cik0001604813-20210731
Donoghue
Forlines Risk Managed Innovation ETF (DFNV)
(formerly,
TrimTabs Donoghue Forlines Risk Managed Innovation ETF)
Donoghue
Forlines Tactical High Yield ETF (DFHY)
(formerly,
TrimTabs Donoghue Forlines Tactical High Yield ETF)
Prospectus
November
29, 2021
This
Prospectus provides important information about the Donoghue
Forlines Risk Managed Innovation ETF and the Donoghue
Forlines Tactical High Yield ETF (each a “Fund” and together, the “Funds”), each
a series of TrimTabs ETF Trust (“Trust”), that you should know before investing
in the Funds. Please read it carefully and keep it for future
reference.
These
securities have not been approved or disapproved by the Securities and Exchange
Commission nor has the Securities and Exchange Commission passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
Shares
of the Funds (“Shares”) are listed and traded on Cboe BZX Exchange, Inc. (“Cboe”
or “Exchange”). Shares are not individually redeemable. The Trust is a
registered investment company under the Investment Company Act of 1940, as
amended (“1940 Act”).
No
person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the Funds’
Statement of Additional Information (“SAI”)
dated November
29, 2021 (which
is incorporated by reference into this Prospectus and is legally a part of this
Prospectus) and, if given or made, such information or representations may not
be relied upon as having been authorized by us.
FUND
SUMMARY
Donoghue
Forlines Risk Managed Innovation ETF
Investment
Objective
The Donoghue Forlines Risk Managed Innovation ETF (the “Fund”)
seeks to provide investment results that closely correspond, before fees and
expenses, to the performance of the FCF Risk Managed Quality Innovation Index
(the “Underlying Index”).
Fees and
Expenses
This table describes the fees and expenses that you may pay if you
buy, hold and sell Shares. You may also pay other fees, such as brokerage
commissions and other fees to financial intermediaries, which are not reflected
in the table or example below.
Annual Fund
Operating Expenses (expenses that you pay each year as a percentage of the value
of your investment):
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Management
Fee1 |
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0.69% |
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Other
Expenses |
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0.00% |
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Total
Annual Fund Operating Expenses |
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0.69% |
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1.
The management fee is
structured as a “unified fee,” pursuant to which the Fund’s investment adviser
pays all expenses of the Fund, except for the management fee, payments under the
Fund’s Rule 12b-1 plan, brokerage expenses, acquired fund fees and expenses,
taxes, interest (including borrowing costs and dividend expenses on securities
sold short), litigation expenses and other extraordinary expenses (including
litigation to which the Trust or the Fund may be a party and indemnification of
the Trustees and officers with respect thereto).
Example
The
following 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 for the time periods indicated and then redeem all of your Shares
at the end of those periods. The example also assumes that the Fund provides a
return of 5% per year and that operating expenses remain
the same. The example does not reflect any brokerage commissions that you may
pay on purchases and sales of Shares. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
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One
Year |
Three
Years |
Five
Years |
Ten
Years |
$70 |
$221 |
$384 |
$859 |
Portfolio
Turnover
The
Fund may pay transaction costs, including commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These costs, which are not reflected in the annual
fund operating expenses or in the example, affect the Fund’s performance.
For
the period from December 7, 2020 (commencement of operations) through July 31,
2021, the Fund’s portfolio turnover rate was 40% of the average value of its
portfolio.
Principal
Investment Strategies
To
pursue its investment objective, the Fund invests, under normal market
circumstances, at least 80% of its net assets (plus any borrowings for
investment purposes) in component securities of the Underlying Index. The
Underlying Index is sponsored and maintained by FCF
Indexes LLC
(the "Index Provider"), an affiliate of FCF
Advisors LLC,
the Fund’s investment adviser (the “Adviser”). The Underlying Index is designed
to track the performance of a strategy that seeks to provide risk-managed
exposure to U.S. publicly traded companies with strong free cash flow and strong
research and development (“R&D”) investment. The
Fund intends to maintain a portfolio of securities that generally replicates the
holdings of the Underlying Index.
To
be eligible for inclusion in the Underlying Index, an equity security must: (i)
be a U.S. listed common stock; (ii) have a minimum total market capitalization
larger than the 97th
percentile of the cumulative market capitalization of all U.S.-listed companies;
(iii) have an average monthly trading volume of greater than $75 million over
the last six months; and (iv) have been issued by a company that has reported
over the past 12 months certain characteristics of its expenses, including free
cash flow and positive R&D expense.
Each
security eligible for inclusion is then scored based on the following components
of the company issuing the security (the “FCF Innovation Score”), which is
intended to be representative of a company’s free cash flow and innovation: (i)
quality of earnings (i.e.,
a
metric that determines the proportion of income attributable to the cash flow
activities of a company); (ii) profits generated from R&D; (iii) degree of
R&D investment relative to total assets; (iv) assets turnover; and (v)
financial leverage. Only companies with an FCF Innovation Score within the top
25% of all eligible securities are candidates for inclusion in the Underlying
Index. A target weighting is then assigned to each security based on a
combination of its FCF Innovation Score and free-float market capitalization.
Companies are then ranked based on their target weighting and sequentially
included in the Underlying Index until either 120 securities have been included
or 90% of the cumulative security weight has been included, whichever occurs
first. These securities comprise the “Equity Portfolio” of the Underlying Index.
The
Underlying Index utilizes a proprietary, rules-based methodology that employs a
downside protection model that is intended to manage risk in the Equity
Portfolio during certain bear market environments. The downside protection model
will provide either a “buy signal” or a “sell signal,” which are used to
determine whether the Underlying Index will be in a bullish (i.e., fully
invested long position) or defensive posture, respectively. When a “buy signal”
is triggered, the Underlying Index will be comprised entirely of the Equity
Portfolio. When a “sell signal” is triggered, the Underlying Index will
eliminate 50% of the Equity Portfolio allocations in exchange for short-term
U.S. Treasury securities and/or other cash equivalents (“Short-Term Treasury
Securities”).
The Short-Term Treasury Securities comprise the “U.S. Treasury Portfolio” of the
Underlying Index. The
downside protection model will provide buy or sell signals on a daily basis.
Sell
signals are typically only triggered during prolonged bear markets and downside
protection will not be provided during all declining or bear market
environments.
Allocations
to the Equity Portfolio are rebalanced and reconstituted quarterly. The
composition of the U.S. Treasury Portfolio is also rebalanced and reconstituted
quarterly. The Fund is generally rebalanced and reconstituted in accordance with
the Underlying Index. Allocations implemented pursuant to the downside
protection model are determined at the close of trading on each business day,
based on the signal triggered, and become effective at the close of trading on
the following business day. The Fund will generally implement downside
protection allocations in accordance with the Underlying
Index.
The
Fund can use derivative instruments, including exchange-traded futures
contracts, to gain exposure to component securities of the Underlying
Index.
Donoghue
Forlines LLC, the Fund’s sub-adviser (the "Sub-Adviser"), may engage in active
and frequent trading of the Fund’s portfolio securities to achieve the Fund’s
investment objective.
The
Fund will concentrate its investments (i.e., invest more than 25% of its total
assets) in a particular industry or group of industries to approximately the
same extent that the Underlying Index is concentrated. As of the date of this
prospectus, the Fund is currently concentrated in the healthcare and technology
sectors.
Principal
Risks
An
investment in the Fund involves risk, including those described below.
There
is no assurance that the Fund will achieve its investment objective.
An investor
may lose money by investing in the Fund.
Equity
Investing Risk.
An investment in the Fund involves risks similar to those of investing in any
fund holding equity securities, such as market fluctuations, changes in interest
rates and perceived trends in stock prices. The values of equity securities
could decline generally or could underperform other investments. In addition,
securities may decline in value due to factors affecting a specific issuer,
market or securities markets generally.
Large
Capitalization Company Risk.
The Fund’s investments in large capitalization companies may underperform other
segments of the market because they may be less responsive to competitive
challenges and opportunities and unable to attain high growth rates during
periods of economic expansion.
Small
and Medium Capitalization Company Risk.
Investing in securities of small and medium capitalization companies involves
greater risk than customarily is associated with investing in larger, more
established companies. These companies’ securities may be more volatile and less
liquid than those of more established companies. Often, small and medium
capitalization companies and the industries in which they focus are still
evolving and, as a result, they may be more sensitive to changing market
conditions. Small and medium capitalization companies may be particularly
affected by interest rate increases, as they may find it more difficult to
borrow money to continue or expand operations or may have difficulty in repaying
any loans which are floating rate.
U.S.
Treasury Securities Risk.
U.S. Treasury securities may differ from other securities in their interest
rates, maturities, times of issuance and other characteristics and may provide
relatively lower returns than those of other securities. Similar to other
issuers, changes to the financial condition or credit rating of a government may
cause the value of Short-Term Treasury Securities
to
decline.
Index-Based
Strategy Risk.
The Fund is managed as an index-based fund that seeks to track the performance
of the Underlying Index. This differs from an actively managed fund, which
typically seeks to outperform a benchmark index. As a result, the Fund may hold
the component securities of the Underlying Index regardless of the current or
projected performance of a specific security or the relevant market as a whole.
Maintaining investments in securities regardless of market conditions or the
performance of individual securities could cause the Fund’s returns to be lower
than if the Fund employed an active strategy. The Fund will seek to track the
Underlying Index in all market conditions, including during adverse market
conditions when other funds may seek to take temporary defensive measures (such
as investing significantly in cash or cash equivalents). Accordingly, unless the
Underlying Index allocates significant portions of its assets to cash and/or
cash equivalents during times of adverse market or economic conditions, the Fund
may be subject to a higher level of market risk
during
such times than other funds. Additionally, the Fund generally rebalances and
reconstitutes its portfolio, and implements downside protection allocations, in
accordance with the Underlying Index and, therefore, any changes to the
Underlying Index’s rebalance, reconstitution or downside protection trigger
schedule will typically result in corresponding changes to the Fund’s rebalance,
reconstitution or downside protection trigger schedule.
Downside
Protection Model Risk.
Neither the Adviser nor the Sub-Adviser can offer assurances that the downside
protection model employed by the Underlying Index methodology will achieve its
intended results, or that downside protection will be provided during periods of
time when the Equity Portfolio is declining or during any period of time deemed
to be a bear market. For example, the Underlying Index methodology would not
have triggered a signal to employ the downside protection model during the
market volatility experienced in March 2020. While significant dips occurred in
the market at that time, the bear market environment was short lived, and
markets began recovering relatively quickly. As discussed above, signals are
typically only triggered during prolonged
bear markets, meaning that the signal is triggered based on the duration of the
decline not the amount of the decline. Accordingly, while the signal would not
have triggered in March 2020, it would have triggered during the financial
crisis of 2007-2008, during which a prolonged bear market occurred. Investment
in a fund that utilizes a downside protection model that seeks to minimize risk
only during certain prolonged bear market environments may not be appropriate
for every investor seeking a particular risk profile.
Market
Events Risk.
The value of securities in the Fund’s portfolio may decline due to daily
fluctuations in the securities markets that are generally beyond the Fund’s
control, including the quality of the Fund’s investments, economic conditions,
adverse investor sentiment, lower demand for a company’s goods or services, and
general market conditions. In a declining market, the prices for all securities
(including those in the Fund’s portfolio) may decline, regardless of their
long-term prospects. Security values tend to move in cycles, with periods when
securities markets generally rise and periods when they generally decline. In
addition, local, regional or global events such as war, acts of terrorism, the
spread of infectious illness or other public health issue, recessions, or other
events could have a significant impact on the Fund, its investments and the
trading of its Shares. For example, an outbreak of an infectious respiratory
illness, COVID-19, has resulted in travel restrictions, disruption of healthcare
systems, prolonged quarantines, supply chain disruptions, lower consumer demand,
layoffs, ratings downgrades, defaults and has
heightened pre-existing political, social and economic concerns.
Certain markets have experienced temporary closures, extreme volatility, severe
losses, reduced liquidity and increased trading costs. These events will have an
impact on the Fund and its investments and could impact the Fund’s ability to
purchase or sell securities or cause elevated tracking error or increased
premiums or discounts to the Fund’s net asset value (“NAV”). The ongoing effects
of COVID-19, and the length of its impact on the Fund or its investments, are
unpredictable.
Concentration
Risk.
A fund concentrated in an industry or group of industries is likely to present
more risks than a fund that is broadly diversified over several industries or
groups of industries. Compared to the broad market, an individual industry or
group of related industries may be more strongly affected by changes in the
economic climate, broad market shifts, moves in a particular dominant stock or
regulatory changes.
Derivatives
Risk.
A
derivative instrument derives its value from an underlying security, currency,
commodity, interest rate, index or other asset (collectively, “underlying
asset”). The Fund’s investments in derivatives may pose risks in addition to and
greater than those associated with investing directly in the underlying assets,
including counterparty, leverage and liquidity risks. Derivatives may also be
harder to value, less tax efficient and subject to changing government
regulation that could impact the
Fund’s
ability to use certain derivatives or their cost. Derivatives strategies may not
always be successful.
•Futures
Contracts Risk. Exchange-traded
futures contracts are a type of derivative, which call for the future delivery
of an asset, or cash settlement, at a certain stated price on a specified future
date. Futures contracts involve the risk of imperfect correlation between
movements in the price of the instruments and the price of the underlying
assets. In addition, there is the risk that the Fund may not be able to enter
into a closing transaction because of an illiquid market. Exchanges can limit
the number of positions that can be held or controlled by the Fund or the
Sub-Adviser, thus limiting the ability to implement the Fund’s strategies.
Futures markets are highly volatile, and the use of futures may increase the
volatility of the Fund’s NAV.
Active
and Frequent Trading Risk. Active
and frequent trading of portfolio securities may result in increased transaction
costs to the Fund, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of the securities and on reinvestment in other
securities, and may also result in higher taxes if Shares are held in a taxable
account.
Index
Correlation Risk.
While the Sub-Adviser seeks to track the performance of the Underlying Index
closely (i.e., to achieve a high degree of correlation with the Underlying
Index), the Fund’s returns may not match or achieve a high degree of correlation
with the returns of the Underlying Index due to operating expenses, transaction
costs, cash flows, regulatory requirements and/or operational inefficiencies.
Index
Calculation Risk.
The Underlying Index relies on various sources of information to assess the
criteria of issuers included in the Underlying Index and to determine whether a
“buy” or “sell” trigger should be issued, including information that may be
based on assumptions and estimates. The Fund, the Index Provider, the Adviser,
the Sub-Adviser, the Underlying Index calculation agent and any of their
respective
affiliates cannot offer assurances that the Underlying Index’s calculation
methodology or sources of information will provide an accurate assessment of
included issuers or the appropriate trigger at any particular time.
ETF
Risk. As
an exchange-traded
fund (“ETF”),
the Fund is subject to the following risks:
•Authorized
Participants Concentration Risk.
The Fund may have a limited number of financial institutions that may act as
Authorized Participants (“APs”). To the extent that those APs exit the business
or are unable to process creation and/or redemption orders, Shares may trade at
a discount to NAV and possibly face delisting.
•Flash
Crash Risk.
Sharp price declines in securities owned by the Fund may trigger trading halts,
which may result in Shares trading in the market at an increasingly large
discount to NAV during part (or all) of a trading day. Shareholders could suffer
significant losses to the extent that they sell Shares at these temporarily low
market prices.
•Large
Shareholder Risk. Certain
shareholders, including the Adviser, the Sub-Adviser or their respective
affiliates, or groups of related shareholders, such as those investing through
one or more model portfolios, may own a substantial amount of the
Shares.
The disposition of Shares
by large shareholders, resulting
in redemptions through or by APs,
could have a significant negative impact on the Fund. In addition, transactions
by large shareholders may account for a
large
percentage of the trading volume on the Exchange and may, therefore, have a
material upward or downward effect on the market price of the
Shares.
•Premium-Discount
Risk.
Shares
may trade above or below their NAV. Accordingly, investors may pay more than NAV
when purchasing Shares or receive less than NAV when selling Shares. The market
prices of Shares will generally fluctuate in accordance with changes in NAV,
changes in the relative supply of, and demand for, Shares, and changes in the
liquidity, or the perceived liquidity, of the Fund’s holdings.
•Secondary
Market Trading Risk.
Investors
buying or selling Shares in the secondary market may pay brokerage commissions
or other charges, which may be a significant proportional cost for investors
seeking to buy or sell relatively small amounts of Shares. Although the Shares
are listed on the Exchange, there can be no assurance that an active or liquid
trading market for them will develop or be maintained. In addition, trading in
Shares on the Exchange may be halted.
Performance
The
Fund does not have a performance history for a full calendar year
as of the date of this Prospectus. Performance information
for the Fund will be provided once it has annual returns for a full calendar
year. The Fund’s
past performance, before and after taxes, does not necessarily indicate how it
will perform in the future.
Investment
Adviser and Sub-Adviser
FCF
Advisors LLC (formerly known as TrimTabs Asset Management, LLC) serves
as the investment adviser of the Fund.
Donoghue
Forlines LLC serves as the sub-adviser of the Fund.
Portfolio
Managers
John
A. Forlines, CIO of the Sub-Adviser, Jeffrey R. Thompson, CEO of the
Sub-Adviser, Richard E. Molari, COO of the Sub-Adviser, and Nicholas A. Lobley,
Portfolio Manager of the Sub-Adviser, each serve the Fund as a portfolio
manager, and have served in such role since the Fund’s inception in
December
2020. Each portfolio manager is jointly and primarily responsible for the
day-to-day management of the Fund.
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 (the “Deposit Securities”) and/or a designated amount of U.S.
cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.donoghueforlinesetfs.com.
Tax
Information
Distributions
you receive from the Fund are generally taxable to you as ordinary income for
federal income tax purposes, except that distributions reported by the Fund as
“capital gain dividends” are taxed to you as long-term capital gains, and
distributions may also be subject to state and/or local taxes. Fund
distributions generally are not taxable to you if you are investing through a
tax-advantaged retirement plan account or you are a tax-exempt investor,
although you may be taxed on withdrawals from your tax-advantaged
account.
Purchases
Through Broker-Dealers and Other Financial Intermediaries
If
you purchase Shares through a broker-dealer or other financial intermediary, the
Adviser, Sub-Adviser or their respective
affiliates or related companies may pay the intermediary for the sale of Shares
and related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend Shares over another investment. Ask your salesperson or visit your
financial intermediary’s website for more information.
Donoghue
Forlines Tactical High Yield ETF
Investment
Objective
The Donoghue Forlines Tactical High Yield ETF (the “Fund”) seeks
to provide investment results that closely correspond, before fees and expenses,
to the performance of the FCF Tactical High Yield Index (the “Underlying
Index”).
Fees and
Expenses
This table describes the fees and expenses that you may pay if you
buy, hold and sell Shares. You may also pay other fees, such as brokerage
commissions and other fees to financial intermediaries, which are not reflected
in the table or example below.
Annual Fund
Operating Expenses (expenses that you pay each year as a percentage of the value
of your investment):
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Management
Fee1 |
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0.69% |
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Other
Expenses |
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0.00% |
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Acquired
Fund Fees and Expenses |
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0.19% |
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Total
Annual Fund Operating Expenses2 |
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0.88% |
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1.
The management fee is
structured as a “unified fee,” pursuant to which the Fund’s investment adviser
pays all expenses of the Fund, except for the management fee, payments under the
Fund’s Rule 12b-1 plan, brokerage expenses, acquired fund fees and expenses,
taxes, interest (including borrowing costs and dividend expenses on securities
sold short), litigation expenses and other extraordinary expenses (including
litigation to which the Trust or the Fund may be a party and indemnification of
the Trustees and officers with respect thereto).
2.
The Total Annual Fund
Operating Expenses may not correlate to the Ratio of Expenses to Average Net
Assets as reported in the “Financial Highlights” section of the Prospectus,
which reflects the operating expenses of the Fund and does not include Acquired
Fund Fees and Expenses.
Example
The
following 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 for the time periods indicated and then redeem all of your Shares
at the end of those periods. The example also assumes that the Fund provides a
return of 5% per year and that operating expenses remain
the same. The example does not reflect any brokerage commissions that you may
pay on purchases and sales of Shares. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
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One
Year |
Three
Years |
Five
Years |
Ten
Years |
$90 |
$281 |
$488 |
$1,084 |
Portfolio
Turnover
The
Fund may pay transaction costs, including commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These costs, which are not reflected in the annual
fund operating expenses or in the example, affect the Fund’s
performance.
For the period from December 7, 2020 (commencement of operations) through July
31, 2021, the Fund’s portfolio turnover rate was 327% of the average value of its
portfolio. The index experienced tactical signals during the fiscal year
resulting in the Fund moving partially into short-term treasury exposures and
back to high yield exposures.
Principal
Investment Strategies
To
pursue its investment objective, the Fund invests, under normal market
circumstances, at least 80% of its net assets (plus any borrowings for
investment purposes) in component securities of the Underlying Index. The
Underlying Index is sponsored and maintained by FCF
Indexes LLC
(the "Index Provider"), an affiliate of FCF
Advisors LLC, the
Fund's investment adviser (the "Adviser"). The Underlying Index is designed to
track the performance of a strategy that seeks to provide risk-managed exposure
to exchange-traded funds (“ETFs”) that investment primarily in high yield debt
instruments (also known as “junk bonds”) (“High Yield Bond ETFs”). The
Fund intends to maintain a portfolio of securities that generally replicates the
holdings of the Underlying Index.
To
be eligible for inclusion in the Underlying Index, a High Yield Bond ETF must:
(i) be U.S. listed; (ii) invest primarily in U.S. high yield debt instruments;
(iii) have more than $1 billion in assets under management (“AUM”); (iv) have an
expense ratio of less than 0.50%; and (v) have an investment process that
excludes factors, hedges and long/short strategies. Eligible High Yield Bond
ETFs are weighted based on their expenses (lower expenses increase weighting)
and AUM (greater AUM increases weighting). These securities comprise the “High
Yield Bond Portfolio” of the Underlying Index.
The
types of high yield debt instruments in which a High Yield Bond ETF may invest
include corporate bonds or other bonds or debt instruments that are generally
rated below investment grade, which are those rated lower than Baa3 by Moody’s
Investors Service, Inc. (“Moody’s”) or lower than BBB- by S&P Global Ratings
("S&P"). High Yield Bond ETFs may invest up to 100% of their respective
assets in instruments generally rated below Caa3 by Moody’s or CCC- by S&P.
The
Underlying Index utilizes a proprietary, rules-based methodology that employs a
tactical overlay that is intended to provide downside protection to the High
Yield Bond ETF allocations. The tactical overlay will provide either a “buy
signal” or a “sell signal,” which are used to determine whether the Underlying
Index will be in a bullish (i.e., fully invested long position) or defensive
posture, respectively. When a “buy signal” is triggered, the Underlying Index
will be comprised entirely of High Yield Bond ETFs. When a “sell signal” is
triggered, the Underlying Index will eliminate 80% of its High Yield Bond ETF
allocations in exchange for ETFs that invest primarily in intermediate-term U.S.
Treasury securities and/or other cash equivalents (“Intermediate-Term Treasury
ETFs”). The tactical overlay will provide buy or sell signals on a daily
basis.
To
be eligible for inclusion in the Underlying Index, an Intermediate-Term Treasury
ETF must: (i) be U.S. listed; (ii) invest primarily in intermediate-term U.S.
Treasury securities (i.e.,
those with durations typically between 3.5 and 6 years) and/or other cash
equivalents; (iii) have more than $1 billion in AUM; (iv) have an expense ratio
of 0.15% or less; and (v) have an investment process that excludes factors,
hedges and long/short strategies. Eligible Intermediate-Term Treasury ETFs are
weighted and ranked based on their expenses (lower expenses increase weighting)
and AUM (greater AUM increases weighting). These securities comprise the “U.S.
Treasury Portfolio” of the Underlying Index.
Allocations
to the High Yield Bond Portfolio are rebalanced quarterly and reconstituted
annually. The composition of the U.S. Treasury Portfolio is also rebalanced
quarterly and reconstituted annually. The Fund is generally rebalanced and
reconstituted in accordance with the Underlying Index. Allocations implemented
pursuant to the tactical overlay are determined at the close of trading on each
business day, based on the signal triggered, and become effective at the close
of trading on the following
business
day. The Fund will generally implement tactical overlay allocations in
accordance with the Underlying Index.
The
Fund can use derivative instruments, including exchange-traded futures
contracts, to gain exposure to component securities of the Underlying
Index.
Donoghue
Forlines LLC, the Fund’s sub-adviser (the “Sub-Adviser”), may engage in active
and frequent trading of the Fund’s portfolio securities to achieve the Fund’s
investment objective.
The
Fund will concentrate its investments (i.e., invest more than 25% of its total
assets) in a particular industry or group of industries to approximately the
same extent that the Underlying Index is
concentrated.
Principal
Risks
An
investment in the Fund involves risk, including those described below.
There
is no assurance that the Fund will achieve its investment objective.
An investor
may lose money by investing in the Fund.
Underlying
ETFs Risk. In
seeking to track the Underlying Index, the Fund invests substantially all of its
assets in High Yield Bond ETFs and/or Intermediate-Term Treasury ETFs (together,
the “Underlying ETFs”). Accordingly, the Fund’s investment performance is
directly related to the performance of the Underlying ETFs. The Fund’s net asset
value (or “NAV”) will change with changes in the value of the Underlying ETFs
based on their market valuations. An investment in the Fund will entail more
costs and expenses than a direct investment in the Underlying ETFs. As the
Underlying ETFs, or the Fund’s allocations among the Underlying ETFs, change
from time to time, or to the extent that the total annual fund operating
expenses of any Underlying ETF changes, the weighted average operating expenses
borne by the Fund may increase or decrease.
High
Yield (Junk Bond) Securities Risk. High
yield securities and unrated securities of similar credit quality are considered
to be speculative with respect to the issuer’s continuing ability to make
principal and interest payments and are generally subject to greater levels of
credit quality risk than investment grade securities. High yield securities are
usually issued by companies, including smaller and medium capitalization
companies, without long track records of sales and earnings, or with
questionable credit strength. These companies may be particularly affected by
interest rate increases, as they may find it more difficult to borrow money to
continue or expand operations, or may have difficulty in repaying floating rate
loans. These fixed-income securities are considered below “investment-grade.”
The retail secondary market for these “junk bonds” may be less liquid than that
of higher-rated fixed income securities, and adverse conditions could make it
difficult at times to sell these securities or could result in lower prices than
higher-rated fixed income securities. These risks can reduce the value of the
shares of a High Yield Bond ETF and the income it earns.
Liquidity
Risk.
Liquidity risk exists when a particular investment is difficult to purchase or
sell. If a High Yield Bond ETF invests in illiquid securities or its portfolio
securities otherwise become illiquid, it may reduce the returns of the High
Yield Bond ETF because the High Yield Bond ETF may be unable to sell the
illiquid securities at an advantageous time or price. In the event that a High
Yield Bond ETF voluntarily or involuntarily liquidates its portfolio assets
during periods of infrequent trading of its securities, the High Yield Bond ETF
may not receive full value for those assets, which will reduce the value of the
High Yield Bond ETF’s shares, and in turn, the value of the Fund’s investment in
such shares.
U.S.
Treasury Securities Risk.
U.S. Treasury securities may differ from other securities in their interest
rates, maturities, times of issuance and other characteristics and may provide
relatively lower returns than those of other securities. Similar to other
issuers, changes to the financial condition or credit rating of a government may
cause the value of an Intermediate-Term Treasury ETF’s investments to
decline.
Index-Based
Strategy Risk.
The Fund is managed as an index-based fund that seeks to track the performance
of the Underlying Index. This differs from an actively managed fund, which
typically seeks to outperform a benchmark index. As a result, the Fund may hold
the component securities of the Underlying Index regardless of the current or
projected performance of a specific security or the relevant market as a whole.
Maintaining investments in securities regardless of market conditions or the
performance of individual securities could cause the Fund’s returns to be lower
than if the Fund employed an active strategy. The Fund will seek to track the
Underlying Index in all market conditions, including during adverse market
conditions when other funds may seek to take temporary defensive measures (such
as investing significantly in cash or cash equivalents). Accordingly, unless the
Underlying Index allocates significant portions of its assets to cash and/or
cash equivalents during times of adverse market or economic conditions, the Fund
may be subject to a higher level of market risk during such times than other
funds. Additionally, the Fund generally rebalances and reconstitutes its
portfolio, and implements tactical overlay allocations, in accordance with the
Underlying Index and, therefore, any changes to the Underlying Index’s
rebalance, reconstitution or tactical overlay trigger schedule will typically
result in corresponding changes to the Fund’s rebalance, reconstitution or
tactical overlay trigger schedule.
Tactical
Overlay Risk.
Neither the Adviser nor the Sub-Adviser can offer assurances that the tactical
overlay process employed by the Underlying Index methodology will achieve its
intended results. Investment in a fund that utilizes a tactical overlay that
seeks to minimize risk may not be appropriate for every investor seeking a
particular risk profile.
Market
Events Risk.
The value of securities in the Fund’s portfolio may decline due to daily
fluctuations in the securities markets that are generally beyond the Fund’s
control, including the quality of the Fund’s investments, economic conditions,
adverse investor sentiment, lower demand for a company’s goods or services, and
general market conditions. In a declining market, the prices for all securities
(including those in the Fund’s portfolio) may decline, regardless of their
long-term prospects. Security values tend to move in cycles, with periods when
securities markets generally rise and periods when they generally decline. In
addition, local, regional or global events such as war, acts of terrorism, the
spread of infectious illness or other public health issue, recessions, or other
events could have a significant impact on the Fund, its investments and the
trading of its Shares. For example, an outbreak of an infectious respiratory
illness, COVID-19, has resulted in travel restrictions, disruption of healthcare
systems, prolonged quarantines, supply chain disruptions, lower consumer demand,
layoffs, ratings downgrades, defaults and has
heightened pre-existing political, social and economic concerns.
Certain markets have experienced temporary closures, extreme volatility, severe
losses, reduced liquidity and increased trading costs. These events will have an
impact on the Fund and its investments and could impact the Fund’s ability to
purchase or sell securities or cause elevated tracking error or increased
premiums or discounts to the Fund’s NAV. The ongoing effects of COVID-19, and
the length of its impact on the Fund or its investments, are
unpredictable.
Concentration
Risk.
A fund concentrated in an industry or group of industries is likely to present
more risks than a fund that is broadly diversified over several industries or
groups of industries. Compared to the broad market, an individual industry or
group of related industries may be more
strongly
affected by changes in the economic climate, broad market shifts, moves in a
particular dominant stock or regulatory changes.
Derivatives
Risk.
A
derivative instrument derives its value from an underlying security, currency,
commodity, interest rate, index or other asset (collectively, “underlying
asset”). The Fund’s investments in derivatives may pose risks in addition to and
greater than those associated with investing directly in the underlying assets,
including counterparty, leverage and liquidity risks. Derivatives may also be
harder to value, less tax efficient and subject to changing government
regulation that could impact the Fund’s ability to use certain derivatives or
their cost. Derivatives strategies may not always be successful.
•Futures
Contracts Risk. Exchange-traded
futures contracts are a type of derivative, which call for the future delivery
of an asset, or cash settlement, at a certain stated price on a specified future
date. Futures contracts involve the risk of imperfect correlation between
movements in the price of the instruments and the price of the underlying
assets. In addition, there is the risk that the Fund may not be able to enter
into a closing transaction because of an illiquid market. Exchanges can limit
the number of positions that can be held or controlled by the Fund or the
Sub-Adviser, thus limiting the ability to implement the Fund’s strategies.
Futures markets are highly volatile, and the use of futures may increase the
volatility of the Fund’s NAV.
Active
and Frequent Trading Risk. Active
and frequent trading of portfolio securities may result in increased transaction
costs to the Fund, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of the securities and on reinvestment in other
securities, and may also result in higher taxes if Shares are held in a taxable
account.
Index
Correlation Risk.
While the Sub-Adviser seeks to track the performance of the Underlying Index
closely (i.e., to achieve a high degree of correlation with the Underlying
Index), the Fund’s returns may not match or achieve a high degree of correlation
with the returns of the Underlying Index due to operating expenses, transaction
costs, cash flows, regulatory requirements and/or operational inefficiencies.
Index
Calculation Risk.
The Underlying Index relies on various sources of information to assess the
criteria of issuers included in the Underlying Index and to determine whether a
“buy” or “sell” trigger should be issued, including information that may be
based on assumptions and estimates. The Fund, the Index Provider, the Adviser,
the Sub-Adviser, the Underlying Index calculation agent and any of their
respective
affiliates cannot offer assurances that the Underlying Index’s calculation
methodology or sources of information will provide an accurate assessment of
included issuers or the appropriate trigger at any particular time.
ETF
Risk. As
an ETF, the Fund is subject to the following risks:
•Authorized
Participants Concentration Risk.
The Fund may have a limited number of financial institutions that may act as
Authorized Participants (“APs”). To the extent that those APs exit the business
or are unable to process creation and/or redemption orders, Shares may trade at
a discount to NAV and possibly face delisting.
•Flash
Crash Risk.
Sharp price declines in securities owned by the Fund may trigger trading halts,
which may result in Shares trading in the market at an increasingly large
discount to NAV during part (or all) of a trading day. Shareholders could suffer
significant losses to the extent that they sell Shares at these temporarily low
market prices.
•Large
Shareholder Risk. Certain
shareholders, including the Adviser, the Sub-Adviser or their respective
affiliates, or groups of related shareholders, such as those investing through
one or more model portfolios, may own a substantial amount of the Shares.
The
disposition of Shares by
large shareholders resulting
in redemptions through or by APs
could have a significant negative impact on the Fund. In addition, transactions
by large shareholders may account for a large percentage of the trading volume
on the Exchange and may, therefore, have a material upward or downward effect on
the market price of the Shares.
•Premium-Discount
Risk.
Shares
may trade above or below their NAV. Accordingly, investors may pay more than NAV
when purchasing Shares or receive less than NAV when selling Shares. The market
prices of Shares will generally fluctuate in accordance with changes in NAV,
changes in the relative supply of, and demand for, Shares, and changes in the
liquidity, or the perceived liquidity, of the Fund’s holdings.
•Secondary
Market Trading Risk.
Investors
buying or selling Shares in the secondary market may pay brokerage commissions
or other charges, which may be a significant proportional cost for investors
seeking to buy or sell relatively small amounts of Shares. Although the Shares
are listed on the Exchange, there can be no assurance that an active or liquid
trading market for them will develop or be maintained. In addition, trading in
Shares on the Exchange may be halted.
Performance
The
Fund does not have a performance history for a full calendar year as
of the date of this Prospectus. Performance information
for the Fund will be provided once it has annual returns for a full calendar
year. The Fund’s
past performance, before and after taxes, does not necessarily indicate how it
will perform in the future.
Investment
Adviser and Sub-Adviser
FCF
Advisors LLC (formerly known as TrimTabs Asset Management, LLC)
serves as the investment adviser of the Fund.
Donoghue
Forlines LLC serves as the sub-adviser of the Fund.
Portfolio
Managers
John
A. Forlines, CIO of the Sub-Adviser, Jeffrey R. Thompson, CEO of the
Sub-Adviser, Richard E. Molari, COO of the Sub-Adviser, and Nicholas A. Lobley,
Portfolio Manager of the Sub-Adviser, each serve the Fund as a portfolio
manager, and have served in such role since the Fund’s inception in December
2020. Each portfolio manager is jointly and primarily responsible for the
day-to-day management of the Fund.
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 (the “Deposit Securities”)
and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.donoghueforlinesetfs.com.
Tax
Information
Distributions
you receive from the Fund are generally taxable to you as ordinary income for
federal income tax purposes, except that distributions reported by the Fund as
“capital gain dividends” are taxed to you as long-term capital gains, and
distributions may also be subject to state and/or local taxes. Fund
distributions generally are not taxable to you if you are investing through a
tax-advantaged retirement plan account or you are a tax-exempt investor,
although you may be taxed on withdrawals from your tax-advantaged
account.
Purchases
Through Broker-Dealers and Other Financial Intermediaries
If
you purchase Shares through a broker-dealer or other financial intermediary, the
Adviser, Sub-Adviser or their respective
affiliates or related companies may pay the intermediary for the sale of Shares
and related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend Shares over another investment. Ask your salesperson or visit your
financial intermediary’s website for more information.
ADDITIONAL
INFORMATION ABOUT THE FUNDS
Additional
Information About Each Fund’s Investment Strategies
This
Prospectus describes the principal investment strategies and risks of the
Donoghue Forlines Risk Managed Innovation ETF (the “Innovation ETF”) and the
Donoghue Forlines Tactical High Yield ETF (the “High Yield ETF”) but does not
describe all of the Funds’ investment practices. For more information about
other types of investments the Funds may make, and about the risks of investing
in the Funds, please see the Funds’ SAI, which is available upon request. Each
Fund’s investment objective is non-fundamental and may be changed without a vote
of shareholders upon at least 60 days’ prior written notice to
shareholders.
There is no assurance that each Fund will achieve its investment
objectives.
The
Innovation ETF’s policy to invest, under normal market circumstances, at least
80% of its net assets (plus any borrowings for investment purposes) in component
securities of the FCF
Risk Managed Quality Innovation Index (the “Innovation Index”), may be changed
upon 60 days’ prior notice to shareholders.
The
High Yield ETFs’ policy to invest, under normal market circumstances, at least
80% of its net assets (plus any borrowings for investment purposes) in component
securities of the FCF
Tactical High Yield Index (the “High Yield Index”), may be changed upon 60 days’
prior notice to shareholders.
The
Innovation ETF and the High Yield ETF will not seek to “beat” the performance of
the Innovation Index and High Yield Index, respectively (each, an “Underlying
Index” and, together, the “Underlying Indexes”), and will not seek temporary
defensive measures when markets decline or appear overvalued. Instead, each Fund
uses an indexing investment approach to try to approximate the investment
performance of its Underlying Index by investing in a portfolio of securities
that generally replicates the Underlying Index; however, there may be times when
a Fund does not hold every security in its Underlying Index. The Sub-Adviser
expects that, over time, the correlation between each Fund’s performance, before
fees and expenses, and that of its Underlying Index will be 95% or better. A
figure of 100% would indicate perfect correlation.
Although
each Fund generally employs a “full replication” methodology in seeking to track
its Underlying Index, meaning that it typically invests in all of the securities
comprising its Underlying Index in proportion to their weightings in the
Underlying Index, under various circumstances, such as where it may not be
possible or practicable to purchase all of those securities in those same
weightings, the Sub-Adviser may employ a “sampling” methodology. When utilizing
a sampling methodology, the Sub-Adviser will use a quantitative analysis to
select securities from the Underlying Index universe to obtain a representative
sample of securities that have, in the aggregate, investment characteristics
similar to the Underlying Index in terms of key risk factors, performance
attributes and other characteristics. These include industry weightings, market
capitalization, return variability, earnings valuation, yield and other
financial characteristics of securities. When employing a sampling methodology,
the Sub-Adviser bases the quantity of holdings in a Fund on a number of factors,
including asset size of the Fund, and generally expects the Fund to hold less
than the total number of securities in its Underlying Index. However, the
Sub-Adviser reserves the right to invest a Fund’s assets in as many securities
as it believes necessary to achieve the Fund’s investment
objective.
There
also may be instances in which the Sub-Adviser may choose to (i) overweight or
underweight a security in an Underlying Index, (ii) purchase securities not
contained in the Underlying Index that the Sub-Adviser believes are appropriate
to substitute for certain securities in the Underlying Index, or (iii)
utilize
various combinations of other available investment techniques in seeking to
track the Underlying Index. Each Fund may also invest its assets in certain
index futures, options, options on index futures, swap contracts or other
derivatives, as related to its respective Underlying Index and its component
securities, cash and cash equivalents, as well as in securities and other
instruments not included in its Underlying Index but which the Sub-Adviser
believes will help the Fund track its Underlying Index.
Each
Fund may sell securities included in its Underlying Index in anticipation of
their removal from the Underlying Index, or purchase securities not included in
the Underlying Index in anticipation of their addition to the Underlying
Index.
Additional
Information about the Funds’ Risks
The
section below provides additional information about the risks of investing in
the Funds, including the principal risks identified under “Principal Risks” in
each Fund Summary. Unless otherwise noted, the following risks apply to
both
Funds.
Principal
Risks
Active
and Frequent Trading Risk. Active
and frequent trading of portfolio securities may result in increased transaction
costs to a Fund, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of the securities and on reinvestment in other
securities, and may also result in higher taxes if Shares are held in a taxable
account.
Concentration
Risk.
A fund concentrated in an industry or group of industries is likely to present
more risks than a fund that is broadly diversified over several industries or
groups of industries. Compared to the broad market, an individual industry or
group of related industries may be more strongly affected by changes in the
economic climate, broad market shifts, moves in a particular dominant stock or
regulatory changes.
•Healthcare
Sector Risk (Innovation ETF Only).
Market
or economic factors impacting healthcare companies could have a significant
impact on the value of the Fund’s investments. Healthcare companies are subject
to extensive government regulation and their profitability can be significantly
affected by restrictions on government reimbursement for medical expenses,
rising costs of medical products and services, pricing pressure, limited product
lines, and an increased emphasis on the delivery of healthcare through
outpatient services. These companies are heavily dependent on their patents.
Accordingly, their profitability will be impacted by their ability to obtain and
defend patents, as well as the expiration of existing patents. Healthcare
companies are also subject to extensive litigation based on product liability
and similar claims. In addition, their products can become obsolete due to
industry innovation and changes in technologies or other market developments.
Many new products in the healthcare sector require significant research and
development and may be subject to regulatory approvals, all of which may be time
consuming and costly with no guarantee that any product will come to
market.
•Technology
Sector Risk (Innovation ETF Only).
Market
or economic factors impacting technology companies and those that rely heavily
on technology (together, “technology companies”) could have a significant impact
on the value of the Fund’s investments. The values of these companies’ stocks
are particularly vulnerable to rapid changes in product cycles, rapid product
obsolescence, government regulation, and competition with other companies, both
domestically and internationally. Stocks of technology companies also tend to be
more volatile than the overall market, especially for smaller, less-seasoned
companies. Technology companies
are
heavily dependent on patent and intellectual property rights, the loss or
impairment of which may adversely affect their profitability. Additionally,
technology companies may face dramatic and often unpredictable changes in growth
rates and competition for the services of qualified personnel.
Derivatives
Risk.
A derivative instrument derives its value from an underlying security, currency,
commodity, interest rate, index or other asset (collectively, “underlying
asset”). A Fund’s investments in derivatives may pose risks in addition to and
greater than those associated with investing directly in the underlying assets,
including counterparty, leverage and liquidity risks. Counterparty risk is the
risk that the counterparty to the derivative instrument will default on its
obligation to pay a Fund the amount owed or otherwise perform under the
derivative instrument. Derivatives create leverage risk because they do not
require payment up front equal to the economic exposure created by holding a
position in the derivative. As a result, an adverse change in the value of the
underlying asset could result in a Fund sustaining a loss that is substantially
greater than the amount invested in the derivative, which may make the Fund’s
returns more volatile and increase the risk of loss. Derivative instruments may
also be less liquid than more traditional investments and a Fund may be unable
to sell or close out its derivative positions at a desirable time or price. This
risk may be more acute under adverse market conditions, during which a Fund may
be most in need of liquidating its derivative positions. Derivatives may also be
harder to value, less tax efficient and subject to changing government
regulation that could impact a Fund’s ability to use certain derivatives or
their cost. Derivatives strategies may not always be successful.
•Futures
Contracts Risk.
Exchange-traded futures contracts are a type of derivative, which call for the
future delivery of an asset, or cash settlement, at a certain stated price on a
specified future date. Futures contracts involve the risk of imperfect
correlation between movements in the price of the instruments and the price of
the underlying assets. In addition, there is the risk that a Fund may not be
able to enter into a closing transaction because of an illiquid market.
Exchanges can limit the number of positions that can be held or controlled by a
Fund or the Sub-Adviser, thus limiting the ability to implement the Fund’s
strategies. Futures markets are highly volatile, and the use of futures may
increase the volatility of a Fund’s NAV.
Downside
Protection Model Risk (Innovation
ETF only).
Neither the Adviser nor the Sub-Adviser can offer assurances that the downside
protection model employed by the Innovation Index methodology will achieve its
intended results, or that downside protection will be provided during periods of
time when the Equity Portfolio is declining or during any period of time deemed
to be a bear market. For example, the Innovation Index methodology would not
have triggered a signal to employ the downside protection model during the
market volatility experienced in March 2020. While significant dips occurred in
the market at that time, the bear market environment was short lived, and
markets began recovering relatively quickly. As discussed above, signals are
typically only triggered during prolonged
bear markets, meaning that the signal is triggered based on the duration of the
decline not the amount of the decline. Accordingly, while the signal would not
have triggered in March 2020, it would have triggered during the financial
crisis of 2007-2008, during which a prolonged bear market occurred. Investment
in a fund that utilizes a downside protection model that seeks to minimize risk
only during certain prolonged bear market environments may not be appropriate
for every investor seeking a particular risk profile.
Equity
Investing Risk. An
investment in the Funds involves risks similar to those of investing in any fund
holding equity securities, such as market fluctuations, changes in interest
rates and perceived trends in stock prices. The values of equity securities
could decline generally or could underperform
other
investments. Different types of equity securities tend to go through cycles of
outperformance and underperformance in comparison to the general securities
markets. In addition, securities may decline in value due to factors affecting a
specific issuer, market or securities markets generally. Recent unprecedented
turbulence in financial markets, reduced liquidity in credit and fixed income
markets, or rising interest rates may negatively affect many issuers worldwide,
which may have an adverse effect on the Funds.
ETF
Risk. As
an ETF, each Fund is subject to the following risks:
•Authorized
Participants Concentration Risk.
The Funds may have a limited number of financial institutions that may act as
APs. Only APs who have entered into agreements with the Funds’ distributor may
engage in creation or redemption transactions directly with the Funds. To the
extent that those APs exit the business or are unable to process creation and/or
redemption orders, and no other AP is able to step forward to create and redeem
in either of those cases, Shares may trade like closed-end fund shares at a
discount to NAV and possibly face delisting from the Exchange.
•Flash
Crash Risk.
Sharp price declines in securities owned by a Fund may trigger trading halts,
which may result in the Fund’s shares trading in the market at an increasingly
large discount to NAV during part (or all) of a trading day. In such market
conditions, market or stop-loss orders to sell the ETF shares may be executed at
market prices that are significantly below NAV. Shareholders could suffer
significant losses to the extent that they sell Shares at these temporarily low
market prices.
•Large
Shareholder Risk.
Certain shareholders, including the Adviser, the Sub-Adviser or their respective
affiliates, or groups of related shareholders, such as those investing through
one or more model portfolios, may own a substantial amount of a Fund’s Shares.
In addition, a third party investor, the Adviser, the Sub-Adviser or their
respective affiliates, an AP, a lead market maker, or another entity may invest
in a Fund and hold its investment for a limited period of time solely to
facilitate commencement of the Fund or to facilitate the Fund’s achieving a
specified size or scale. There can be no assurance that any large shareholder
would not sell
its Shares in the secondary market or transact through an AP to
redeem its investment. Dispositions of a large number of Shares by these
shareholders may adversely affect a Fund’s liquidity and net assets to the
extent such transactions result
in redemptions
through or
by an AP.
These redemptions may also force a Fund to sell portfolio securities when it
might not otherwise do so, which may negatively impact the Fund’s NAV and
increase the Fund’s brokerage costs. To the extent these large shareholders
transact in Shares on the secondary market, such transactions may account for a
large percentage of the trading volume on the Exchange and may, therefore, have
a material upward or downward effect on the market price of the
Shares.
•Premium-Discount
Risk.
The Shares may trade above or below their NAV. Accordingly, investors may pay
more than NAV when purchasing Shares or receive less than NAV when selling
Shares. The NAV of each Fund will generally fluctuate with changes in the market
value of the Fund’s holdings. The market prices of Shares, however, will
generally fluctuate in accordance with changes in NAV as well as the relative
supply of, and demand for, Shares on the Exchange. The trading price of Shares
may deviate significantly from NAV during periods of market volatility. Price
differences may be due, in large part, to the fact that supply and demand forces
at work in the secondary trading market for Shares will be closely related to,
but not identical to, the same forces influencing the prices of the securities
held by a Fund.
The
market price of Shares may also fluctuate in accordance with changes in the
liquidity, or the perceived liquidity, of a Fund’s holdings, and a decrease, or
a perceived decrease, in such liquidity may lead to increased divergence between
the Shares’ market price and NAV. Such divergence is more likely under stressed
market conditions.
•Secondary
Market Trading Risk.
Investors buying or selling Shares in the secondary market will generally 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 that an investor is willing to pay for Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, increased market volatility may
cause increased bid/ask spreads. Although Shares are listed on the Exchange,
there can be no assurance that an active or liquid trading market for them will
develop or be maintained. Market makers are not obligated to make a market, nor
are APs obligated to purchase Shares. In times of market stress, market makers
and authorized participants can refrain from these activities and any such
absences can lead to greater premiums and discounts. In addition, trading in
Shares on the Exchange may be halted due to market conditions or for reasons
that, in the view of the Exchange, make trading in Shares inadvisable. Further,
trading in Shares on the Exchange is subject to trading halts caused by
extraordinary market volatility pursuant to the Exchange “circuit breaker”
rules. There can be no assurance that the requirements of the Exchange necessary
to maintain the listing of the Funds will continue to be met or will remain
unchanged.
Geographic
Region Risk. To
the extent that a Fund invests a significant portion of its assets in a specific
geographic region or a particular country, such as the U.S., the Fund will
generally have more exposure to that region or country’s economic risks. In the
event of economic or political turmoil or a deterioration of diplomatic
relations in a region or country where a significant portion of a Fund’s assets
are invested, the Fund may experience substantial illiquidity or reduction in
the value of the Fund’s investments. Adverse conditions in a certain region or
country can also adversely affect securities of issuers in other countries whose
economies appear to be unrelated.
High
Yield (Junk Bond) Securities Risk
(High
Yield ETF only).
High
yield securities and unrated securities of similar credit quality are considered
to be speculative with respect to the issuer’s continuing ability to make
principal and interest payments and are generally subject to greater levels of
credit quality risk than investment grade securities. High yield securities are
usually issued by companies, including smaller and medium capitalization
companies, without long track records of sales and earnings, or with
questionable credit strength. These companies may be particularly affected by
interest rate increases, as they may find it more difficult to borrow money to
continue or expand operations, or may have difficulty in repaying floating rate
loans. These fixed-income securities are considered below “investment-grade.”
The retail secondary market for these “junk bonds” may be less liquid than that
of higher-rated fixed income securities, and adverse conditions could make it
difficult at times to sell these securities or could result in lower prices than
higher-rated fixed income securities. These risks can reduce the value of the
shares of an Underlying ETF and the income it earns.
Index-Based
Strategy Risk.
Each Fund is managed as an index-based fund that seeks to track the performance
of its Underlying Index. This differs from an actively managed fund, which
typically seeks
to
outperform a benchmark index. As a result, a Fund may hold the component
securities of its Underlying Index regardless of the current or projected
performance of a specific security or the relevant market as a whole.
Maintaining investments in securities regardless of market conditions or the
performance of individual securities could cause a Fund’s returns to be lower
than if the Fund employed an active strategy. Each Fund will seek to track its
Underlying Index in all market conditions, including during adverse market
conditions when other funds may seek to take temporary defensive measures (such
as investing significantly in cash or cash equivalents). Accordingly, unless an
Underlying Index allocates significant portions of its assets to cash and/or
cash equivalents during times of adverse market or economic conditions, a Fund
may be subject to a higher level of market risk during such times than other
funds. Additionally, each Fund generally rebalances and reconstitutes its
portfolio, and implements downside protection or tactical overlay allocations,
as discussed above, in accordance with its Underlying Index and, therefore, any
changes to the Underlying Index’s rebalance, reconstitution or trigger schedule
will typically result in corresponding changes to the Fund’s rebalance,
reconstitution or trigger schedule.
Index
Calculation Risk.
Each Underlying Index relies on various sources of information to assess the
criteria of issuers included in the Underlying Index and to determine whether a
“buy” or “sell” trigger should be issued, including information that may be
based on assumptions and estimates. The Funds, the Index Provider, the Adviser,
the Sub-Adviser, the Underlying Index calculation agent and any of their
respective
affiliates cannot offer assurances that either Underlying Index’s calculation
methodology or sources of information will provide an accurate assessment of
included issuers or the appropriate trigger at any particular time.
Index
Correlation Risk.
While the Sub-Adviser seeks to track the performance of each Underlying Index
closely (i.e., to achieve a high degree of correlation with the Underlying
Index), a Fund’s returns may not match or achieve a high degree of correlation
with the returns of its Underlying Index due to operating expenses, transaction
costs, cash flows, regulatory requirements and/or operational inefficiencies.
Additionally, if a Fund issues or redeems Creation Units principally for cash,
it will incur higher costs in buying or selling securities than if it issued and
redeemed Creation Units principally in kind, which may contribute to tracking
error. A Fund may also fair value certain of the securities it holds. To the
extent a Fund calculates its NAV based on fair value prices, the Fund’s ability
to track its Underlying Index may be adversely affected. Since each Underlying
Index is not subject to the tax diversification requirements to which each Fund
must adhere, a Fund may be required to deviate its investments from the
securities contained in, and relative weightings of, its Underlying Index.
Liquidity constraints may also prevent a Fund from investing in certain
securities included in its Underlying Index or from purchasing or selling
certain securities at the same time as its Underlying Index. A Fund may also
deviate from its Underlying Index for tax efficiency purposes or when it needs
cash to meet redemptions.
Investment
Risk. As
with all investments, an investment in the Funds is subject to investment risk.
Investors in the Funds could lose money, including the possible loss of the
entire principal amount of an investment, over short or long periods of time. An
investment in the Funds is not a bank deposit and it is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
Large
Capitalization Company Risk (Innovation
ETF only).
Investments
in large capitalization companies may go in and out of favor based on market and
economic conditions and may underperform other market segments. Some large
capitalization companies may be unable to respond quickly to new competitive
challenges and attain the high growth rate of successful smaller companies,
especially during extended periods of economic expansion. As such, returns on
investments in stocks of large
capitalization
companies could trail the returns on investments in stocks of small and mid
capitalization companies.
Liquidity
Risk
(High Yield ETF only).
Liquidity risk exists when a particular investment is difficult to purchase or
sell. If an Underlying ETF invests in illiquid securities or its portfolio
securities otherwise become illiquid, it may reduce the returns of the
Underlying ETF because the Underlying ETF may be unable to sell the illiquid
securities at an advantageous time or price. In the event that an Underlying ETF
voluntarily or involuntarily liquidates its portfolio assets during periods of
infrequent trading of its securities, the Underlying ETF may not receive full
value for those assets, which will reduce the value of the Underlying ETF’s
shares, and in turn, the value of the High Yield ETF’s investment in such
shares.
Market
Events Risk.
The value of securities in each Fund’s portfolio may decline due to daily
fluctuations in the securities markets that are generally beyond the Fund’s
control, including the quality of the Fund’s investments, economic conditions,
adverse investor sentiment, lower demand for a company’s goods or services, and
general market conditions. In a declining market, the prices for all securities
(including those in the Fund’s portfolio) may decline, regardless of their
long-term prospects. Security values tend to move in cycles, with periods when
securities markets generally rise and periods when they generally decline. In
addition, local, regional or global events such as war, acts of terrorism, the
spread of infectious illness or other public health issue, recessions, or other
events could have a significant impact on a Fund, its investments and the
trading of its Shares. For example, an outbreak of an infectious respiratory
illness, COVID-19, has resulted in travel restrictions, disruption of healthcare
systems, prolonged quarantines, supply chain disruptions, lower consumer demand,
layoffs, ratings downgrades, defaults and has
heightened pre-existing political, social and economic concerns.
Certain markets have experienced temporary closures, extreme volatility, severe
losses, reduced liquidity and increased trading costs. These events will have an
impact on a Fund and its investments and could impact the Fund’s ability to
purchase or sell securities or cause elevated tracking error or increased
premiums or discounts to the Fund’s NAV. The ongoing effects of COVID-19, and
the length of its impact on a Fund or its investments, are
unpredictable.
Sampling
Risk.
The use of a representative sampling approach may result in a Fund holding a
smaller number of securities than are in its Underlying Index. As a result, an
adverse development to an issuer of securities that a Fund holds could result in
a greater decline in NAV than would be the case if the Fund held all of the
securities in its Underlying Index. To the extent the assets in a Fund are
smaller, these risks will be greater. In addition, by sampling the securities in
an Underlying Index, a Fund faces the chance that the securities selected for
the Fund, in the aggregate, will not provide investment performance matching
that of the Underlying Index, thereby increasing tracking error.
Small
and Medium Capitalization Company Risk (Innovation
ETF only).
Investing
in the securities of small and medium capitalization companies involves greater
risks and the possibility of greater price volatility than customarily is
associated with investing in larger, more established companies. Such companies
often have narrower markets for their goods and/or services and more limited
managerial and financial resources than larger, more established companies, and
often have limited product lines, services, markets, financial resources or are
dependent on a small management group. In addition, because such securities are
not well-known to the investing public, do not have significant institutional
ownership and are followed by relatively few security analysts, there will
normally be less publicly available information concerning these securities
compared to what is available for the securities of larger companies. As a
result, the performance of small and medium capitalization companies may be more
volatile and they may face greater risk of business failure, which could
increase the volatility of the Innovation ETF’s portfolio.
Tactical
Overlay Risk
(High Yield ETF only).
Neither the Adviser nor the Sub-Adviser can offer assurances that the tactical
overlay process employed by the High Yield Index methodology will achieve its
intended results. Investment in a fund that utilizes a tactical overlay that
seeks to minimize risk may not be appropriate for every investor seeking a
particular risk profile.
Underlying
ETFs Risk
(High
Yield ETF only).
In seeking to track its Underlying Index, High Yield ETF invests substantially
all of its assets in the Underlying ETFs. Accordingly, the Fund’s
investment performance is directly related to the performance of the Underlying
ETFs. The Fund’s NAV will change with changes in the value of the Underlying
ETFs and other securities in which the Fund invests based on their market
valuations. An investment in the Fund will entail more direct and indirect costs
and expenses than a direct investment in the Underlying ETFs. For example, in
addition to the expenses of the Fund, the Fund indirectly pays a portion of the
expenses (including operating expenses and management fees) incurred by the
Underlying ETFs. One Underlying ETF may buy the same securities that another
Underlying ETF sells. Also, an investor in the Fund may receive taxable gains
from portfolio transactions by the Underlying ETFs, as well as taxable gains
from transactions in shares of the Underlying ETFs held by the Fund. As the
Underlying ETFs, or the Fund's allocations among the Underlying ETFs, change
from time to time, or to the extent that the total annual fund operating
expenses of the Underlying ETFs changes, the weighted average operating expenses
borne by the Fund may increase or decrease.
U.S.
Treasury Securities Risk. U.S.
Treasury securities may differ from other securities in their interest rates,
maturities, times of issuance and other characteristics. Similar to other
issuers, changes to the financial condition or credit rating of a government may
cause the value of the
Innovation Fund’s or an
Underlying ETF’s investments to decline. On August 5, 2011, S&P Global
Ratings downgraded U.S. Treasury securities from AAA rating to AA+ rating.
A further downgrade of the ratings of U.S. government debt obligations, which
are often used as a benchmark for other borrowing arrangements, could result in
higher interest rates for individual and corporate borrowers, cause disruptions
in the international bond markets and have a substantial negative effect on the
U.S. economy. A downgrade of U.S. Treasury securities from another ratings
agency or a further downgrade below AA+ rating by S&P Global
Ratings may cause the value of an Underlying ETF to
decline.
FUND
MANAGEMENT
Investment
Adviser
FCF
Advisors LLC (formerly known as TrimTabs Asset Management, LLC)
acts as the Funds’ investment adviser. The Adviser is located at 1345 Avenue of
the Americas, 2nd Floor, New York, NY 10105. The Adviser is an investment
adviser registered with the Securities and Exchange Commission (“SEC”) under the
Investment Advisers Act of 1940, as amended (“Advisers Act”). The Adviser was
founded in 2005 and managed
$439.4 million as of September 30, 2021.
Since 2015, the Glick family has held a controlling interest in the Adviser
through ownership of one or more entities holding a majority of the membership
units in the Adviser.
The
Adviser is responsible for overseeing the management and business affairs of the
Funds. The Adviser has engaged the Sub-Adviser to manage each Fund’s investments
in accordance with each Fund’s respective objectives, policies, and
restrictions, subject to oversight and supervision by the Adviser and the Board
of Trustees. The Adviser continuously reviews, supervises, and administers the
Funds’ investment programs, subject to the general supervision and control of
the Board of Trustees.
The
Adviser has entered into an investment advisory agreement (“Management
Agreement”) with respect to the Funds. Pursuant to that Management Agreement,
each Fund pays the Adviser an annual advisory fee based on its average daily net
assets for the services and facilities it provides payable at the annual rates
set forth below:
|
|
|
|
|
|
Fund |
Advisory
Fee |
Donoghue
Forlines Risk Managed Innovation ETF |
0.69% |
Donoghue
Forlines Tactical High Yield ETF |
0.69% |
The
Adviser bears all of its own costs associated with providing these advisory
services. In addition, in consideration of the fees paid with respect to each
Fund, the Adviser shall pay all expenses of each Fund, except for the fee
payment under the Management Agreement, payments under each Fund’s Rule 12b-1
plan, brokerage expenses, acquired fund fees and expenses, taxes, interest
(including borrowing costs and dividend expenses on securities sold short),
litigation expenses and other extraordinary expenses (including litigation to
which the Trust or a Fund may be a party and indemnification of the Trustees and
officers with respect thereto).
A
discussion regarding the basis for the Board of Trustees’ approval of the
Management Agreement with respect to each Fund is
available in the Funds’ annual report for the period ended July 31,
2021.
Sub-Adviser
Donoghue
Forlines LLC acts as the Funds’ sub-adviser. The Sub-Adviser is located at One
International Place, Suite 310,
Boston, MA 02110. The Sub-Adviser is an investment adviser registered with the
SEC under the Advisers Act. The Sub-Adviser was established in 1986 for the
purpose of advising individuals and institutions. As of September
30, 2021,
the Sub-Adviser had approximately
$1.1 billion in assets under management
or under advisement.
The
Sub-Adviser makes day-to-day investment decisions for the Funds and selects
broker-dealers for executing portfolio transactions, subject to the
Sub-Adviser’s best execution obligations and the Trust’s and the Sub-Adviser’s
brokerage policies. The Adviser, however, will continue to have overall
responsibility for the management and investment of the assets and
responsibility for all advisory services furnished by the Sub-Adviser, and will
supervise the Sub-Adviser in the performance of its duties for the Funds
pursuant to written policies and procedures designed to prevent violations of
applicable laws and regulations, Board procedures, and the provisions of the
Funds’ prospectus and SAI, as supplemented from time to time.
The
Sub-Adviser has entered into a sub-advisory agreement (“Sub-Advisory Agreement”)
with the Adviser with respect to the Funds. Pursuant to the Sub-Advisory
Agreement, the Adviser will pay to the Sub-Adviser a fee, payable monthly in
arrears, equal to 50% of the gross
advisory
fee payable by the Fund to the Adviser for such month. Prior
to April 13, 2021, the Adviser paid the Sub-Adviser a fee equal to 50% of the
net advisory fee (i.e., the advisory fee after deducting the payment of Fund
expenses required to be paid under the Adviser’s unified fee arrangement),
subject to certain exclusions.
A
discussion regarding the basis for the Board of Trustees’ approval of the
Sub-Advisory Agreement with respect to each Fund is
available in the Funds’ annual report for the period ended July 31,
2021.
PORTFOLIO
MANAGERS
The
following employees of the Sub-Adviser are the Funds’ portfolio managers,
each of whom is jointly and primarily responsible for the day-to-day
management of each Fund’s portfolio and has served in such position since
the inception of each Fund’s operations (2020):
John
A. Forlines,
Chief
Investment Officer
of
the Sub-Adviser
Mr.
Forlines has served as Chief Investment Officer of the Sub-Adviser since joining
the firm in 2018. Prior to joining the Sub-Adviser, Mr. Forlines was Chairman
and CIO of JAForlines Global, an independent investment adviser, since its
inception in 2000. Mr. Forlines is an Executive in Residence in the Department
of Economics at Duke where he teaches classes in behavioral finance and decision
making.
In
addition to his work at the Sub-Adviser and Duke University, Mr. Forlines is the
Managing Partner of the Forlines Family Office, which is active primarily in
charitable support for education in the United States. Mr. Forlines enjoyed a
long career with J.P. Morgan from 1985-2000, serving various roles within the
firm, including Vice President of Structured Products, Co-Head of the U.S.
Private Equity Group, Managing Director in the Securities Business Development
Group and Managing Director and Co-Head of U.S. Tech, Media & Telecom
Investment Banking.
Jeffrey
R. Thompson, Chief
Executive Officer of the Sub-Adviser
Mr.
Thompson is the Chief Executive Officer of the Sub-Adviser. In addition to being
a principal of the firm, he is a member of Investment Policy Committee and
co-portfolio manager. As part of Mr. Thompson’s responsibilities on the
Investment Policy Committee, he leads the design and ongoing management of the
technical signals and models applied to many of the firm’s investment
strategies.
Mr.
Thompson has been with the Sub-Adviser since 1998 and was the key driver for
helping the firm develop its first pooled investment vehicle. He was
instrumental in taking the firm’s commitment to offering tactical risk
management for individual clients and families to establishing the indices and
investment strategies that are applied within many of the Sub-Advisers
investment strategies. Prior to joining the Sub-Adviser, Mr. Thompson held
positions at Lehman Brothers, Gruntal & Co., Cowen & Co., and BTS Asset
Management. In addition, Mr. Thompson currently serves on the Board of Directors
for the Academy of Notre Dame in Tyngsboro, MA where he also acts as the Chair
of the Finance Committee.
Richard
E. Molari,
Chief
Operating Officer of the Sub-Adviser
Mr.
Molari is an accomplished investment management operations and global trading
specialist with over 18 years of industry experience. He has extensive knowledge
of international equity, fixed income and currency markets as well as back and
middle office operations, portfolio accounting and compliance regulations. Mr.
Molari joined the Sub-Adviser in 2014 to manage the trading and operations
team.
Prior
to his current role, Mr. Molari spent nine years at a multi-billion-dollar
Boston based global hedge fund, trading international equities and managing
trade operations. He started his professional career in fund accounting and back
office administration with BISYS Hedge Fund Services Inc. Mr. Molari holds a
dual Bachelor’s of Science degree from Northeastern University in Finance and
Entrepreneurship. He is currently an active member of the Boston Securities
Traders Association and the Boston Security Analysts Society.
Nicholas
A. Lobley,
Portfolio
Manager of the Sub-Adviser
Mr.
Lobley was promoted to Portfolio Manager of the Sub-Adviser in 2019. Mr. Lobley
was previously promoted to Senior Research Analyst in 2018 after joining the
firm as Analyst in 2018. Prior to joining the Sub-Adviser, Mr. Lobley was an
Analyst with JAForlines Global, an independent investment adviser, since 2017.
From 2016 to 2017, Mr. Lobley was an Associate with Paley Advisors, LLC. Mr.
Lobley holds a Bachelor of Arts in Economics from Oberlin College.
The
Funds’ SAI provides additional information about the portfolio managers,
including other accounts managed, ownership in the Funds, and
compensation.
OTHER
SERVICE PROVIDERS
U.S.
Bancorp Fund Services, LLC doing business as U.S. Bank Global Fund Services,
located
at 615
East Michigan Street, Milwaukee, Wisconsin 53202, serves as the administrator,
accountant and transfer agent to the Funds.
U.S.
Bank N.A., located
at 1555
N. RiverCenter Drive, Suite 302, Milwaukee, Wisconsin 53212, serves as the
custodian to the Funds.
Quasar
Distributors, LLC, located
at
111 East Kilbourn Avenue, Suite 2200, Milwaukee, Wisconsin 53202, serves as the
Funds’ distributor (the “Distributor”).
BBD,
LLP, located
at
1835 Market Street, 3rd Floor, Philadelphia, Pennsylvania 19103, serves as the
Independent Registered Public Accounting Firm to the Funds.
Stradley
Ronon Stevens & Young LLP, located at 2005 Market Street, Suite 2600,
Philadelphia, Pennsylvania, 19103, serves as legal counsel to the
Funds.
BUYING
AND SELLING SHARES
The
Funds issue and redeem Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from the Funds, and only APs may tender their Shares for
redemption directly to the Funds, at NAV. APs must be a member or participant of
a clearing agency registered with the SEC and must execute a Participant
Agreement that has been agreed to by the Distributor, and that has been accepted
by the Funds' 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.
BUYING
AND SELLING SHARES ON THE SECONDARY MARKET
Most
investors will buy and sell Shares in secondary market transactions through
brokers and, therefore, must have a brokerage account to buy and sell Shares.
Shares can be bought or sold through your broker throughout the trading day like
shares of any publicly traded issuer. 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 offered prices in the
secondary market for Shares. The price at which you buy or sell Shares
(i.e.,
the market price) may be more or less than the NAV of the Shares. Unless imposed
by your broker, there is no minimum dollar amount you must invest in the Fund
and no minimum number of Shares you must buy.
Shares
are listed on the Exchange under the following symbols:
|
|
|
|
|
|
Fund |
Ticker
Symbol |
Donoghue
Forlines Risk Managed Innovation ETF |
DFNV |
Donoghue
Forlines Tactical High Yield ETF |
DFHY |
The
Exchange is generally open Monday through Friday and is closed for weekends and
the following holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’
Day, Good Friday, Memorial Day, Juneteenth National Independence Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
For
information about buying and selling Shares on the Exchange or in the secondary
markets, please contact your broker or dealer.
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, will be the registered
owner of all outstanding Shares and is recognized as the owner of all Shares.
Participants in DTC 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 on the procedures of DTC and its participants. These
procedures are the same as those that apply to any stocks that you hold in book
entry or “street name” through your brokerage account. Your account information
will be maintained by your broker, which will provide you with account
statements, confirmations of your purchases and sales of Shares, and tax
information. Your broker also will be responsible for distributing income
dividends and capital gain distributions and for ensuring that you receive
shareholder reports and other communications from the Funds.
Share
Trading Prices. The
trading prices of Shares may differ from a Fund’s daily NAV, and can be affected
by market forces of supply and demand for Shares, the prices of a Fund’s
portfolio securities, economic conditions and other factors.
Continuous
Offering. The
method by which Creation Units of Shares are created and traded may raise
certain issues under applicable securities laws. Because new Creation Units of
Shares are issued and sold by the Funds on an ongoing basis, a “distribution,”
as such term is used in the Securities Act, may occur at any point.
Broker-dealers and other persons are cautioned that some activities on their
part may, depending on the circumstances, result in their being deemed
participants in a distribution in a manner which could render them statutory
underwriters and subject them to the prospectus delivery requirements and
liability provisions of the Securities Act. For example, a broker-dealer firm or
its client may be deemed a statutory underwriter if it takes Creation Units
after placing an order with the Distributor, breaks them down into constituent
Shares and sells Shares directly to customers or if it chooses to couple the
creation of a supply of new Shares with an active selling effort involving
solicitation of secondary market demand for Shares. A determination of whether
one is an underwriter for purposes of the Securities Act must take into account
all the facts and circumstances pertaining to the activities of the
broker-dealer or its client in the particular case, and the examples mentioned
above should not be considered a complete description of all the activities that
could lead to a characterization as an underwriter.
Broker-dealer
firms should also note that dealers who are not “underwriters” but are effecting
transactions in Shares, whether or not participating in the distribution of
Shares, are generally required to deliver a prospectus. This is because the
prospectus delivery exemption in Section 4(3) of the
Securities
Act is not available in respect of such transactions as a result of Section
24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers
who are not “underwriters” but are participating in a distribution (as
contrasted with engaging in ordinary secondary market transactions) and thus
dealing with the Shares that are part of an overallotment within the meaning of
Section 4(3)(C) of the Securities Act, will be unable to take advantage of the
prospectus delivery exemption provided by Section 4(3) of the Securities Act.
For delivery of prospectuses to exchange members, the prospectus delivery
mechanism of Rule 153 under the Securities Act is only available with respect to
transactions on a national exchange.
ACTIVE
INVESTORS AND MARKET TIMING
The
Board of Trustees has evaluated the risks of market timing activities by the
Funds’ shareholders. The Board noted that Shares can only be purchased and
redeemed directly from the Funds in Creation Units by APs and that the vast
majority of trading in Shares occurs on the secondary market. Because the
secondary market trades do not directly involve the Funds, it is unlikely those
trades would cause the harmful effects of market timing, including dilution,
disruption of portfolio management, increases in the Funds’ trading costs and
the realization of capital gains.
With
regard to the purchase or redemption of Creation Units directly with the Funds,
to the extent effected in-kind (i.e.,
for securities), the Board of Trustees noted that those trades do not cause the
harmful effects (as previously noted) that may result from frequent cash trades.
To the extent trades are effected in whole or in part in cash, the Board of
Trustees noted that those trades could result in dilution to a Fund and
increased transaction costs, which could negatively impact the Fund’s ability to
achieve its investment objective. However, the Board of Trustees also noted that
direct trading by APs is critical to ensuring that Shares trade at or close to
NAV. The Funds may also employ fair valuation pricing, which may minimize
potential dilution from market timing. In addition, the Funds impose transaction
fees on purchases and redemptions of Shares to cover the custodial and other
costs incurred by the Funds in effecting trades. Given this structure, the Board
of Trustees determined that it is not necessary to adopt policies and procedures
to detect and deter market timing of Shares.
DISTRIBUTION
AND SERVICE PLAN
The
Funds have adopted a distribution and service plan (“Plan”) pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, the Funds are authorized to pay
distribution fees to the Distributor and other firms that provide distribution
and shareholder services (“Service Providers”). If a Service Provider provides
such services, the Funds may pay fees at an annual rate not to exceed 0.25% of
average daily net assets, pursuant to Rule 12b-1 under the 1940
Act.
No
distribution or service fees are currently paid by the Funds, however, and there
are no current plans to impose these fees. In the event Rule 12b-1 fees are
charged, over time they would increase the cost of an investment in the Funds
because they would be paid on an ongoing basis.
NET
ASSET VALUE
The
net asset value, or “NAV,” of Shares is calculated each business day as of the
close of regular trading on the New York Stock Exchange (“NYSE”), generally 4:00
p.m., Eastern time.
Each
Fund calculates its NAV per Share by:
•Taking
the current market value of its total assets,
•Subtracting
any liabilities, and
•Dividing
that amount by the total number of Shares owned by shareholders.
If
you buy or sell Shares on the secondary market, you will pay or receive the
market price, which may be higher or lower than NAV. Your transaction will be
priced at NAV only if you purchase or redeem your Shares in Creation
Units.
Because
securities listed on foreign exchanges may trade on weekends or other days when
a Fund does not price its Shares, the NAV of a Fund holding foreign securities
may change on days when shareholders will not be able to purchase or sell
Shares.
When
calculating the NAV of Shares, expenses are accrued and applied daily and stocks
held by a Fund are valued at their market value when reliable market quotations
are readily available. Equity securities are valued primarily on the basis of
market quotations reported on stock exchanges and other securities markets
around the world. Securities listed on a national securities exchange, market or
automated quotation system for which quotations are readily available (except
for portfolio securities traded on the NASDAQ Stock Market, LLC (“NASDAQ”)),
including securities traded over the counter, are valued at the last quoted sale
price on the primary exchange or market (foreign or domestic) on which they are
traded on valuation date (or at approximately 4:00 p.m. Eastern time if a
security’s primary exchange is normally open at that time), or, if there is no
such reported sale on the valuation date, at the most recent quoted bid price.
For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used.
If such prices are not available, the security will be valued as set forth in
the Trust’s “Use of Independent Brokers to Value Securities Procedures” and
“Fair Value Procedures,” as applicable. Investments in non-exchange traded
investment companies are valued at their NAVs. Foreign currency exchange rates
are generally determined as of 4:00 p.m., New York time. Both market quotations
and indicative bids are obtained from outside pricing services approved and
monitored pursuant to a policy approved by the Funds’ Board of
Trustees.
If
a market quotation is not readily available or is deemed not to reflect market
value, each Fund will determine the price of the security held by the Fund based
on a determination of the security’s fair value pursuant to policies and
procedures approved by the Board. In addition, each Fund may use fair valuation
to price securities that trade on a foreign exchange when a significant event
has occurred after the foreign exchange closes but before the time at which the
Fund’s NAV is calculated. Foreign exchanges typically close before the time at
which Share prices are calculated and may be closed altogether on some days when
the
Exchange is open for trading.
Fair
valuation may have the effect of reducing stale pricing arbitrage opportunities
presented by the pricing of Shares. However, when the Funds use fair valuation
to price securities, they may value those securities higher or lower than
another fund would have priced the security. Also, the use of fair valuation may
cause the Shares’ NAV performance to diverge from the Shares’ market price and
from the performance of various benchmarks used to compare Fund performance.
Because of the judgment involved in fair valuation decisions, there can be no
assurance that the value ascribed to a particular security is
accurate.
FUND
WEBSITE AND DISCLOSURE OF PORTFOLIO HOLDINGS
The
Trust maintains a website for the Funds at
www.donoghueforlinesetfs.com.
Among other things, this website includes this Prospectus and the SAI, and
includes the Funds’ last annual and semi-annual reports, certain market price
information about Shares, daily NAV and a historical comparison of the Shares’
market prices to NAV.
In
addition, each day the Funds are open for business, the Trust publicly
disseminates each Fund’s full portfolio holdings as of the close of the previous
day through the website. A description of the Trust’s policies and procedures
with respect to the disclosure of the Funds’ portfolio holdings is also
available in the Funds’ SAI.
DIVIDENDS,
OTHER DISTRIBUTIONS AND TAXES
Fund
Distributions
Each
Fund generally pays out dividends from its net investment income, if any, and
distributes its net capital gains, if any, to shareholders at least annually.
Each Fund typically earns dividends from stocks in which it invests and may
generate net gains from certain foreign currency transactions. These amounts,
net of expenses, are distributed to Fund shareholders as “income dividends.”
Each Fund realizes capital gains or losses whenever it sells securities. Net
long-term capital gains are distributed to shareholders as “capital gain
dividends.”
Brokers
may make available to their customers who own Shares the DTC book-entry dividend
reinvestment service. To determine whether this service is available and whether
there is a commission or other charge for using this service, consult your
broker. Brokers may require a Fund’s shareholders to adhere to specific
procedures and timetables. If this service is available and used, dividend
distributions of both net income and net realized gains will be automatically
reinvested in additional whole Shares purchased in the secondary market. Without
this service, investors would receive all their distributions in
cash.
Taxes
The
following is a summary of the material federal income tax considerations
applicable to an investment in Shares. The summary is based on the laws and
regulations in effect on the date of this Prospectus and existing published
judicial and administrative interpretations thereof, all of which are subject to
change, possibly with retroactive effect. In addition, this summary assumes that
a shareholder holds Shares as “capital assets” within the meaning of the
Internal Revenue Code of 1986, as amended, and does not hold Shares in
connection with a trade or business. This summary does not address all potential
federal income tax considerations possibly applicable to shareholders holding
Shares through a partnership (or other pass-through entity) or to shareholders
subject to special tax rules. Prospective shareholders are urged to consult
their own tax advisors with respect to the specific federal, state, local, and
foreign tax consequences of investing in Shares based on their particular
circumstances.
Fund
distributions to you and sales of your Shares will have tax consequences to you.
Such consequences may not apply if you hold your Shares through a tax-exempt
entity or tax-advantaged retirement account, such as an individual retirement
account or 401(k) plan.
Taxes
on Distributions
Distributions
by the Funds generally are taxable to you as ordinary income or capital gain.
Distributions of a Fund’s “investment company taxable income” (which is,
generally, net investment income, net short-term capital gain in excess of net
long-term capital loss, and net gains or losses from certain foreign currency
transactions, if any) are taxable as ordinary income to the extent of the Fund’s
current or accumulated earnings and profits, whether paid in cash or reinvested
in additional Shares.
Distributions
of a Fund’s net capital gain (which is the excess of net long-term capital gain
over short-term capital loss) that are properly reported by the Fund as “capital
gain dividends” will be taxable to you as long-term capital gains at rates of
0%, 15% or 20% depending on the taxable income of an individual, trust or estate
(each an “individual”), regardless of your holding period for your Shares and
whether paid in cash or, if available, reinvested in additional Shares.
Distributions to you in excess of a Fund’s earnings and profits will be treated
as a return of capital and first will reduce your adjusted tax basis in your
Shares and, after your adjusted basis is reduced to zero, will constitute
capital gain. Such capital gain will be long-term capital gain, and thus will be
taxed at the maximum rates noted above, if the distributions are attributable to
Shares held by you for more than one year. Distributions by the Funds that
qualify as “qualified dividend income” are taxable to individuals at the
long-term capital gain rates mentioned above. In order for a distribution by a
Fund to be treated as qualified dividend income by you, (1) it must be
attributable to dividends the Fund receives on stock of most domestic
corporations and certain foreign corporations with respect to which the Fund
satisfies certain holding period and other requirements and, (2) you must meet
similar requirements with respect to your Shares.
In
the case of an individual, distributions by the Funds and net capital gains
realized on sales of Shares will also be subject to a 3.8% tax on the lesser of
(1) the individual’s “net investment income” (which generally includes those
distributions and gains) or (2) the excess of the individual’s “modified
adjusted gross income” over $200,000 (or $250,000 if married and filing
jointly).
Corporate
shareholders are generally eligible for the 50% dividends-received deduction
with respect to a Fund’s ordinary income dividends, but not its capital gain
dividends, to the extent the Fund reports such dividends as qualifying for this
deduction, except that the aggregate amount so reported in any year cannot
exceed the dividends received by the Fund from domestic
corporations.
Under
a dividend reinvestment service, you may have the option to have all cash
distributions automatically reinvested in additional Shares. Any distributions
reinvested under such a service will nevertheless be taxable to you. You will
have an adjusted basis in the additional Shares purchased through such a
reinvestment service equal to the amount of the reinvested distribution plus the
amount of any fees charged for the transaction. The additional Shares will have
a holding period commencing on the day following the day on which they are
credited to your account.
A
distribution will reduce a Fund’s NAV per Share and may be taxable to you even
though, from an investment standpoint, the distribution may constitute a return
of capital. In general, distributions are subject to federal income tax for the
calendar year when they are paid. However, certain distributions paid in January
may be treated as paid on December 31 of the prior year.
If
you are a non-corporate shareholder of a Fund, you may be subject to federal
back-up withholding tax if you have not provided the Fund with a taxpayer
identification number (for an individual, a social security number) and made
other required certifications. You may also be subject to state and local taxes
on distributions, sales and redemptions.
Taxes
When Shares are Sold
Generally,
you will recognize taxable gain or loss if you sell or otherwise dispose of your
Shares. Any gain arising from such a disposition generally will be treated as
long-term capital gain if you held the Shares for more than one year; otherwise,
it will be classified as short-term capital gain, which is taxable at ordinary
income tax rates. However, any capital loss arising from the disposition of
Shares held for six months or less will be treated as long-term capital loss to
the extent of the amount of capital gain dividends received with respect to such
Shares. In addition, all or a portion of any loss recognized upon a disposition
of Shares may be disallowed under “wash sale” rules if other Shares of the same
Fund are purchased (whether through reinvestment of distributions or otherwise)
within 30 days before or after the disposition. If disallowed, the loss will be
reflected in an adjustment to the basis of the acquired Shares.
Taxes
on Purchase and Redemption of Creation Units
An
AP that exchanges equity securities for one or more Creation Units generally
will recognize a gain or a loss on the exchange. The gain or loss will be equal
to the difference between the market value of the Creation Unit(s) at the time
of purchase (plus any cash received by the AP as part of the issue) and the AP’s
aggregate basis in the securities surrendered (plus any cash paid by the AP as
part of the issue). An AP who exchanges
one or more Creation Unit(s) for equity securities generally will recognize a
gain or loss equal to the difference between the AP's basis in the Creation
Unit(s) (plus any cash paid by the AP as part of the exchange)
and the aggregate market value of the securities received (plus any cash
received by the AP as part of the exchange).
The Internal Revenue Service, however, may assert that a loss realized upon an
exchange of securities for Creation Unit(s) cannot be deducted currently under
the rules governing “wash sales” or on the basis that there has been no
significant change in economic position. APs exchanging securities should
consult their own tax advisors with respect to whether wash sale rules apply and
when a loss might be deductible.
Any
capital gain or loss realized upon a redemption of one or more Creation Unit(s)
is generally treated as long-term capital gain or loss if the Creation Unit(s)
have been held for more than one year and as short-term capital gain or loss if
they have been held for one year or less, assuming that such Creation Units are
held as a capital asset.
If
a Fund redeems Creation Units in cash, it may recognize more capital gains than
it will if it redeems Creation Units in-kind.
The
foregoing is only a summary of certain federal income tax considerations under
current law, which is subject to change in the future. Shareholders such as
non-resident aliens, foreign trusts or estates, or foreign corporations or
partnerships may be subject to different U.S. federal income tax
treatment.
You
should consult your tax advisor for further information regarding federal,
state, local and/or foreign tax consequences relevant to your specific
situation. More information about federal taxes is in the Funds’
SAI.
INDEX
PROVIDER
FCF
Indexes LLC (formerly known as TTAM, LLC)
is the index provider for the Underlying Indexes.
The
Index Provider sponsors and maintains each Underlying Index and has engaged an
unaffiliated third-party to act as index calculation agent. The Adviser has
entered into a licensing agreement with the Index Provider to use the Underlying
Indexes. The Adviser, in turn, has entered into a sub-licensing agreement with
each Fund to permit each Fund to use its Underlying Index. The license to use
each Underlying Index has been provided to the Adviser and the Funds at no
cost.
The
Index Provider is affiliated with the Adviser. Accordingly, the Adviser has
adopted firewall procedures as part of its Code of Ethics, which are designed to
prevent impermissible sharing of non-public index information.
DISCLAIMERS
The
Index Provider, the Adviser, the Sub-Adviser and their affiliates (collectively
the "Adviser Parties") do not guarantee the accuracy and/or the completeness of
the Underlying Indexes or any data included therein, and none of them shall have
any liability for any errors, omissions or interruptions therein. The Adviser
Parties do not make any warranty, express or implied, as to results to be
obtained by the Funds, owners of the Shares of the Funds or any other person or
entity from the use of the Underlying Indexes or any data included therein. The
Adviser Parties make no express or implied warranties, and expressly disclaim
all warranties of merchantability or fitness for a particular purpose or use
with respect to the Underlying Indexes or any data included therein. Without
limiting any of the foregoing, in no event shall the Adviser Parties have any
liability for any special, punitive, direct, indirect or consequential damages
(including lost profits) arising out of matters relating to the use of the
Underlying Indexes, even if notified of the possibility of such
damages.
HOUSEHOLDING
POLICY
It
is the policy of the Funds to mail only one copy of the prospectus, annual
report, semi-annual report and proxy statements to all shareholders who share
the same mailing address and share the same last name and have invested in the
Fund(s) covered by the same document. You are deemed to consent to this policy
unless you specifically revoke this policy and request that separate copies of
such documents be mailed to you. In such case, you will begin to receive your
own copies within 30 days after our receipt of the revocation. You may request
that separate copies of these disclosure documents be mailed to you by writing
to us at: TrimTabs ETF Trust, c/o U.S. Bank Global Fund Services, P.O. Box 701,
Milwaukee, Wisconsin 53201 or calling us at: 800-617-0004.
ADDITIONAL
INFORMATION
The
Trust enters into contractual arrangements with various parties, which may
include, among others, the Funds’ investment adviser, custodian, and transfer
agent, who provide services to the Funds. Shareholders are not parties to any
such contractual arrangements and are not intended beneficiaries of those
contractual arrangements, and those contractual arrangements are not intended to
create in any shareholder any right to enforce them against the service
providers or to seek any remedy under them against the service providers, either
directly or on behalf of the Trust.
This
Prospectus provides information concerning the Funds that you should consider in
determining whether to purchase Shares. Neither this Prospectus nor the SAI is
intended, or should be read, to be or give rise to an agreement or contract
between the Trust or the Funds and any investor, or to give rise to any rights
in any shareholder or other person other than any rights under federal or state
law that may not be waived.
FINANCIAL
HIGHLIGHTS
The
financial highlights tables that follow are intended to help you understand the
Funds’ financial performance for the period of the Funds’ operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in a Fund (assuming reinvestment of all dividends and
distributions). The financial highlights below have been derived from the Funds’
financial statements. This information has been audited by BBD, LLP, the Funds’
independent registered public accounting firm, whose report, along with the
Funds’ financial statements, is included in the Funds’ annual report to
shareholders for the fiscal period ended July 31, 2021, which is available upon
request.
Donoghue
Forlines Risk Managed Innovation ETF
For
a capital share outstanding throughout the period.
|
|
|
|
|
|
|
Period
Ended
July
31, 2021(a) |
Net
Asset Value, Beginning of Period |
$25.00 |
|
|
Income
from Investment Operations: |
|
Net
Investment Income(b) |
0.02 |
Net
Realized and Unrealized Gain on Investments |
4.60 |
Total
from Investment Operations |
4.62 |
|
|
Less
Distributions: |
|
From
Net Investment Income |
(0.01) |
Total
Distributions |
(0.01) |
Net
Asset Value, End of Period |
$29.61 |
Total
Return |
18.48%(c) |
|
|
Supplemental
Data: |
|
Net
Assets at End of Period (000’s) |
$87,362 |
|
|
Ratios
to Average Net Assets: |
|
Expenses
to Average Net Assets |
0.69%(d) |
Net
Investment Income to Average Net Assets |
0.11%(d) |
Portfolio
Turnover Rate(e) |
40%(c) |
(a)Commencement
of operations on December 7, 2020.
(b)Calculated
based on average shares outstanding during the period.
(c)Not
annualized.
(d)Annualized.
(e)Excludes
impact of in-kind transactions.
Donoghue
Forlines Tactical High Yield ETF
For
a capital share outstanding throughout the period
|
|
|
|
|
|
|
Period
Ended
July
31, 2021(a) |
Net
Asset Value, Beginning of Period |
$25.00 |
|
|
Income
from Investment Operations: |
|
Net
Investment Income(b) |
0.57 |
Net
Realized and Unrealized Gain on Investments |
0.15 |
Total
from Investment Operations |
0.72 |
|
|
Less
Distributions: |
|
From
Net Investment Income |
(0.49) |
Total
Distributions |
(0.49) |
Net
Asset Value, End of Period |
$25.23 |
Total
Return |
2.92%(c) |
|
|
Supplemental
Data: |
|
Net
Assets at End of Period (000’s) |
$88,952 |
|
|
Ratios
to Average Net Assets(f): |
|
Expenses
to Average Net Assets |
0.69%(d) |
Net
Investment Income to Average Net Assets |
3.54%(d) |
Portfolio
Turnover Rate(e) |
327%(c) |
(a)Commencement
of operations on December 7, 2020.
(b)Calculated
based on average shares outstanding during the period.
(c)Not
annualized.
(d)Annualized.
(e)Excludes
impact of in-kind transactions.
(f)Income
and expense ratios presented to not reflect the income and expenses of
underlying funds.
If
you would like more information about the Funds and the Trust, the following
documents are available free, upon request:
Annual/Semi-Annual
Reports to Shareholders
Additional
information about the Funds is
available in their annual and semi-annual reports to shareholders, when
available. The annual report will explain the market conditions and investment
strategies affecting each Fund’s performance during the preceding fiscal
year.
Statement
of Additional Information
The
SAI
dated
November
29, 2021,
which contains more details about the Funds, is incorporated by reference in its
entirety into this Prospectus, which means that it is legally part of this
Prospectus.
To
receive a free copy of the latest annual or semi-annual report, or the SAI, or
to request additional information about the Funds, please contact us as
follows:
Call: 800-617-0004
Write: TrimTabs
ETF Trust
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
WI 53201
Visit: www.donoghueforlinesetfs.com
Information
Provided by the Securities and Exchange Commission
Information
about the Funds, including their reports and the SAI, has been filed with the
SEC. They are available on the EDGAR database on the SEC’s internet site
(http://www.sec.gov).
You can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC’s e-mail address
([email protected]).
Investment
Company Act File No. 811-22995.