance and
fail to capture upside performance for an asset category or investment
strategy.
Currency
Exchange Rate Risk (OCIO
ETF only).
Changes
in currency exchange rates and the relative value of non-U.S. currencies
will affect the value of the Fund’s Underlying Investments with underlying
foreign shares and the value of your Shares. Because a Fund’s NAV is determined
on the basis of U.S. dollars, the U.S. dollar value of your investment in a Fund
may go down if the value of the local currency of the non-U.S. markets in which
a Fund invests depreciates against the U.S. dollar. This is true even if the
local currency value of securities held by a Fund goes up. Conversely, the
dollar value of your investment in a Fund may go up if the value of the local
currency appreciates
against
the U.S. dollar. The value of the U.S. dollar measured against other currencies
is influenced by a variety of factors. These factors include: national debt
levels and trade deficits, changes in balances of payments and trade, domestic
and foreign interest and inflation rates, global or regional political, economic
or financial events, monetary policies of governments, actual or potential
government intervention, and global energy prices. Political instability, the
possibility of government intervention and restrictive or opaque business and
investment policies may also reduce the value of a country’s currency.
Government monetary policies and the buying or selling of currency by a
country’s government may also influence exchange rates. Currency exchange rates
can be very volatile and can change quickly and unpredictably. As a result, the
value of an investment in a Fund may change quickly and without warning, and you
may lose money.
Emerging
Markets Risk (OCIO
ETF only).
Investments
in securities and instruments traded in developing or emerging markets, or that
provide exposure to such securities or markets, can involve additional risks
relating to political, economic, or regulatory conditions not associated with
investments in U.S. securities and instruments. For example, developing and
emerging markets may be subject to (i) greater market volatility, (ii) lower
trading volume and liquidity, (iii) greater social, political and economic
uncertainty, (iv) governmental controls on foreign investments and limitations
on repatriation of invested capital, (v) lower disclosure, corporate governance,
auditing and financial reporting standards, (vi) fewer protections of property
rights, (vii) restrictions on the transfer of securities or currency, and (viii)
settlement and trading practices that differ from those in U.S. markets. Each of
these factors may impact the ability of the Fund or an Underlying Investment to
buy, sell, or otherwise transfer securities, adversely affect the trading market
and price for Underlying Investment shares or securities, and cause the Fund to
decline in value.
Capital
Controls and Sanctions Risk.
Economic
conditions, such as volatile currency exchange rates and interest rates,
political events, military action and other conditions may, without prior
warning, lead to government intervention (including intervention by the U.S.
government with respect to foreign governments, economic sectors, foreign
companies and related securities and interests) and the imposition of capital
controls and/or sanctions, which may also include retaliatory actions of one
government against another government, such as seizure of assets. Capital
controls and/or sanctions include the prohibition of, or restrictions on, the
ability to transfer currency, securities or other assets. Levies may be placed
on profits repatriated by foreign entities (such as the Underlying Investments).
Capital controls and/or sanctions may also impact the ability of the Fund or an
Underlying Investment to buy, sell or otherwise transfer securities or currency,
negatively impact the value and/or liquidity of such instruments, adversely
affect the trading market and price for shares of the Underlying Investments or
the Fund’s securities, and cause the Underlying Investment and the Fund to
decline in value.
Geopolitical
Risk.
Some countries and regions in which the Fund or Underlying Investments invest
have experienced security concerns, war or threats of war and aggression,
terrorism, economic uncertainty, natural and environmental disasters and/or
systemic market dislocations that have led, and in the future may lead, to
increased short-term market volatility and may have adverse long-term effects on
the U.S. and world economies and markets generally. Such geopolitical and other
events may also disrupt securities markets and, during such market disruptions,
the Fund’s exposure to the other risks described herein, directly or through the
Underlying Investments, will likely increase. Each of the foregoing may
negatively impact the Fund’s investments.
Equity
Market Risk (OCIO
ETF only).
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; local, regional or global events
such
as acts of terrorism or war, including Russia’s invasion of Ukraine; and global
or regional political, economic, public health, and banking crises. If you held
common stock, or common stock equivalents, of any given issuer, you would
generally be exposed to greater risk than if you held preferred stocks and debt
obligations of the issuer because common stockholders, or holders of equivalent
interests, generally have inferior rights to receive payments from issuers in
comparison with the rights of preferred stockholders, bondholders, and other
creditors of such issuers.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and, in many cases, unprecedented volatility and
severe losses due to the global pandemic caused by COVID-19, a novel
coronavirus. The pandemic resulted in a wide range of social and economic
disruptions, including closed borders, voluntary or compelled quarantines of
large populations, stressed healthcare systems, reduced or prohibited domestic
or international travel, and supply chain disruptions affecting the United
States and many other countries. Some sectors of the economy and individual
issuers have experienced particularly large losses as a result of these
disruptions, and such disruptions may continue for an extended period of time or
reoccur in the future to a similar or greater extent. In response, the U.S.
government and the Federal Reserve have taken extraordinary actions to support
the domestic
economy
and financial markets. Many countries, including the U.S., are subject to few
restrictions related to the spread of COVID-19. It is unknown how long
circumstances related to the pandemic will persist, whether they will reoccur in
the future, whether efforts to support the economy and financial markets will be
successful, and what additional implications may follow from the pandemic. The
impact of these events and other epidemics or pandemics in the future could
adversely affect Fund performance.
ETF
Risks
◦APs,
Market Makers, and Liquidity Providers Concentration Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
◦Cash
Redemption Risk
(Ultra-Short
Maturity ETF and Piton Intermediate Fixed Income ETF only).
When
the Fund’s investment strategy requires it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds, it may be required to
sell or unwind portfolio investments in order to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind
(i.e.,
distribute securities as payment of redemption proceeds). As a result, the Fund
may pay out higher annual capital gain distributions than if the in-kind
redemption process was used.
◦Costs
of Buying or Selling Shares.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the 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 the spread 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, periods of
steep market declines, and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant. Because securities held by the OCIO ETF may trade on foreign
exchanges that are closed when the Fund’s primary listing exchange is open, the
OCIO ETF is likely to experience premiums and discounts greater than those of
domestic ETFs.
◦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, and this could lead to differences between the market price
of the Shares and the underlying value of those Shares.
Fixed
Income Securities Risk. Fixed
income securities, such as bonds and certain asset-backed securities, involve
certain risks, which include:
Call
Risk. During
periods of falling interest rates, an issuer of a callable bond held by a Fund
may “call” or repay the security before its stated maturity, and a Fund may have
to reinvest the proceeds in securities with lower yields, which would result in
a decline in a Fund’s income, or in securities with greater risks or with other
less favorable features.
Credit
Risk. Credit
risk refers to the possibility that the issuer of a security will not be able to
make principal and interest payments when due. Changes in an issuer’s credit
rating or the market’s perception of an issuer’s creditworthiness may also
affect the value of an investment in that issuer or the Underlying Investment’s
investment in that issuer. The degree of credit risk depends on both the
financial condition of the issuer and the terms of the obligation.
Duration
Risk. Prices
of fixed income securities with longer durations are more sensitive to interest
rate changes than those with shorter durations.
Event
Risk. Event
risk is the risk that corporate issuers may undergo restructurings, such as
mergers, leveraged buyouts, takeovers, or similar events financed by increased
debt. As a result of the added debt, the credit quality and market value of a
company’s bonds and/or other debt securities may decline
significantly.
Extension
Risk. When
interest rates rise, certain obligations will be paid off by the obligor more
slowly than anticipated, causing the value of these securities to fall. Rising
interest rates tend to extend the duration of securities, making them more
sensitive to future changes in interest rates. The value of longer-term
securities generally changes more in response to changes in interest rates than
the value of shorter-term securities. As a result, in a period of rising
interest rates, securities may exhibit additional volatility and may lose
value.
Interest
Rate Risk. Generally,
the value of fixed income securities will change inversely with changes in
interest rates. As interest rates rise, the market value of fixed income
securities tends to decrease. Conversely, as interest rates fall, the market
value of fixed income securities tends to increase. This risk will be greater
for long-term securities than for short-term securities. A Fund or an Underlying
Investment may take steps to attempt to reduce the exposure of its portfolio to
interest rate changes; however, there can be no guarantee that a Fund will take
such actions or that a Fund will be successful in reducing the impact of
interest rate changes on the portfolio. In recent periods, governmental
financial regulators, including the U.S. Federal Reserve, have taken steps to
maintain historically low interest rates. Changes in government intervention may
have adverse effects on investments, volatility, and illiquidity in debt
markets.
Maturity
Risk. The
value of fixed income investments is also dependent on their maturity.
Generally, the longer the maturity of a fixed income security, the greater its
sensitivity to changes in interest rates.
Prepayment
Risk. When
interest rates fall, certain obligations will be paid off by the obligor more
quickly than originally anticipated, and a Fund or the Underlying Investment may
have to invest the proceeds in securities with lower yields. In periods of
falling interest rates, the rate of prepayments tends to increase (as does price
fluctuation) as borrowers are motivated to pay off debt and refinance at new
lower rates. During such periods, reinvestment of the prepayment proceeds by the
management team will generally be at lower rates of return than the return on
the assets that were prepaid. Prepayment reduces the yield to maturity and the
average life of the security.
Variable
and Floating Rate Instrument Risk (OCIO ETF and Piton Intermediate Fixed Income
ETF only). Floating
or variable rate securities pay interest at rates that adjust in response to
changes in a specified interest rate or reset at predetermined dates (such as
the end of a calendar quarter). Securities with floating or variable interest
rates are generally less sensitive to interest rate changes than securities with
fixed interest rates, but may decline in value if their interest rates do not
rise as much, or as quickly, as comparable market interest rates. Conversely,
floating or variable rate securities will not generally increase in value if
interest rates decline. The impact of interest rate changes on floating or
variable rate securities is typically mitigated by the periodic interest rate
reset of the investments. Floating or variable rate securities can be rated
below investment grade or unrated; therefore, a Fund relies heavily on the
analytical ability of the Sub-Adviser. Floating or variable rate securities are
often subject to restrictions on resale, which can result in reduced
liquidity.
Foreign
Securities Risk (OCIO
ETF only).
Investments
in foreign securities involve certain risks that may not be present with
investments in U.S. securities. For example, investments in foreign securities
may be subject to risk of loss due to foreign currency fluctuations or to
political or economic instability. There may be less information publicly
available about a foreign issuer than a U.S. issuer. Foreign issuers may be
subject to different accounting, auditing, financial reporting and investor
protection standards than U.S. issuers. Investments in foreign securities may be
subject to withholding or other taxes and may be subject to additional trading,
settlement, custodial, and operational risks. With respect to certain countries,
there is the possibility of government intervention and expropriation or
nationalization of assets. Because legal systems differ, there is also the
possibility that it will be difficult to obtain or enforce legal judgments in
certain countries. Since foreign exchanges may be open on days when the
Underlying Investment does not price its shares, the value of the securities in
the Underlying Investment’s portfolio may change on days when shareholders will
not be able to purchase or sell the Shares or Underlying Investment’s shares.
Conversely, the Shares and the Underlying Investment’s shares may trade on days
when foreign exchanges are closed. Each of these factors can make investments in
the Fund more volatile and potentially less liquid than other types of
investments.
Government
Obligations Risk.
The
Fund may invest in securities issued, sponsored or guaranteed by the U.S.
government, its agencies and instrumentalities. However, no assurance can be
given that the U.S. government will provide financial support to U.S.
government-sponsored agencies or instrumentalities where it is not obligated to
do so by law. For instance, securities issued by the Government National
Mortgage Association (“Ginnie Mae”) are supported by the full faith and credit
of the United States. Securities issued by Fannie Mae and Freddie Mac have
historically been supported only by the discretionary authority of the U.S.
government. While the U.S. government provides financial support to various U.S.
government-sponsored agencies and instrumentalities, such as those listed above,
no assurance can be given that it will always do so. In September 2008, at the
direction of the U.S. Department of the Treasury, Fannie Mae and Freddie Mac
were placed into conservatorship under the Federal Housing Finance Agency
(“FHFA”), an independent regulator, and they remain in such status as of the
date of this Prospectus. The U.S. government also took steps to provide
additional financial support to Fannie Mae and Freddie Mac.
The
total public debt of the United States as a percentage of gross domestic product
has grown rapidly since the beginning of the 2008–2009 financial downturn.
Although high debt levels do not necessarily indicate or cause economic
problems, they may create certain systemic risks if sound debt management
practices are not implemented. A high national debt can raise concerns that the
U.S. government will not be able to make principal or interest payments when
they are due. This increase has also necessitated the need for the U.S. Congress
to negotiate adjustments to the statutory debt ceiling to increase the cap on
the amount the U.S. government is permitted to borrow to meet its existing
obligations and finance current budget deficits. In August 2011, S&P lowered
its long-term sovereign credit rating on the U.S. In explaining the downgrade at
that time, S&P cited, among other reasons, controversy over raising the
statutory debt limit and growth in public spending. An increase in national debt
levels may also necessitate the need for the U.S. Congress to negotiate
adjustments to the statutory debt ceiling to increase the cap on the amount the
U.S. Government is permitted to borrow to meet its existing obligations and
finance current budget deficits. Future downgrades could increase volatility in
domestic and foreign financial markets, result in higher interest rates, lower
prices of U.S. Treasury securities and increase the costs of different kinds of
debt. Any controversy or ongoing uncertainty regarding the statutory debt
ceiling negotiations may impact the U.S. long-term sovereign credit rating and
may cause market uncertainty. As a result, market prices and yields of
securities supported by the full faith and credit of the U.S. government may be
adversely affected.
High-Yield
Securities Risk (OCIO
ETF only).
Unrated
or lower-rated fixed income securities and other instruments, sometimes referred
to as “high yield” or “junk” bonds, may include securities that have the lowest
rating or are in default. Investing in lower-rated or unrated securities
involves special risks in addition to the risks associated with investments in
higher-rated fixed income securities, including a high degree of credit risk.
Lower-rated or unrated securities may be regarded as predominately speculative
with respect to the issuer’s continuing ability to meet principal and interest
payments. Analysis of the creditworthiness of issuers/issues of lower-rated or
unrated securities may be more complex than for issuers/issues of higher quality
debt securities. Lower-rated or unrated securities may be more susceptible to
losses and real or perceived adverse economic and competitive industry
conditions than higher-grade securities. Securities that are in the lowest
rating category are considered to have extremely poor prospects of ever
attaining any real investment standing, to have a current identifiable
vulnerability to default, and to be unlikely to have the capacity to pay
interest and repay principal. The secondary markets on which lower-rated or
unrated securities are traded may be less liquid than the market for
higher-grade securities. Less liquidity in the secondary trading markets could
adversely affect and cause large fluctuations in the value of such investments.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower-rated or unrated
securities, especially in a thinly traded market. It is possible that a major
economic recession could disrupt
severely
the market for such securities and may have an adverse impact on the value of
such securities. In addition, it is possible that any such economic downturn
could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default of such
securities. Furthermore, with respect to certain residential and commercial
mortgage-backed securities, it is difficult to obtain current reliable
information regarding delinquency rates, prepayment rates, servicing records, as
well as updated cash flows. The use of credit ratings as the sole method of
evaluating lower-rated or unrated securities can involve certain risks. For
example, credit ratings evaluate the safety of principal and interest payments,
not the market value risk of lower-rated securities. In addition, credit rating
agencies may fail to change credit ratings in a timely fashion to reflect events
since the security was rated.
Illiquid
Investments Risks (Ultra-Short
Maturity ETF only).
The Fund may invest up to 15% of its net assets in illiquid investments, such as
repurchase agreements with a term greater than seven days. Illiquid investments
may be difficult to dispose of at a fair price at the times when the Fund
believes it is desirable to do so. Investment of the Fund’s assets in illiquid
investments may restrict the Fund’s ability to take advantage of market
opportunities. Additionally, the Fund may have to forego all or a portion of the
interest earned on a repurchase agreement or pay a penalty to terminate such
agreement prior to its contractual end date. Liquidity risk may impact the
Fund’s ability to meet shareholder redemptions and, as a result, the Fund may be
forced to sell securities at inopportune prices.
Investment
Company Risk. The
Funds may invest in shares of investment companies, such as ETFs, that invest in
a wide range of instruments designed to track the performance of a particular
securities market index (or sector of an index) or that are actively managed.
The risks of investment in these securities typically reflect the risks of the
types of instruments in which the investment company invests. When a Fund
invests in investment company securities, shareholders of such Fund bear
indirectly their proportionate share of their fees and expenses, as well as
their share of such Fund’s fees and expenses. As a result, an investment by a
Fund in an investment company will cause the Fund’s operating expenses (taking
into account indirect expenses such as the fees and expenses of the investment
company) to be higher and, in turn, performance to be lower than if it were to
invest directly in the instruments underlying the investment company.
Additionally, there may not be an active trading market available for shares of
some ETFs. Shares of an ETF may also trade in the market at a premium or
discount to their NAV.
LIBOR
Transition Risk (Piton
Intermediate Fixed Income ETF only).
Instruments in which the Fund invests may pay interest at floating rates based
on LIBOR or may be subject to interest caps or floors based on LIBOR. The Fund
and issuers of instruments in which the Fund invests may also obtain financing
at floating rates based on LIBOR. Most maturities and currencies of LIBOR were
phased out at the end of 2021, with the remaining ones to be phased out on June
30, 2023. There remains uncertainty regarding the nature of any replacement rate
and the impact of the transition from LIBOR on the Fund and the financial
markets generally. The SOFR has been selected by a committee established by the
Board of Governors of the Federal Reserve System and the Federal Reserve Bank of
New York to replace LIBOR as a reference rate in the United States. Other
countries have undertaken similar initiatives to identify replacement reference
rates in their respective markets. Abandonment of or modifications to
LIBOR may affect the value, liquidity or return on certain Fund investments
that reference LIBOR without including fallback provisions and may result in
costs incurred in connection with closing out positions and entering into new
trades. Any pricing adjustments to the Fund’s investments resulting from a
substitute reference rate may also adversely affect the Fund’s performance
and/or NAV. The effect of a phase out of LIBOR on instruments in which
the Fund may invest is currently unclear.
Management
Risk. The
Funds are actively managed and may not meet their investment objective based on
the portfolio managers’ success or failure to implement investment strategies
for the Funds.
Market
Risk (Piton
Intermediate Fixed Income ETF and Ultra-Short Maturity ETF only).
The trading prices of debt securities and other instruments fluctuate in
response to a variety of factors. These factors include events impacting the
entire market or specific market segments, such as political, market and
economic developments, as well as events that impact specific issuers. A Fund’s
NAV and market price, like security and commodity prices generally, may
fluctuate significantly in response to these and other factors. As a result, an
investor could lose money over short or long periods of time.
MLP
Risk (OCIO
ETF only).
MLPs involve risks related to limited control and limited rights to vote on
matters affecting the MLP, risks related to potential conflicts of interest
between the MLP and the MLP’s general partner, and cash flow risks. MLP common
units and other equity securities can be affected by macroeconomic and other
factors affecting the stock market in general, expectations of interest rates,
investor sentiment towards MLPs or the energy sector, changes in a particular
issuer’s financial condition or unfavorable or unanticipated poor performance of
a particular issuer (in the case of MLPs, generally measured in terms of
distributable cash flow). Prices of common units of individual MLPs and other
equity securities also can be affected by fundamentals unique to the partnership
or company, including earnings power and coverage ratios.
MLPs
typically do not pay U.S. federal income tax at the partnership
level. Instead, each partner is allocated a share of the partnership’s
income, gains, losses, deductions and expenses. A change in current tax law
or in the underlying business mix of a given MLP could result in an MLP being
treated as a corporation for U.S. federal income tax purposes, which would
result in such MLP being required to pay U.S. federal income tax on its taxable
income. The classification of an MLP as a corporation for U.S. federal
income tax purposes would have the effect of reducing the amount of cash
available for distribution by the MLP. Thus, if any of the MLPs owned by
the Fund or an Underlying Investment were treated as corporations for U.S.
federal income tax purposes, it could result in a reduction of the value of the
Fund’s investment or the Underlying Investment and lower income, as compared to
an MLP that is not taxed as a corporation.
Mortgage-
and Asset-Backed Securities Risk.
Each Fund may invest directly or indirectly in mortgage-backed securities as
part of its principal investment strategy, and each of the Piton Intermediate
Fixed Income ETF and the Ultra-Short Maturity ETF may invest in asset-backed
securities as part of its principal investment strategy. Mortgage-backed
securities (residential and commercial) and asset-backed securities represent
interests in “pools” of mortgages or other assets, including consumer loans or
receivables held in trust. Although asset-backed and commercial mortgage-backed
securities (“CMBS”) generally experience less prepayment risk than residential
mortgage-backed securities (“RMBS”), each of RMBS, CMBS and asset-backed
securities, like traditional fixed income securities, are subject to credit,
interest rate, prepayment and extension risks. See “Fixed Income Securities
Risk” above.
Small
movements in interest rates (both increases and decreases) may quickly and
significantly reduce the value of certain mortgage-backed securities. A Fund’s
investments in asset-backed securities are subject to risks similar to those
associated with mortgage-related securities, as well as additional risks
associated with the nature of the assets and the servicing of those assets.
These securities also are subject to the risk of default on the underlying
mortgage or assets, particularly during periods of economic downturn. Certain
CMBS are issued in several classes with different levels of yield and credit
protection. A Fund’s investments in CMBS with several classes may be in the
lower classes that have greater risks than the higher classes, including greater
interest rate, credit and prepayment risks.
The
mortgage market in the United States recently has experienced difficulties that
may adversely affect the performance and market value of certain of a Fund’s
mortgage-related investments. Delinquencies and losses on mortgage loans
(including subprime and second-lien mortgage loans) generally have increased
recently and may continue to increase, and a decline in or flattening of
real-estate values (as has recently been experienced and may continue to be
experienced in many housing markets) may exacerbate such delinquencies and
losses. Also, a number of mortgage loan originators have recently experienced
serious financial difficulties or bankruptcy. Reduced investor demand for
mortgage loans and mortgage-related securities and increased investor yield
requirements have caused limited liquidity in the secondary market for
mortgage-related securities, which can adversely affect the market value of
mortgage-related securities. It is possible that such limited liquidity in such
secondary markets could continue or worsen.
Asset-backed
securities entail certain risks not presented by mortgage-backed securities,
including the risk that in certain states it may be difficult to perfect the
liens securing the collateral backing certain asset-backed securities. In
addition, certain asset-backed securities are based on loans that are unsecured,
which means that there is no collateral to seize if the underlying borrower
defaults. Certain mortgage-backed securities in which a Fund may invest may also
provide a degree of investment leverage, which could cause a Fund to lose all or
substantially all of its investment.
◦Residential
Mortgage-Backed Securities Risk. A
Fund may invest in RMBS. Holders of RMBS bear various risks, including credit,
market, interest rate, structural, and legal risks. RMBS represent interests in
pools of residential mortgage loans secured by one to four family residential
mortgage loans. RMBS are particularly susceptible to prepayment risks, as they
generally do not contain prepayment penalties and a reduction in interest rates
will increase the prepayments on the RMBS.
The
rate of defaults and losses on residential mortgage loans will be affected by a
number of factors, including general economic conditions and those in the
geographic area where the mortgaged property is located, the terms of the
mortgage loan, the borrower’s equity in the mortgaged property, and the
financial circumstances of the borrower. Certain mortgage loans may be of
sub-prime credit quality (i.e.,
do not meet the customary credit standards of Fannie Mae and Freddie Mac).
Delinquencies and liquidation proceedings are more likely with sub-prime
mortgage loans than with mortgage loans that satisfy customary credit standards.
If a portfolio of RMBS is backed by loans with disproportionately large
aggregate principal amounts secured by properties in only a few states or
regions in the United States, residential mortgage loans may be more susceptible
to geographic risks relating to such areas. Violation of laws, public policies,
and principles designed to protect consumers may limit the servicer’s ability to
collect all or part of the principal or interest on a residential mortgage loan,
entitle the borrower to a refund of amounts previously paid by it, or subject
the servicer to damages and administrative enforcement. Any such violation could
also result in cash flow delays and losses on
the
related issue of RMBS. It is not expected that RMBS will be guaranteed or
insured by any U.S. governmental agency or instrumentality or by any other
person. Distributions on RMBS will depend solely upon the amount and timing of
payments and other collections on the related underlying mortgage
loans.
◦Non-Investment-Grade
RMBS Risk. A
Fund may invest in RMBS that are non-investment grade, which means that major
rating agencies rate them below the top four investment-grade rating categories
(i.e.,
“AAA” through “BBB”). Non-investment grade RMBS tend to be less liquid, may have
a higher risk of default, and may be more difficult to value than investment
grade bonds. Recessions or poor economic or pricing conditions in the markets
associated with RMBS may cause defaults or losses on loans underlying such
securities. Non-investment grade securities are considered speculative, and
their capacity to pay principal and interest in accordance with the terms of
their issue is not certain, which may impair a Fund’s performance and reduce the
return on its investments.
Municipal
Securities Risk (Piton
Intermediate Fixed Income ETF only).
Municipal securities can be significantly affected by political or economic
changes, including changes made in the law after issuance of the securities, as
well as uncertainties in the municipal market related to taxation, legislative
changes or the rights of municipal security holders, including in connection
with an issuer insolvency. Municipal securities backed by current or anticipated
revenues from a specific project or specific assets can be negatively affected
by the inability to collect revenues from the project or the
assets.
Non-Diversification
Risk (Piton
Intermediate Fixed Income ETF only).
The
Fund is considered to be non-diversified, which means that it may invest more of
its assets in the securities of a single issuer or a smaller number of issuers
than if it were a diversified fund. As a result, the Fund may be more exposed to
the risks associated with and developments affecting an individual issuer or a
smaller number of issuers than a fund that invests more widely. This may
increase the Fund’s volatility and cause the performance of a relatively smaller
number of issuers to have a greater impact on the Fund’s performance. However,
the Fund intends to satisfy the diversification requirements for qualifying as a
RIC under Subchapter M of the Code.
Rating
Agencies Risk (Piton
Intermediate Fixed Income ETF only).
Rating
agencies may fail to make timely changes in credit ratings and an issuer’s
current financial condition may be better or worse than a rating indicates. In
addition, rating agencies are subject to an inherent conflict of interest
because they are often compensated by the same issuers whose securities they
grade.
Repurchase
Agreement Risk (Ultra-Short
Maturity ETF only).
Repurchase agreements may be construed to be collateralized loans by the
purchaser to the seller secured by the securities transferred to the purchaser.
If a repurchase agreement is construed to be a collateralized loan, the
underlying securities will not be considered to be owned by the Fund but only to
constitute collateral for the seller’s obligation to pay the repurchase price.
Repurchase agreements that do not provide for payment within seven days will be
treated as illiquid investments. In the event of a bankruptcy or other default
by the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. These losses could result
from: (a) possible decline in the value of the underlying security while the
Fund is seeking to enforce its rights under the repurchase agreement; (b)
possible reduced levels of income or lack of access to income during this
period; and (c) expenses of enforcing its rights.
REIT
Investment Risk (OCIO
ETF only).
Investments
in REITs involve unique risks. REITs may have limited financial resources, may
trade less frequently and in limited volume, and may be more volatile than other
securities. In addition, to the extent the Fund holds interests in REITs, it is
expected that investors in the Fund will bear two layers of asset-based
management fees and expenses (directly at the Fund level and indirectly at the
REIT level). The risks of investing in REITs include certain risks associated
with the direct ownership of real estate and the real estate industry in
general. These include risks related to general, regional and local economic
conditions; fluctuations in interest rates and property tax rates; shifts in
zoning laws, environmental regulations and other governmental action such as the
exercise of eminent domain; cash flow dependency; increased operating expenses;
lack of availability of mortgage funds; losses due to natural disasters;
overbuilding; losses due to casualty or condemnation; changes in property values
and rental rates; and other factors.
In
addition to these risks, residential/diversified REITs and commercial equity
REITs may be affected by changes in the value of the underlying property owned
by the trusts, while mortgage REITs may be affected by the quality of any credit
extended. Further, REITs are dependent upon management skills and generally may
not be diversified. REITs are also subject to heavy cash flow dependency,
defaults by borrowers and self-liquidation. In addition, REITs could possibly
fail to qualify for the beneficial tax treatment available to REITs under the
Internal Revenue Code of 1986 (the “Code”), or to maintain their exemptions from
registration under the Investment Company Act of 1940, as amended (the “1940
Act”).
The Fund expects that dividends received from a REIT and distributed to Fund
shareholders generally will be taxable to the shareholder as ordinary income.
The above factors may also adversely affect a borrower’s or a lessee’s ability
to meet its obligations to the REIT. In the event of a default by a borrower or
lessee, the REIT may experience delays in enforcing its rights as a mortgagee or
lessor and may incur substantial costs associated with protecting
investments.
Sector
Risk (OCIO
ETF and Piton Intermediate Fixed Income ETF only).
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.
Securities
Lending
Risk
(OCIO
ETF only).
There are certain risks associated with securities lending, including the risk
that the borrower may fail to return the securities on a timely basis or even
the loss of rights in the collateral deposited by the borrower, if the borrower
should fail financially. As a result, the Fund may lose money. The Fund could
also lose money in the event of a decline in the value of collateral provided
for loaned securities or a decline in the value of any investments made with
cash collateral. These events could also trigger adverse tax consequences for
the Fund.
Small
and Mid-Sized Company Risk (OCIO
ETF only).
Small
and mid-sized companies may be more vulnerable to adverse issuer, market,
political, or economic developments than securities of larger-capitalization
companies. The securities of small-and mid-sized capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some smaller capitalization companies have limited product
lines, markets, and financial and managerial resources and tend to concentrate
on fewer geographical markets relative to larger capitalization companies. There
is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Smaller-capitalization companies also may be particularly sensitive to changes
in interest rates, government regulation, borrowing costs and
earnings.
Valuation
Risk (Piton
Intermediate Fixed Income ETF only).
It may be difficult for the Fund to purchase and sell particular investments
within a reasonable time at a fair price, or the price at which it has been
valued for purposes of the Fund’s net asset value, causing the Fund to be less
liquid and unable to sell securities for what the Sub-Adviser believes is the
appropriate price of the investment. Valuation of portfolio investments may be
difficult, such as during periods of market turmoil or reduced liquidity and for
investments that trade infrequently or irregularly. In these and other
circumstances, an investment may be valued using fair value methodologies, which
are inherently subjective, reflect good faith judgments based on available
information and may not accurately estimate the price at which the Fund could
sell the investment at that time. Based on its investment strategies, a
significant portion of the Fund’s investments can be difficult to value and
potentially less liquid and therefore particularly prone to these
risks.
Information
about the Funds’ daily portfolio holdings is available at www.clear-shares.com.
A description of the Funds’ policies and procedures with respect to the
disclosure of the Funds’ portfolio holdings is available in the Funds’ Statement
of Additional Information (“SAI”).
Investment
Adviser
ClearShares
LLC, a Delaware limited liability company located at 606 Bald Eagle Drive, Suite
608, Marco Island, Florida 34145, serves as investment adviser to the Funds and
has overall responsibility for the general management and administration of the
Funds.
The
Adviser also arranges for transfer agency, custody, fund administration, and all
other related services necessary for the Funds to operate. The Adviser is
majority-owned by Deegan Holdings, LLC, a holding company controlled by Thomas
E. Deegan, the Chief Executive Officer of the Adviser.
For
the services it provides to the Funds, each of the Funds pays the Adviser a
unified management fee, which is calculated daily and paid monthly, at an annual
rate based on the applicable Fund’s average daily net assets as set forth in the
table below.
|
|
|
|
| |
Fund |
Rate |
OCIO
ETF |
0.55% |
Ultra-Short
Maturity ETF |
0.20% |
Piton
Intermediate Fixed Income ETF |
0.45% |
The
Adviser has contractually agreed to waive
certain
amounts of the management fee for the OCIO ETF and Piton Intermediate Fixed
Income ETF when the OCIO ETF or Piton Intermediate Fixed Income ETF invests in
the Ultra-Short Maturity ETF, for which the Adviser also serves as the
investment adviser. With respect to assets of the OCIO ETF or Piton Intermediate
Fixed Income ETF invested in the Ultra-Short Maturity ETF, the Adviser will
waive the OCIO ETF’s or Piton Intermediate Fixed Income ETF’s management fee in
an amount equal to the management fee of the Ultra-Short Maturity ETF, at least
through September 30, 2023. This arrangement may only be changed or eliminated
by the OCIO ETF’s and Piton Intermediate Fixed Income ETF’s Board of Trustees
upon 60 days’ written notice to the Adviser.
For
the fiscal year ended May 31, 2022, the Adviser received management fees,
net of any waivers, equal to 0.54% of the OCIO ETF’s average net assets, 0.20%
of the Ultra-Short Maturity ETF’s average net assets, and 0.45% of the Piton
Intermediate Fixed Income ETF’s average net assets.
Under
the Investment Advisory Agreement, the Adviser has agreed to pay all expenses
incurred by the Funds except for interest charges on any borrowings, dividends
and other expenses on securities sold short, taxes, brokerage commissions and
other expenses incurred in placing orders for the purchase and sale of
securities and other investment instruments, acquired fund fees and expenses,
accrued deferred tax liability, extraordinary expenses, distribution fees and
expenses paid by the Funds under any distribution plan adopted pursuant to Rule
12b-1 under the 1940 Act, and the unified management fee payable to the
Adviser.
The
basis for the Board’s approval of the Investment Advisory Agreement for each
Fund is available in the Funds’ Annual
Report
to Shareholders dated May 31, 2022.
Sub-Adviser
for the OCIO ETF
The
Adviser and the Fund have retained Blueprint Investment Partners LLC to serve as
sub-adviser for the Fund. The Sub-Adviser is responsible for the day-to-day
management of the Fund, including the general management of the investment and
reinvestment of the assets of the Fund and selecting broker-dealers to execute
purchase and sale transactions, subject to the supervision of the Adviser and
the Fund’s Board of Trustees. The Sub-Adviser is an SEC-registered investment
advisory firm specializing in portfolio management services to registered
investment companies, institutional clients, and other investment advisers since
2013. Its principal office is located at 1250 Revolution Mill Dr., Suite 150,
Greensboro, NC 27405.
For
its services, the Sub-Adviser is paid a fee by the Adviser, which is calculated
daily and paid monthly, at an annual rate, based on the Fund’s average daily net
assets of (i) 0.06% on net assets up to the level of the Fund’s net assets as of
the commencement of the Sub-Adviser’s management of the Fund, and (ii) 0.10% on
net assets greater than such amount.
The
basis for the Board’s approval of the Fund’s investment sub-advisory agreement
is available in the Fund’s Semi-Annual
Report
to Shareholders for the period ended November 30, 2021.
Sub-Adviser
for the Ultra-Short Maturity ETF and the Piton Intermediate Fixed Income
ETF
The
Adviser and the Funds have retained Piton Investment Management, L.P. (“Piton”)
to serve as sub-adviser for the Funds. The Sub-Adviser is responsible for the
day-to-day management of the Funds, including the general management of the
investment and reinvestment of the assets of the Funds and selecting
broker-dealers to execute purchase and sale transactions, subject to the
supervision of the Adviser and the Funds’ Board of Trustees. The Sub-Adviser is
an SEC-registered investment advisory firm specializing in fixed income
investment management services to institutions and high net worth individuals
since 2015. Its principal office is located at 401 Franklin Avenue, Suite 202B,
Garden City, New York 11530.
For
its services to the Ultra-Short Maturity ETF, the Sub-Adviser is paid a fee by
the Adviser, which is calculated daily and paid monthly, at an annual rate,
based on the Fund’s average daily net assets of 0.03%.
For
its services to the Piton Intermediate Fixed Income ETF, the Sub-Adviser is paid
a fee by the Adviser, which is calculated daily and paid monthly, at an annual
rate, based on the Fund’s average daily net assets of 0.10%.
The
basis for the Board’s approval of the Ultra-Short Maturity ETF’s investment
sub-advisory agreement is available in the Fund’s Semi-Annual
Report
to Shareholders for the period ended November 30, 2021.
The
basis for the Board’s approval of the Piton Intermediate Fixed Income ETF’s
investment sub-advisory agreement is available in the Fund’s Annual
Report
to Shareholders for the period ended May 31, 2022.
Portfolio
Managers
Jonathan
Robinson, Portfolio Manager (Portfolio Manager for the OCIO ETF)
Mr.
Robinson is the Chief Executive Officer of Blueprint, which he co-founded in
2013. He also co-founded Robinson-Langley Capital Management, a quantitative
alternative investment firm in 2005. Mr. Robinson was an Equity Research Analyst
with Prudential Equity Group from 2004 to 2005. He began his career as a trader
and market maker at Bear Stearns from 2003 to 2004. Mr. Robinson received his
Bachelor’s degrees in Finance and Economics from the University of North
Carolina at Greensboro.
Brandon
Langley, Portfolio Manager (Portfolio Manager for the OCIO ETF)
Mr.
Langley is the Chief Compliance Officer of Blueprint, which he co-founded in
2013. He also co-founded Robinson-Langley Capital Management, a quantitative
alternative investment firm in 2005. Mr. Langley received his Bachelor’s and
Master’s Degree in Economics from the University of North Carolina.
Frank
Codey, Chief Operating Officer and Portfolio Manager (Portfolio Manager for the
Ultra-Short Maturity ETF)
Mr.
Codey joined the Adviser in 2019. He has served since 2013 as the President of
The Colt Group, LLC providing financial consulting services in the areas of
prime brokerage and clearing, operations, business acceleration, data analytics,
robotic process automation, sales segmentation, and market positioning.
Previously, Mr. Codey was the President of Equinox Group Distributors, a
FINRA-regulated broker-dealer and the Chief Operating Officer of Equinox Fund
Management, an SEC-registered investment adviser. He has over twenty years of
fixed income prime brokerage experience specializing in mortgage and structured
products. Mr. Codey received his B.S. in Business with a Finance concentration
from Boston University and holds a Master of Science in Analytics degree from
Villanova University.
James
Fortescue, Senior Portfolio Manager (Portfolio Manager for the Ultra-Short
Maturity ETF)
Mr.
Fortescue has been a senior portfolio manager for Piton since 2019 and is a
founding partner and Chief Executive Officer of Piton. He has over twenty years
of experience building, operating and managing companies, investment portfolios
and relationships in the financial services space. Prior to founding Piton in
2014, Mr. Fortescue most recently served as the Chief Operating Officer at
Annaly Capital Management, Inc. (“Annaly”). He began his career at Annaly in
1995 and served there until 2014 in various roles including Head of Liabilities,
Chief of Staff, Managing Director, Executive Vice President and was a member of
Annaly’s Executive, Operations, and Risk Committees. Mr. Fortescue served on a
Financial Stability Board panel in front of the G-20 at the Federal Reserve Bank
of New York, a Markets Stability panel in front of the US Treasury Department
and the Risk Management Association Securities Lending and Borrowing Legal &
Regulatory Round Table. He received his B.S. in Finance from Siena College and
attended the New York Institute of Finance for intense mortgage-backed
securities studies.
Brian
Lockwood, CFA, Senior Portfolio Manager (Portfolio Manager for the Piton
Intermediate Fixed Income ETF)
Mr.
Lockwood has been a portfolio manager for Piton since 2019 and is the Head of
Fixed Income of Piton. He has over twenty years’ experience managing fixed
income portfolios. Prior to joining Piton in 2018, Mr. Lockwood was a Senior
Portfolio Manager and Head of the Fixed Income Division in the Private Bank
Investment Group, Americas at HSBC. He served as the global head of
discretionary fixed income management for HSBC, chaired the Fixed Income
Strategy Committee for the US Curve, and managed commingled and segregated
taxable and tax-exempt assets. Prior to joining HSBC in 2004, Mr. Lockwood held
portfolio manager roles at Ramius Capital Group and DLJ/Credit Suisse Asset
Management. He received a BA from Villanova University and is a Chartered
Financial Analyst (“CFA”). Mr. Lockwood is a member of the CFA institute, the
New York Society of Security Analysts (NYSSA), and is past Treasurer of the
Treasury Securities Luncheon Club of New York.
Ralph
Chan (Portfolio Manager for the Piton Intermediate Fixed Income
ETF)
Mr.
Chan serves as Senior Vice President on the Investment team at Piton. Prior to
joining Piton in 2018, Mr. Chan worked at HSBC Private Bank as a Vice President
and Senior Trader in the Investment Management Group. He joined HSBC in 2005,
where he worked closely with the Fixed Income team to grow, maintain and create
portfolio mandates. He managed the tactical cash portfolios in accordance with
specific guidelines. Along with the Investment Management Group, he helped
oversee five Fixed Income and Equity strategies. He has over a decade of trading
experience in Fixed Income and Equity
markets.
Prior to joining HSBC, he worked as a trade specialist at Brown Brothers
Harriman and Co.’s Investment Management team. Ralph graduated cum laude from
the Zicklin School of Business with a B.B.A. in Finance and
Investments.
The
Funds’ SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by the Portfolio Managers, and
the Portfolio Managers’ ownership of Shares of each Fund.
Each
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from a Fund, and only APs may tender their Shares for
redemption directly to a Fund, at NAV. APs must be a member or participant of a
clearing agency registered with the SEC and must execute a Participant Agreement
that has been agreed to by the Distributor (defined below), and that has been
accepted by a 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.
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
Funds impose 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 a Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Funds accommodate
frequent purchases and redemptions by APs. However, the Board has also
determined that frequent purchases and redemptions for cash may increase
tracking error and portfolio transaction costs and may lead to the realization
of capital gains. To minimize these potential consequences of frequent purchases
and redemptions, the Funds employ fair value pricing and may impose transaction
fees on purchases and redemptions of Creation Units to cover the custodial and
other costs incurred by a Fund in effecting trades. In addition, the Funds and
the Adviser reserve the right to reject any purchase order at any time.
Determination
of NAV
Each
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern time, each day
the NYSE is open for business. The NAV for each Fund is calculated by dividing
the Fund’s net assets by its Shares outstanding.
In
calculating its NAV, each Fund generally values its assets on the basis of
market quotations, last sale prices, or estimates of value furnished by a
pricing service or brokers who make markets in such instruments. If such
information is not available for a security held by a Fund or is determined to
be unreliable, the security will be valued by the Adviser at fair value pursuant
to procedures established by the Adviser and approved by the Board (as described
below).
Fair
Value Pricing
The
Adviser has been designated by the Board as the valuation designee for the Funds
pursuant to Rule 2a-5 under the 1940 Act. In its capacity as valuation designee,
the Adviser 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 held by a Fund,
the Adviser 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 established by the Adviser. Due to the
subjective and variable nature of determining the fair value of a security or
other investment, there can be no assurance that the Adviser’s fair value will
match or closely correlate to any market quotation that subsequently becomes
available or the price quoted or published by other sources. In addition, the
Fund may not 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, including Shares. Registered
investment companies are permitted to invest in the Ultra-Short Maturity ETF and
the Piton Intermediate Fixed Income ETF beyond the limits set forth in section
12(d)(1) subject to certain terms and conditions set forth in Rule 12d1-4 under
the 1940 Act, including that such investment companies enter into an agreement
with the Fund. The relief from Section 12(d)(1), however, may not be available
for investments in a Fund if the Fund invests significantly in other ETFs and/or
operates as a fund of funds. Accordingly, the relief from Section 12(d)(1) is
not expected to be available for the OCIO ETF.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Funds. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Funds is available through certain broker-dealers.
If you are interested in enrolling in householding and receiving a single copy
of prospectuses and other shareholder documents, please contact your
broker-dealer. If you are currently enrolled in householding and wish to change
your householding status, please contact your broker-dealer.
Dividends
and Distributions
Each
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. Each 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 Funds. Your investment
in a Fund may have other tax implications. Please consult your tax advisor about
the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
Each
Fund has elected or intends to elect and intends to qualify each year for
treatment as a RIC. If a Fund meets certain minimum distribution requirements, a
RIC is not subject to tax at the fund level on income and gains from investments
that are timely distributed to shareholders. However, a Fund’s failure to
qualify as a RIC or to meet minimum distribution requirements would result (if
certain relief provisions were not available) in fund-level taxation and,
consequently, a reduction in income available for distribution to
shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA, you need to be aware of the possible tax consequences
when a Fund makes distributions, when you sell your Shares listed on the
Exchange, and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions
Each
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long a Fund owned the investments that generated them, rather
than how long a shareholder has owned his or her Shares. Sales of assets held by
a Fund for more
than
one year generally result in long-term capital gains and losses, and sales of
assets held by a Fund for one year or less generally result in short-term
capital gains and losses. Distributions of a Fund’s net capital gain (the excess
of net long-term capital gains over net short-term capital losses) that are
reported by such Fund as capital gain dividends (“Capital Gain Dividends”) will
be taxable as long-term capital gains, which for non-corporate shareholders are
subject to tax at reduced rates of up to 20% (lower rates apply to individuals
in lower tax brackets). Distributions of short-term capital gain will generally
be taxable as ordinary income. Dividends and distributions are generally taxable
to you whether you receive them in cash or reinvest them in additional Shares.
Distributions
reported by a 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 a Fund received in respect of stock of certain foreign
corporations may be qualified dividend income if that stock is readily tradable
on an established U.S. securities market. Dividends received by a Fund from an
ETF, an Underlying Investment taxable as a RIC, or a REIT may be treated as
qualified dividend income generally only to the extent so reported by such ETF,
Underlying Investment, or REIT.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from a Fund.
(OCIO
ETF only)
The Fund may invest in REITs. The Tax Act treats “qualified REIT dividends”
(i.e.,
ordinary REIT dividends other than capital gain dividends and portions of REIT
dividends designated as qualified dividend income eligible for capital gain tax
rates) as eligible for a 20% deduction by non-corporate taxpayers. This
deduction, if allowed in full, equates to a maximum effective tax rate of 29.6%
(37% top rate applied to income after 20% deduction). Pursuant to recently
proposed regulations on which the Fund may rely, distributions by the Fund to
its shareholders that are attributable to qualified REIT dividends received by
the Fund and which the Fund properly reports as “section 199A dividends,” are
treated as “qualified REIT dividends” in the hands of non-corporate
shareholders. A section 199A dividend is treated as a qualified REIT dividend
only if the shareholder receiving such dividend holds the dividend-paying RIC
shares for at least 46 days of the 91-day period beginning 45 days before the
shares become ex-dividend, and is not under an obligation to make related
payments with respect to a position in substantially similar or related
property. The Fund is permitted to report such part of its dividends as section
199A dividends as are eligible, but is not required to do so.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by a Fund before your
investment (and thus were included in the Shares’ NAV when you purchased your
Shares).
You
may wish to avoid investing in a Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your investment.
If
a Fund’s distributions exceed its earnings and profits, all or a portion of the
distributions made for a taxable year may be recharacterized as a return of
capital to shareholders. A return of capital distribution will generally not be
taxable, but will reduce each shareholder’s cost basis in Shares and result in a
higher capital gain or lower capital loss when the Shares are sold. After a
shareholder’s basis in Shares has been reduced to zero, distributions in excess
of earnings and profits in respect of those Shares will be treated as gain from
the sale of the Shares.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
a Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
Shares by 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. A Fund may, under certain circumstances,
report all or a portion of a dividend as an “interest-related dividend” or a
“short-term capital gain dividend,” which would generally be exempt from this
30% U.S. withholding tax, provided certain other requirements are met. Different
tax consequences may result if you are a foreign shareholder engaged in a trade
or business within the United States or if a tax treaty applies.
Each
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage 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 the shareholder is not subject to such withholding.
Taxes
When Shares are Sold on the Exchange
Provided
that a shareholder holds Shares as capital assets, any capital gain or loss
realized upon a sale of Shares generally is treated as a long-term capital gain
or loss if Shares have been held for more than one year and as a short-term
capital gain or loss if Shares have been held for one year or less. However, any
capital loss on a sale of Shares held for six months or less is treated as
long-term capital loss to the extent of Capital Gain Dividends paid with respect
to such Shares. Any loss realized on a sale will be disallowed to the extent
Shares of a Fund are acquired, including through reinvestment of dividends,
within a 61-day period beginning 30 days before and ending 30 days after the
disposition of Shares. The ability to deduct capital losses may be limited.
The
cost basis of Shares of a Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your
account.
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 advisor with
respect to whether wash sales rules apply and when a loss might be
deductible.
Each
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. Such Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause such 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, such Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Foreign
Taxes
To
the extent a Fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest such Fund received from
sources in foreign countries.
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 each 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 advisor about the
potential tax consequences of an investment in Shares
under
all applicable tax laws. For more information, please see the section entitled
“Federal Income Taxes” in the SAI.
The
Distributor, Quasar Distributors, LLC, is a broker-dealer registered with the
SEC. The Distributor distributes Creation Units for the Funds on an agency basis
and does not maintain a secondary market in Shares. The Distributor has no role
in determining the policies of the Funds or the securities that are purchased or
sold by the Funds. The Distributor’s principal address is 111 East Kilbourn
Avenue, Suite 2200, Milwaukee, Wisconsin 53202.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, each Fund is authorized
to pay an amount up to 0.25% of its average daily net assets each year for
certain distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Funds, and there are no plans to
impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because the fees are paid out of 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.
Information
regarding how often Shares traded on the Exchange at a price above (i.e.,
at a premium) or below (i.e.,
at a discount) the NAV of each Fund is available on the Funds’ website at
www.clear-shares.com.
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of, the timing,
prices, or quantities of Shares to be issued, nor in the determination or
calculation of the equation by which Shares are redeemable. The Exchange has no
obligation or liability to owners of Shares in connection with the
administration, marketing, or trading of Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser, the Sub-Advisers, and the Funds 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 Funds
particularly.
The
financial highlights tables are intended to help you understand each Fund’s
financial performance for each Fund’s five most recent fiscal years (or the life
of the Fund, if shorter). Certain information reflects financial results for a
single Share. The total returns in the tables represent the rate that an
investor would have earned or lost on an investment in a Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Cohen & Company, Ltd., the Funds’ independent registered public
accounting firm, whose report, along with the Funds’ financial statements, is
included in the Funds’ annual report, which is available upon request.
ClearShares
OCIO ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the year/period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Year
Ended May 31, |
| Period
Ended |
|
2022 |
| 2021 |
| 2020 |
| 2019 |
|
May
31, 2018 (1) |
Net
asset value, beginning of year/period |
$32.12 |
|
| $26.46 |
|
| $25.66 |
|
| $26.51 |
|
| $25.00 |
| |
|
|
|
|
|
|
|
|
|
| |
INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
|
|
|
|
|
|
|
|
| |
Net
investment income (loss) (2)(3) |
0.46 |
|
| 0.42 |
|
| 0.59 |
|
| 0.49 |
|
| 0.36 |
| |
Net
realized and unrealized gain (loss) on investments |
(1.88) |
|
| 5.96 |
|
| 1.04 |
|
| (0.82) |
|
| 1.38 |
| |
Total
from investment operations |
(1.42) |
|
| 6.38 |
|
| 1.63 |
|
| (0.33) |
|
| 1.74 |
| |
|
|
|
|
|
|
|
|
|
| |
DISTRIBUTIONS
TO SHAREHOLDERS: |
|
|
|
|
|
|
|
|
| |
Distributions
from: |
|
|
|
|
|
|
|
|
| |
Net
investment income |
(0.49) |
|
| (0.48) |
|
| (0.83) |
|
| (0.31) |
|
| (0.23) |
| |
Net
realized gains |
(0.45) |
|
| (0.24) |
|
| — |
|
| (0.21) |
|
| — |
| |
Total
distributions to shareholders |
(0.94) |
|
| (0.72) |
|
| (0.83) |
|
| (0.52) |
|
| (0.23) |
| |
|
|
|
|
|
|
|
|
|
| |
CAPITAL
SHARES TRANSACTIONS: |
|
|
|
|
|
|
|
|
| |
Capital
contributions(2) |
— |
|
| — |
|
| 0.00 |
|
(4) |
— |
|
| — |
| |
|
|
|
|
|
|
|
|
|
| |
Net
asset value, end of year/period |
$29.76 |
|
| $32.12 |
|
| $26.46 |
|
| $25.66 |
|
| $26.51 |
| |
|
|
|
|
|
|
|
|
|
| |
Total
return |
-4.65 |
% |
| 24.38 |
% |
| 6.34 |
% |
| -1.11 |
% |
| 6.95 |
% |
(5) |
|
|
|
|
|
|
|
|
|
| |
SUPPLEMENTAL
DATA: |
|
|
|
|
|
|
|
|
| |
Net
assets at end of year/period (000’s) |
$126,481 |
|
| $126,865 |
|
| $104,532 |
|
| $106,498 |
|
| $112,678 |
| |
|
|
|
|
|
|
|
|
|
| |
RATIOS
TO AVERAGE NET ASSETS: |
|
|
|
|
|
|
|
|
| |
Expenses
to average net assets
(before
management fees waived) (6) |
0.55 |
% |
| 0.55 |
% |
| 0.55 |
% |
| 0.57 |
% |
(7) |
0.75 |
% |
(8) |
Expenses
to average net assets
(after
management fees waived) (6) |
0.54 |
% |
| 0.54 |
% |
| 0.54 |
% |
| 0.54 |
% |
(7) |
0.55 |
% |
(8) |
Net
investment income (loss) to average net assets (before management fees
waived) (3) |
1.44 |
% |
| 1.43 |
% |
| 2.17 |
% |
| 1.86 |
% |
| 1.27 |
% |
(8) |
Net
investment income (loss) to average net assets (after management fees
waived) (3) |
1.45 |
% |
| 1.44 |
% |
| 2.18 |
% |
| 1.89 |
% |
| 1.47 |
% |
(8) |
|
|
|
|
|
|
|
|
|
| |
Portfolio
turnover rate (9) |
51 |
% |
| 24 |
% |
| 50 |
% |
| 28 |
% |
| 31 |
% |
(5) |
(1)
Commencement of operations on June 26, 2017. |
(2)
Calculated based on average shares outstanding during the
period. |
(3)
Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying investment companies in
which the Fund invests. The ratio does not include net investment income
of the underlying companies in which the Fund invests. |
(4)
Less than $0.005. |
(5)
Not annualized. |
(6)
Does not include expenses of the investment companies in which the Fund
invests. |
(7)
Prior
to July 16, 2018, ClearShares OCIO ETF paid the Adviser a management fee
of 0.75% and contractually waived 0.20% of its management fee for the
Fund, resulting in $27,866 waived for the year ended May 31,
2019. |
(8)
Annualized. |
(9)
Excludes
impact of in-kind transactions. |
ClearShares
Ultra-Short Maturity ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the year/period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Year
Ended May 31, |
| Period
Ended |
|
2022 |
| 2021 |
| 2020 |
|
May
31, 2019 (1) |
Net
asset value, beginning of year/period |
$100.08 |
|
| $100.09 |
|
| $100.48 |
|
| $100.00 |
| |
|
|
|
|
|
|
|
| |
INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
|
|
|
|
|
|
| |
Net
investment income (loss) (2) |
0.39 |
|
| 0.42 |
|
| 1.25 |
|
| 1.87 |
| |
Net
realized and unrealized gain (loss) on investments |
— |
|
| — |
|
| 0.29 |
|
|
— |
| |
Total
from investment operations |
0.39 |
|
| 0.42 |
|
| 1.54 |
|
| 1.87 |
| |
|
|
|
|
|
|
|
| |
DISTRIBUTIONS
TO SHAREHOLDERS: |
|
|
|
|
|
|
| |
Distributions
from: |
|
|
|
|
|
|
| |
Net
investment income |
(0.37) |
|
| (0.43) |
|
| (1.93) |
|
| (1.39) |
| |
Total
distributions to shareholders |
(0.37) |
|
| (0.43) |
|
| (1.93) |
|
| (1.39) |
| |
|
|
|
|
|
|
|
| |
Net
asset value, end of year/period |
$100.10 |
|
| $100.08 |
|
| $100.09 |
|
| $100.48 |
| |
|
|
|
|
|
|
|
| |
Total
return |
0.39 |
% |
| 0.42 |
% |
| 1.56 |
% |
| 1.88 |
% |
(3) |
|
|
|
|
|
|
|
| |
SUPPLEMENTAL
DATA: |
|
|
|
|
|
|
| |
Net
assets at end of year/period (000’s) |
$200,198 |
|
| $120,099 |
|
| $115,109 |
|
| $30,145 |
| |
|
|
|
|
|
|
|
| |
RATIOS
TO AVERAGE NET ASSETS: |
|
|
|
|
|
|
| |
Expenses
to average net assets |
0.20 |
% |
| 0.20 |
% |
| 0.20 |
% |
| 0.28 |
% |
(4)(5) |
Net
investment income (loss) to average net assets |
0.39 |
% |
| 0.42 |
% |
| 1.25 |
% |
| 2.12 |
% |
(4) |
|
|
|
|
|
|
|
| |
Portfolio
turnover rate (6) |
0 |
% |
| 0 |
% |
| 0 |
% |
| 0 |
% |
(3) |
|
|
|
|
|
|
|
| |
(1)
Commencement of operations on July 10, 2018. |
(2)
Calculated based on average shares outstanding during the
period. |
(3)
Not annualized. |
(4)
Annualized. |
(5)
Prior to April 1, 2019, ClearShares Ultra-Short Maturity ETF paid the
Adviser a management fee of 0.30%. |
(6)
Excludes impact of in-kind
transactions. |
ClearShares
Piton Intermediate Fixed Income ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the year/period
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Year
Ended |
| Period
Ended |
|
May
31, 2022 |
|
May
31, 2021 (1) |
Net
asset value, beginning of year/period |
$99.19 |
|
| $100.00 |
| |
|
|
|
| |
INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
|
|
| |
Net
investment income (loss)(2) |
0.71 |
|
| 0.07 |
| |
Net
realized and unrealized gain (loss) on investments |
(5.75) |
|
|
(0.94) |
| |
Total
from investment operations |
(5.04) |
|
| (0.87) |
| |
|
|
|
| |
DISTRIBUTIONS
TO SHAREHOLDERS: |
|
|
| |
Distributions
from: |
|
|
| |
Net
investment income |
(0.40) |
|
| (0.02) |
| |
Total
Distributions |
(0.40) |
|
| (0.02) |
| |
|
|
|
| |
CAPITAL
SHARE TRANSACTIONS: |
|
|
| |
Transaction
fees |
0.05 |
|
| 0.08 |
| |
|
|
|
| |
Net
asset value, end of year/period |
$93.80 |
|
| $99.19 |
| |
|
|
|
| |
Total
return |
-5.05 |
% |
| -0.79 |
% |
(3) |
|
|
|
| |
SUPPLEMENTAL
DATA: |
|
|
| |
Net
assets at end of year/period (000’s) |
$133,668 |
|
| $32,237 |
| |
|
|
|
| |
RATIOS
TO AVERAGE NET ASSETS: |
|
|
| |
Expenses
to average net assets (before management fees waived) |
0.45 |
% |
| 0.45 |
% |
(4) |
Expenses
to average net assets (after management fees waived) |
0.45 |
% |
| 0.44 |
% |
(4) |
Net
investment income (loss) to average net assets (before management fees
waived) |
0.73 |
% |
| 0.10 |
% |
(4) |
Net
investment income (loss) to average net assets (after management fees
waived) |
0.73 |
% |
| 0.11 |
% |
(4) |
|
|
|
| |
Portfolio
turnover rate (5) |
42 |
% |
| 80 |
% |
(3) |
|
|
|
| |
(1)
Commencement of operations on October 1, 2020. |
(2)
Calculated based on average shares outstanding during the
period. |
(3)
Not annualized. |
(4)
Annualized. |
(5)
Excludes impact of in-kind
transactions. |
ClearShares
OCIO ETF
ClearShares
Ultra-Short Maturity ETF
ClearShares
Piton Intermediate Fixed Income ETF
|
|
|
|
|
|
|
|
|
|
| |
Adviser |
ClearShares
LLC
606
Bald Eagle Drive, Suite 608
Marco
Island, Florida 34145 |
Sub-Adviser
(to Ultra-Short Maturity ETF and Piton Intermediate Fixed Income
ETF)
|
Piton
Investment Management, L.P.
401
Franklin Avenue, Suite 202B
Garden
City, New York 11530 |
Sub-Adviser
(to OCIO ETF) |
Blueprint
Investment Partners LLC
1250
Revolution Mill Drive, Suite 150
Greensboro,
North Carolina 27405
|
Transfer
Agent |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Fund
Accountant and Fund Administrator |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Custodian |
U.S.
Bank National Association
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Distributor |
Quasar
Distributors, LLC
111
East Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
D.C. 20004 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
Wisconsin 53202 |
Investors
may find more information about the Funds in the following
documents:
Statement
of Additional Information:
The Funds’ SAI provides additional details about the investments and techniques
of the Funds and certain other additional information. A current SAI dated
September 30, 2022 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 each Fund’s investments is available in the
respective 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 each Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Funds by contacting the Funds at c/o U.S. Bank
Global Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or by
calling 1-800-617-0004.
Shareholder
reports and other information about the Funds are available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Funds’ Internet website at www.clear-shares.com;
or
(SEC
Investment Company Act File No. 811-22668)