ck0001742912-20211130
|
|
|
|
|
|
SPUS |
SP Funds S&P 500 Sharia Industry
Exclusions ETF |
SPSK |
SP Funds Dow Jones Global Sukuk
ETF
|
SPRE |
SP Funds S&P Global REIT Sharia
ETF |
|
each
listed on NYSE Arca, Inc. |
PROSPECTUS
March
30, 2022
The
U.S. Securities and Exchange Commission (the “SEC”) has not approved or
disapproved of these securities or passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary is a criminal
offense.
Table
of Contents
|
|
|
|
|
|
SP
Funds S&P 500 Sharia Industry Exclusions ETF - Fund Summary |
|
SP
Funds Dow Jones Global Sukuk ETF - Fund Summary |
|
SP
Funds S&P Global REIT Sharia ETF - Fund Summary |
|
Additional
Information About the Funds |
|
Additional
Information About Each Index |
|
Portfolio
Holdings Information |
|
Management |
|
Fund
Sponsor |
|
How
to Buy and Sell Shares |
|
Dividends,
Distributions, and Taxes |
|
Distribution |
|
Premium/Discount
Information |
|
Additional
Notices |
|
Financial
Highlights |
|
SP
Funds S&P 500 Sharia Industry Exclusions ETF
-
Fund Summary
Investment Objective
The SP Funds S&P 500
Sharia Industry Exclusions ETF (the “Fund” or the “Sharia ETF”) seeks to track
the performance, before fees and expenses, of the S&P 500 Shariah Industry
Exclusions Index (the “Index” or the “Shariah
Index”).
Fees and Expenses of the
Fund
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares of the Fund
(“Shares”). You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the table and Example
below.
|
|
|
|
|
|
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
|
Management
Fees |
0.49% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.49% |
Expense Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year |
3
Years |
5
Years |
10
Years |
$50 |
$157 |
$274 |
$616 |
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in total annual fund operating expenses or
in the expense example above, affect the Fund’s performance. For the fiscal year
ended November 30, 2021, the Fund’s portfolio turnover rate was 18% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund uses a “passive management” (or indexing) approach to track the
performance, before fees and expenses, of the Index.
The
Index is composed of the constituents of the S&P 500 Shariah Index other
than those from the following sub-industries: Aerospace & Defense, Financial
Exchanges & Data, and Data Processing & Outsourced Services. The S&P
500 Shariah Index includes all Sharia-compliant constituents of the S&P 500
Index, which consists of approximately 500 leading U.S.-listed companies
representing approximately 80% of the U.S. equity market capitalization. Islamic
religious law, commonly known as “Sharia,” has certain restrictions regarding
finance and commercial activities permitted for Muslims, including interest
restrictions and prohibited industries. Constituents of the S&P 500 Shariah
Index have been screened for non-compliant business activities (companies that
offer products and services that are not compliant with Sharia law such as
gambling, alcohol or tobacco) and compliance with certain accounting-based
financial ratios (companies must satisfy financial ratios governing leverage,
cash, and the share of revenues derived from non-compliant
activities).
The
Index was co-developed in 2019 by S&P Dow Jones Indices LLC (the “Index
Provider”), a division of S&P Global, and ShariaPortfolio, Inc.
(“ShariaPortfolio” or, the “Sub-Adviser”), the Fund’s sub-adviser, and is owned
and administered by the Index Provider.
The
Index is rebalanced and reconstituted monthly and weighted based on the
float-adjusted market capitalization of each constituent. As of February 28,
2022, the Index was composed of 239 constituents.
The
Fund’s Investment Strategy
The
Fund attempts to invest all, or substantially all, of its assets in the
component securities that make up the Index. Under normal circumstances, at
least 80% of the Fund’s total assets will be invested in the component
securities of the Index. The Fund’s investment adviser expects that, over time,
the correlation between the Fund’s performance and that of the Index, before
fees and expenses, will be 95% or better.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning it generally will invest in all of the component securities
of the Index. However, the Fund may use a “representative sampling” strategy,
meaning it may invest in a sample of the securities in the Index whose risk,
return and other characteristics closely resemble the risk, return and other
characteristics of the Index as a whole, when the Fund’s investment adviser
believes it is in the best interests of the Fund (e.g., when replicating
the Index involves practical difficulties or substantial costs, an Index
constituent becomes temporarily illiquid, unavailable, or less liquid, or as a
result of legal restrictions or limitations that apply to the Fund but not to
the Index).
The
Fund generally may invest up to 20% of its total assets in Sharia-compliant
securities or other Sharia-compliant investments not included in the Index, but
which the Fund’s investment adviser believes will help the Fund track the Index.
For example, the Fund may invest in Sharia-compliant securities that are not
components of the Index to reflect various corporate actions and other changes
to the Index (such as reconstitutions, additions, and deletions). Each
investment made by the Fund is pre-screened and approved as Sharia-compliant
before investment by the Fund.
To
the extent the Index concentrates (i.e., holds more than 25% of its total
assets) in the securities of a particular industry or group of related
industries, the Fund will concentrate its investments to approximately the same
extent as the Index. The Fund is deemed to be “non-diversified,” which means
that it may invest a greater percentage of its assets in the securities of a
single issuer or a small number of issuers than if it was a diversified
fund.
Principal Investment
Risks
The
principal risks of investing in the Fund are summarized below. The principal risks are presented in alphabetical order
to facilitate finding particular risks and comparing them with those of other
funds. Each risk summarized below is considered a “principal risk” of investing
in the Fund, regardless of the order in which they appear. As with any
investment, there is a risk that you could lose all or a portion of your
investment in the Fund. Some or all of these risks may adversely
affect the Fund’s net asset value per share (“NAV”), trading price, yield, total
return, and/or ability to meet its investment objective. For more information
about the risks of investing in the Fund, see the section in the Fund’s
Prospectus titled “Additional Information About the Funds—Principal Risks of
Investing in Each Fund.”
Concentration
Risk. The
Fund’s investments will be concentrated in an industry or group of industries to
the extent the Index is so concentrated. In such event, the value of Shares may
rise and fall more than the value of shares that invest in securities of
companies in a broader range of industries.
Equity
Market Risk. The
Fund will invest in common stocks directly or indirectly through ETFs. Common
stocks are generally exposed to greater risk than other types of securities,
such as preferred stock and debt obligations, because common stockholders
generally have inferior rights to receive payment from specific issuers. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests. Common
stocks, such as those held by the Fund, are generally exposed to greater risk
than other types of securities, such as preferred stock and debt obligations,
because common stockholders generally have inferior rights to receive payment
from issuers.
ETF
Risk.
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration Risk.
The
Fund has a limited number of financial institutions that are authorized to
purchase and redeem Shares directly from the Fund (known as “Authorized
Participants” or “APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become unable to
process creation and/or redemption orders and no other APs step forward to
perform these services; or (ii) market makers and/or liquidity providers exit
the business or significantly reduce their business activities and no other
entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares. Due
to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be
significant.
◦Trading.
Although Shares are listed on a national securities exchange, such as the NYSE
Arca, Inc. (the “Exchange”), and may be traded on U.S. exchanges other than the
Exchange, there can be no assurance that Shares will trade with any volume, or
at all, on any stock exchange. In stressed market conditions, the liquidity of
Shares may begin to mirror the liquidity of the Fund’s underlying portfolio
holdings, which can be significantly less liquid than Shares.
General
Market Risk.
Securities
markets and individual securities may increase or decrease in value. Security
prices may fluctuate widely over short or extended periods in response to market
or economic news and conditions, and securities markets also tend to move in
cycles. If there is a general decline in the securities markets, it is possible
your investment may lose value regardless of the individual results of the
companies in which the Fund invests. The magnitude of up and down price or
market fluctuations over time is sometimes referred to as “volatility”, and it
can be significant. In addition, different asset classes and geographic markets
may experience periods of significant correlation with each other. As a result
of this correlation, the securities and markets in which the Fund invests may
experience volatility due to market, economic, political or social events and
conditions that may not readily appear to directly relate to such securities,
the securities’ issuer or the markets in which they trade.
Large-Capitalization
Investing Risk.
The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
Models
and Data Risk. The
composition of the Index is heavily dependent on proprietary quantitative models
as well as information and data supplied by third parties (“Models and Data”).
When Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon may lead to the inclusion or exclusion of securities from the
Index universe that would have been excluded or included had the Models and Data
been correct and complete. If the composition of the Index reflects such errors,
the Fund’s portfolio can be expected to also reflect the errors.
Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a smaller number of issuers than if it was a diversified fund. As a result, a
decline in the value of an investment in a single issuer or a smaller number of
issuers could cause the Fund’s overall value to decline to a greater degree than
if the Fund held a more diversified portfolio.
Passive
Investment Risk. The
Fund invests in the securities included in, or representative of, its Index
regardless of their investment merit. The Fund does not attempt to outperform
its Index or take defensive positions in declining markets. As a result, the
Fund’s performance may be adversely affected by a general decline in the market
segments relating to its Index.
Recent
Market Events Risk.
U.S.
and international markets have experienced significant periods of volatility in
recent years and months due to a number of economic, political and global macro
factors including the impact of COVID-19 as a global pandemic, which has
resulted in a public health crisis, disruptions to business operations and
supply chains, stress on the global healthcare system, growth concerns in the
U.S. and overseas, staffing shortages and the inability to meet consumer demand,
and widespread concern and uncertainty. The global recovery from COVID-19 is
proceeding at slower than expected rates due to the emergence of variant strains
and may last for an extended period of time. Continuing uncertainties regarding
interest rates, rising inflation, political events, rising government debt in
the U.S. and trade tensions also contribute to market volatility.
As
a result of continuing political tensions and armed conflicts, including the war
between Ukraine and Russia, the U.S. and the European Union imposed sanctions on
certain Russian individuals and companies, including certain financial
institutions, and have limited certain exports and imports to and from Russia.
The war has contributed to recent market volatility, and may continue to do
so.
Recently
Organized Fund Risk. The
Fund is a recently organized, non-diversified management investment company
with a limited operating history. As a result, prospective investors
have a limited track record or history on which to base their
investment decision. There can be no assurance that the Fund will grow to or
maintain an economically viable size.
Sector
Risk. To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors.
◦Information
Technology Sector Risk.
The Fund may invest in companies in the information technology sector, and
therefore the performance of the Fund could be negatively impacted by events
affecting this sector. Market or economic factors impacting information
technology companies and companies that rely heavily on technological advances
could have a significant effect on the value of the Fund’s investments. The
value of stocks of information technology companies and companies that rely
heavily on technology is particularly vulnerable to rapid changes in technology
product cycles, rapid product obsolescence, government regulation and
competition, both domestically and internationally, including competition from
foreign competitors with lower production costs. Stocks of information
technology companies and companies that rely heavily on technology, especially
those of smaller, less-seasoned companies, tend to be more volatile than the
overall market. Information technology companies are heavily dependent on patent
and intellectual property rights, the loss or impairment of which may adversely
affect profitability. As of November 30, 2021, 38.9% of the Fund’s net assets
were invested in the information technology sector.
◦Consumer
Discretionary Sector Risk.
The Fund may invest in companies in the consumer discretionary sector, and
therefore the performance of the Fund could be negatively impacted by events
affecting this sector. The success of consumer product manufacturers and
retailers is tied closely to the performance of domestic and international
economies, interest rates, exchange rates, competition, consumer confidence,
changes in demographics and consumer preferences. Companies in the consumer
discretionary sector depend heavily on disposable household income and consumer
spending, and may be strongly affected by social trends and marketing campaigns.
These companies may be subject to severe competition, which may have an adverse
impact on their profitability. As of November 30, 2021, 20.6% of the Fund’s net
assets were invested in the consumer discretionary sector (non-cyclical) and
11.5% of the Fund’s net assets were invested in the consumer discretionary
sector (cyclical).
Sharia-Compliant
Investing Risk.
Islamic religious law, commonly known as “Sharia,” has certain restrictions
regarding finance and commercial activities permitted for Muslims, including
interest restrictions and prohibited industries, which reduces the size of the
overall universe in which the Fund can invest. The strategy to reduce the
investable universe may limit investment opportunities and adversely affect the
Fund’s performance, especially in comparison to a more diversified fund. Because
Islamic principles preclude the use of interest-paying instruments, cash
reserves do not earn income.
Tracking
Error Risk.
As with all index funds, the performance of the Fund and its Index may differ
from each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
Underlying
Index Risk. Neither
the Fund’s investment adviser nor the Index Provider is able to guarantee the
continuous availability or timeliness of the production of the Index. The
calculation and dissemination of the Index values may be delayed if the
information technology or other facilities of the Index Provider, calculation
agent, data providers and/or relevant stock exchange malfunction for any reason.
A significant delay may cause trading in shares of the Fund to be suspended.
Errors in Index data, computation and/or the construction in accordance with its
methodology may occur from time to time and may not be identified and corrected
by the Index Provider, calculation agent or other applicable party for a period
of time or at all, which may have an adverse impact on the Fund and its
shareholders.
Performance
The following performance
information provides some indication of the risks of investing in the Fund by
showing changes in the Fund’s performance from year to year. The bar chart shows
the Fund’s performance for the calendar years ended December 31, 2020 and 2021.
The table
illustrates how the Fund’s average annual returns for the 1-year and since
inception periods compare with those of a broad measure of market performance
and the Index. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is also available on the
Fund’s website at www.sp-funds.com.
Calendar Year Ended December 31,
During the period of time shown
in the bar chart, the Fund’s highest quarterly return
was 23.50% for the quarter ended June 30, 2020 and the
lowest quarterly return was
-16.05% for the quarter ended March 31,
2020.
Average
Annual Total Returns
For
the Periods Ended December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Year |
|
Since
Inception
(12/17/2019) |
Return Before
Taxes |
35.19% |
|
30.63% |
Return After Taxes on
Distributions |
34.78% |
|
30.26% |
Return After Taxes on Distributions and
Sale of Fund Shares |
21.07% |
|
23.97% |
S&P
500 Shariah Industry Exclusions Index (reflects no deduction for
fees, expenses, or taxes) |
34.99% |
|
30.54% |
S&P
500® Total Return Index
(reflects
no deduction for fees, expenses, or taxes) |
28.71% |
|
23.71% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts.
Management
Investment
Adviser:
Toroso Investments, LLC (“Toroso” or the “Adviser”) serves as investment adviser
to the Fund.
Investment
Sub-Adviser:
ShariaPortfolio, Inc. serves as the sub-adviser to the Fund.
Adviser
Portfolio Managers: Michael
Venuto, Chief Investment Officer for the Adviser, is responsible for the
day-to-day portfolio management of the Fund and has been a portfolio manager of
the Fund since March 2021. Charles A. Ragauss, CFA, Portfolio Manager for the
Adviser, is responsible for the day-to-day portfolio management of the Fund and
has been a portfolio manager of the Fund since its inception in December
2019.
Sub-Adviser
Portfolio Manager:
Naushad Virji, Chief Executive Officer at ShariaPortfolio, is responsible for
ensuring the Fund follows the character of the Index and providing advice with
regard to the interpretation of and compliance with Sharia principles and has
been a portfolio manager of the Fund since its inception in December
2019.
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities (the “Deposit Securities”) and/or a designated amount of U.S.
cash.
Shares
are listed on a national securities exchange, such as 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).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. This difference in bid and ask
prices is often referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.sp-funds.com.
Tax
Information
Fund
distributions are generally taxable to shareholders as ordinary income,
qualified dividend income, or capital gains (or a combination), unless an
investment is in an IRA or other tax-advantaged account. Distributions on
investments made through tax-deferred arrangements may be taxed later upon
withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser, the Sub-Adviser, or their
affiliates may pay Intermediaries for certain activities related to the Fund,
including participation in activities that are designed to make Intermediaries
more knowledgeable about exchange-traded products, including the Fund, or for
other activities, such as marketing, educational training, or other initiatives
related to the sale or promotion of Shares. These payments may create a conflict
of interest by influencing the Intermediary and your salesperson to recommend
the Fund over another investment. Any such arrangements do not result in
increased Fund expenses. Ask your salesperson or visit the Intermediary’s
website for more information.
SP
Funds Dow Jones Global Sukuk ETF - Fund Summary
Investment Objective
The SP Funds Dow Jones Global
Sukuk ETF (the “Fund” or the “Sukuk ETF”) seeks to track the performance, before
fees and expenses, of the Dow Jones Sukuk Total Return (ex‑Reinvestment) Index
(the “Index” or the “Sukuk Index”).
Fees and Expenses of the
Fund
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares of the Fund
(“Shares”). You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the table and Example
below.
|
|
|
|
|
|
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
|
Management
Fees |
0.59% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.59% |
Expense Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year |
3
Years |
5
Years |
10
Years |
$60 |
$189 |
$329 |
$738 |
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in total annual fund operating expenses or
in the expense example above, affect the Fund’s performance. For the fiscal year
ended November 30, 2021, the Fund’s portfolio turnover rate was 28% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund uses a “passive management” (or indexing) approach to track the
performance, before fees and expenses, of the Index.
The
Index includes U.S. dollar-denominated investment-grade sukuk, which are
financial certificates, similar to bonds, issued in the global markets and
structured to comply with Islamic religious law, commonly known as “Sharia,” and
its investment principles. To be eligible for inclusion in the Index, sukuk must
have an outstanding issue size of at least US $200 million, a minimum time to
maturity of one year, and a credit quality rating of at least BBB- by Standard
& Poor’s Financial Services LLC or Fitch Ratings, Inc. and/or at least Baa3
by Moody’s Investors Service, Inc. The Index was created in 2006 and is owned
and administered by S&P Dow Jones Indices LLC (the “Index Provider”), a
division of S&P Global.
Unlike
conventional bonds, sukuk are based on a variety of contracts to create
financial obligations, and the returns to investors are considered to be profit
sharing, not interest. Issuers of sukuk may include international financial
institutions, foreign governments (including in emerging markets), and foreign
government agencies or instrumentalities that issue sukuk through a secondary
issuing vehicle such as a trust. Sharia has certain restrictions regarding
finance and commercial activities, including interest restrictions and
prohibited industries and only sukuk, as screened by Thomson Reuters, is
eligible for the Index. The Fund considers emerging market countries to be those
countries included in the MSCI Emerging Markets
Index.
The
Index is rebalanced and reconstituted monthly and is market value weighted. As
of February 28, 2022, the Index was composed of 104 constituents, representing
investments in eight foreign countries, and had an average weighted maturity of
5.59 years.
The
Fund’s Investment Strategy
The
Fund attempts to invest all, or substantially all, of its assets in the
component securities that make up the Index. Under normal circumstances, at
least 80% of the Fund’s total assets will be invested in the component
securities of the Index. The Fund’s investment adviser expects that, over time,
the correlation between the Fund’s performance and that of the Index, before
fees and expenses, will be 95% or better.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning it generally will invest in all of the component securities
of the Index. However, the Fund may use a “representative sampling” strategy,
meaning it may invest in a sample of the securities in the Index whose risk,
return, and other characteristics closely resemble the risk, return, and other
characteristics of the Index as a whole, when the Fund’s investment adviser
believes it is in the best interests of the Fund (e.g., when replicating the
Index involves practical difficulties or substantial costs, an Index constituent
becomes temporarily illiquid, unavailable, or less liquid, or as a result of
legal restrictions or limitations that apply to the Fund but not to the Index).
The
Fund generally may invest up to 20% of its total assets in Sharia-compliant
securities or other Sharia-compliant investments not included in the Index, but
which the Fund’s investment adviser believes will help the Fund track the Index.
For example, the Fund may invest in Sharia-compliant securities that are not
components of the Index to reflect various corporate actions and other changes
to the Index (such as reconstitutions, additions, and deletions). Each
investment made by the Fund is pre-screened and approved as Sharia-compliant
before investment by the Fund.
To
the extent the Index concentrates (i.e., holds more than 25% of its total
assets) in the securities of a particular industry or group of related
industries, the Fund will concentrate its investments to approximately the same
extent as the Index. The Fund is deemed to be “non-diversified,” which means
that it may invest a greater percentage of its assets in the securities of a
single issuer or a small number of issuers than if it was a diversified
fund.
Principal Investment
Risks
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with those of other funds. Each risk summarized below is
considered a “principal risk” of investing in the Fund, regardless of the order
in which they appear. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return, and/or ability to meet its
investment objective. For more information about the risks of investing in the
Fund, see the section in the Fund’s Prospectus titled “Additional Information
About the Funds—Principal Risks of Investing in Each Fund.”
Concentration
Risk. The
Fund’s investments will be concentrated in an industry or group of industries to
the extent the Index is so concentrated. In such event, the value of Shares may
rise and fall more than the value of shares that invest in securities of
companies in a broader range of industries.
Debt
Securities Risk.
◦Credit
Risk.
Debt securities are subject to the risk of an issuer’s (or other party’s)
failure or inability to meet its obligations under the security. Multiple
parties may have obligations under a debt security. An issuer or borrower may
fail to pay principal and interest when due. A guarantor, insurer or credit
support provider may fail to provide the agreed upon protection. A counterparty
to a transaction may fail to perform its side of the bargain. An intermediary or
agent interposed between the investor and other parties may fail to perform the
terms of its service. Also, performance under a debt security may be linked to
the obligations of other persons who may fail to meet their obligations. The
credit risk associated with a debt security could increase to the extent that
the Fund’s ability to benefit fully from its investment in the security depends
on the performance by multiple parties of their respective contractual or other
obligations. The market value of a debt security is also affected by the
market’s perception of the creditworthiness of the issuer.
◦Interest
Rate Risk.
The income generated by debt securities owned by the Fund will be affected by
changing interest rates. Generally, the value of fixed income securities will
change inversely with changes in interest rates. As interest rates rise, the
market value of fixed income securities tends to decrease. Conversely, as
interest rates fall, the market value of fixed income securities tends to
increase. Securities with longer durations tend to be more sensitive to changes
in interest rates, usually making them more volatile than securities with
shorter durations. Falling interest
rates
may cause an issuer to redeem or “call” a security before its stated maturity,
which may result in the Fund having to reinvest the proceeds in lower yielding
securities. Rising interest rates across the U.S. and international financial
systems may result in fixed-income markets becoming more volatile. A rise in
rates tends to have a greater impact on the prices of longer term or duration
securities. Interest rates have recently been historically low, so the Fund
faces a heightened risk that rates may rise.
Emerging
Markets Risk.
Investments in emerging market securities impose risks different from, or
greater than, risks of investing in foreign developed countries, including:
smaller market capitalization; significant price volatility; and restrictions on
foreign investment. Emerging market countries may have relatively unstable
governments and may present the risk of nationalization of businesses,
expropriation, and confiscatory taxation, or, in certain instances, reversion to
closed market, centrally planned economies. Emerging market economies may also
experience more severe downturns. The currencies of emerging market countries
may experience significant declines against the U.S. dollar, and devaluation may
occur subsequent to investments in these currencies by the Fund. Inflation and
rapid fluctuations in inflation rates have had, and may continue to have,
negative effects on the economies and securities markets of certain emerging
market countries. In addition, less information may be available about companies
in emerging markets than in developed markets because such emerging markets
companies may not be subject to accounting, auditing and financial reporting
standards or to other regulatory practices required by U.S. companies which may
lead to potential errors in index data, index computation and/or index
construction. Such conditions may impact the ability of the Fund to buy,
sell or otherwise transfer securities; adversely affect the trading market and
price for such securities; and/or cause the Fund to decline in
value.
ETF
Risk.
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration Risk.
The
Fund has a limited number of financial institutions that are authorized to
purchase and redeem Shares directly from the Fund (known as “Authorized
Participants” or “APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become unable to
process creation and/or redemption orders and no other APs step forward to
perform these services; or (ii) market makers and/or liquidity providers exit
the business or significantly reduce their business activities and no other
entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares. Due
to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums and discounts greater than those of ETFs holding only domestic
securities.
◦Trading.
Although Shares are listed on a national securities exchange, such as the NYSE
Arca, Inc. (the “Exchange”), and may be traded on U.S. exchanges other than the
Exchange, there can be no assurance that Shares will trade with any volume, or
at all, on any stock exchange. In stressed market conditions, the liquidity of
Shares may begin to mirror the liquidity of the Fund’s underlying portfolio
holdings, which can be significantly less liquid than Shares.
Foreign
Government Risk.
The
Fund’s investment in securities issued by foreign governments or their agencies
or instrumentalities (sovereign debt), including those that issue sukuk through
a secondary issuing vehicle, differs from debt obligations issued by private
entities in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Legal recourse is therefore limited. The foreign
sovereign debt securities the Fund purchases involve specific risk, including
that (i) the governmental entity that controls the repayment of sovereign debt
may not be willing or able to repay the principal and/or interest when it
becomes due because of political constraints, cash flow problems, and other
national economic factors; (ii) governments may default on their sovereign debt,
which may require holders of such sovereign debt to participate in debt
rescheduling or additional lending to defaulting governments; and (iii) there
are no bankruptcy proceedings by which defaulted sovereign debt may be collected
in whole or in part. These and other factors can make investments in the
Fund
more volatile and potentially less liquid than other types of investments that
track an index of domestic securities. As of November 30, 2021, 53.9% of the
Fund’s net assets were invested in the securities issued by foreign
governments.
General
Market Risk.
Securities markets and individual securities may increase or decrease in value.
Security prices may fluctuate widely over short or extended periods in response
to market or economic news and conditions, and securities markets also tend to
move in cycles. If there is a general decline in the securities markets, it is
possible your investment may lose value regardless of the individual results of
the companies in which the Fund invests. The magnitude of up and down price or
market fluctuations over time is sometimes referred to as “volatility”, and it
can be significant. In addition, different asset classes and geographic markets
may experience periods of significant correlation with each other. As a result
of this correlation, the securities and markets in which the Fund invests may
experience volatility due to market, economic, political or social events and
conditions that may not readily appear to directly relate to such securities,
the securities’ issuer or the markets in which they trade.
Geographic
Investment Risk.
To the extent the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region.
◦Risks
of Investing in Saudi Arabia.
The ability of foreign investors to invest in Saudi Arabian issuers is new and
untested. Such ability could be restricted or revoked by the Saudi Arabian
government at any time, and unforeseen risks could materialize due to foreign
ownership in such securities. The economy of Saudi Arabia is dominated by
petroleum exports. A sustained decrease in petroleum prices could have a
negative impact on all aspects of the economy. Investments in securities of
Saudi Arabian issuers involves risks not typically associated with investments
in securities of issuers in more developed countries that may negatively affect
the value of the Fund’s investments. Such heightened risks may include, among
others, expropriation and/or nationalization of assets, restrictions on and
government intervention in international trade, confiscatory taxation, political
instability, including authoritarian and/ or military involvement in
governmental decision making, armed conflict, crime and instability as a result
of religious, ethnic and/or socioeconomic unrest. There remains the possibility
that instability in the larger Middle East region could adversely impact the
economy of Saudi Arabia, and there is no assurance of political stability in
Saudi Arabia.
◦Risks
of Investing in the United Arab Emirates.
The economy of the United Arab Emirates (“UAE”) is dominated by petroleum
exports. A sustained decrease in commodity prices, particularly oil and natural
gas, could have a negative impact on all aspects of the UAE economy. The nonoil
UAE economy, which is concentrated in Dubai’s service sector, could be affected
by declines in tourism, real estate, banking and re-export trade. The UAE and
the governments of the individual emirates exercise substantial influence over
many aspects of the private sector. Governmental actions could have a
significant effect on economic conditions in the UAE, which could adversely
affect the value of the Fund. In addition, recent political instability and
protests in North Africa and the Middle East have caused significant disruptions
to many industries. Continued political and social unrest in these areas may
adversely affect the value of the Fund.
Models
and Data Risk. The
composition of the Index is heavily dependent on proprietary quantitative models
as well as information and data supplied by third parties (“Models and Data”).
When Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon may lead to the inclusion or exclusion of securities from the
Index universe that would have been excluded or included had the Models and Data
been correct and complete. If the composition of the Index reflects such errors,
the Fund’s portfolio can be expected to also reflect the errors.
Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a smaller number of issuers than if it was a diversified fund. As a result, a
decline in the value of an investment in a single issuer or a smaller number of
issuers could cause the Fund’s overall value to decline to a greater degree than
if the Fund held a more diversified portfolio.
Passive
Investment Risk. The
Fund invests in the securities included in, or representative of, its Index
regardless of their investment merit. The Fund does not attempt to outperform
its Index or take defensive positions in declining markets. As a result, the
Fund’s performance may be adversely affected by a general decline in the market
segments relating to its Index.
Recent
Market Events Risk.
U.S.
and international markets have experienced significant periods of volatility in
recent years and months due to a number of economic, political and global macro
factors including the impact of COVID-19 as a global pandemic, which has
resulted in a public health crisis, disruptions to business operations and
supply chains, stress on the global healthcare system, growth concerns in the
U.S. and overseas, staffing shortages and the inability to meet consumer demand,
and widespread concern and uncertainty. The global recovery from COVID-19 is
proceeding at slower than expected rates due to the emergence of variant strains
and may last for an extended period of time. Continuing uncertainties regarding
interest rates, rising inflation, political events, rising government debt in
the U.S. and trade tensions also contribute
to
market volatility. As a result of continuing political tensions and armed
conflicts, including the war between Ukraine and Russia, the U.S. and the
European Union imposed sanctions on certain Russian individuals and companies,
including certain financial institutions, and have limited certain exports and
imports to and from Russia. The war has contributed to recent market volatility,
and may continue to do so.
Recently
Organized Fund Risk. The
Fund is a recently organized, non-diversified management investment company
with a limited operating history. As a result, prospective investors
have a limited track record or history on which to base their
investment decision. There can be no assurance that the Fund will grow to or
maintain an economically viable size.
Sharia-Compliant
Investing Risk.
Islamic religious law, commonly known as “Sharia,” has certain restrictions
regarding finance and commercial activities permitted for Muslims, including
interest restrictions and prohibited industries, which reduces the size of the
overall universe in which the Fund can invest. The strategy to reduce the
investable universe may limit investment opportunities and adversely affect the
Fund’s performance, especially in comparison to a more diversified fund. Because
Sharia principles preclude the use of interest-paying instruments, cash reserves
do not earn income.
Sukuk
Risk.
Sukuk are financial certificates that are similar to conventional bonds but are
structured to comply with Sharia law and its investments principles, which,
among other things, prohibit charging or paying interest. Sukuk involve many of
the same risks that conventional bonds incur such as credit risk and interest
rate risk. In addition to these risks, there are certain risks specific to
sukuk. Sukuk represent undivided shares in the ownership of certificates, and
such certificates are linked to a specific investment activity, such as an
underlying asset or contractual payment obligations of the issuer. Because no
collateral is pledged as security for sukuk, purchasers of sukuk are subject to
the risk that an issuer may not meet its payment obligations or that an
underlying asset may not perform as expected or lose value. While the sukuk
market has grown significantly in recent years, there may be times when the
market is illiquid and it is difficult for the Fund to make an investment in or
dispose of sukuk.
Tracking
Error Risk.
As with all index funds, the performance of the Fund and its Index may differ
from each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
Underlying
Index Risk. Neither
the Fund’s investment adviser nor the Index Provider is able to guarantee the
continuous availability or timeliness of the production of the Index. The
calculation and dissemination of the Index values may be delayed if the
information technology or other facilities of the Index Provider, calculation
agent, data providers and/or relevant stock exchange malfunction for any reason.
A significant delay may cause trading in shares of the Fund to be suspended.
Errors in Index data, computation and/or the construction in accordance with its
methodology may occur from time to time and may not be identified and corrected
by the Index Provider, calculation agent or other applicable party for a period
of time or at all, which may have an adverse impact on the Fund and its
shareholders.
Performance
The following performance
information provides some indication of the risks of investing in the Fund by
showing changes in the Fund’s performance from year to year. The bar chart shows
the Fund’s performance for the calendar years ended December 31, 2020 and 2021.
The table
illustrates how the Fund’s average annual returns for the 1-year and since
inception periods compare with those of a broad measure of market performance
and the Index. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.sp-funds.com.
Calendar Year Ended December 31,
During the period of time shown
in the bar chart, the Fund’s highest quarterly return
was 5.65% for the quarter ended June 30, 2020 and the
lowest quarterly return was
-4.89% for the quarter ended March 31,
2020.
Average
Annual Total Returns
For
the Periods Ended December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Year |
|
Since
Inception
(12/27/2019) |
Return Before
Taxes |
-1.12% |
|
1.41% |
Return After Taxes on
Distributions |
-1.67% |
|
0.78% |
Return After Taxes on Distributions and
Sale of Fund Shares |
-0.66% |
|
0.81% |
Dow
Jones Sukuk Total Return Index (ex-Reinvestment) (reflects no deduction for
fees, expenses, or taxes) |
1.07% |
|
4.34% |
Bloomberg
Global Aggregate Bond Index
(reflects
no deduction for fees, expenses, or taxes) |
-4.71% |
|
2.10% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts. In certain cases, the figure
representing “Return after Taxes on Distributions and Sale of Fund Shares” may
be higher than other return figures for the same period. A
higher after-tax return results when a capital loss occurs upon redemption and
provides an assumed tax deduction that benefits the
investor.
Management
Investment
Adviser:
Toroso Investments, LLC (“Toroso” or the “Adviser”) serves as investment adviser
to the Fund.
Investment
Sub-Adviser:
ShariaPortfolio, Inc. (“ShariaPortfolio” or the “Sub-Adviser”) serves as
investment sub-adviser to the Fund.
Adviser
Portfolio Managers: Michael
Venuto, Chief Investment Officer for the Adviser, is responsible for the
day-to-day portfolio management of the Fund and has been a portfolio manager of
the Fund since March 2021. Charles A. Ragauss, CFA, Portfolio Manager for the
Adviser, is responsible for the day-to-day portfolio management of the Fund and
has been a portfolio manager of the Fund since its inception in December
2019.
Sub-Adviser
Portfolio Manager:
Naushad Virji, Chief Executive Officer at ShariaPortfolio, is responsible for
ensuring the Fund follows the character of the Index and providing advice with
regard to the interpretation of and compliance with Sharia principles and has
been a portfolio manager of the Fund since its inception in December
2019.
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities (the “Deposit Securities”) and/or a designated amount of U.S.
cash.
Shares
are listed on a national securities exchange, such as 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).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. This difference in bid and ask
prices is often referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.sp-funds.com.
Tax
Information
Fund
distributions are generally taxable to shareholders as ordinary income,
qualified dividend income, or capital gains (or a combination), unless an
investment is in an IRA or other tax-advantaged account. Distributions on
investments made through tax-deferred arrangements may be taxed later upon
withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser, the Sub-Adviser, or their
affiliates may pay Intermediaries for certain activities related to the Fund,
including participation in activities that are designed to make Intermediaries
more knowledgeable about exchange-traded products, including the Fund, or for
other activities, such as marketing, educational training, or other initiatives
related to the sale or promotion of Shares. These payments may create a conflict
of interest by influencing the Intermediary and your salesperson to recommend
the Fund over another investment. Any such arrangements do not result in
increased Fund expenses. Ask your salesperson or visit the Intermediary’s
website for more information.
SP
Funds S&P Global REIT Sharia ETF - Fund Summary
Investment Objective
The SP Funds S&P Global
REIT Sharia ETF (the “Fund” or the “Global REIT ETF”) seeks to track the
performance, before fees and expenses, of the S&P Global All Equity REIT
Shariah Capped Index (the “Index” or the “Shariah REIT Index”).
Fees and Expenses of the
Fund
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares of the Fund
(“Shares”). You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the table and Example
below.
|
|
|
|
|
|
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
Management
Fees |
0.69% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.69% |
|
|
Expense Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would
be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year |
3
Years |
5
Years |
10
Years |
$70 |
$221 |
$384 |
$859 |
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in total annual fund operating expenses or
in the expense example above, affect the Fund’s performance. For the fiscal
period December 29, 2020 (commencement of operations) through November 30, 2021,
the Fund’s portfolio turnover rate was 79% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund uses a “passive management” (or indexing) approach to track the
performance, before fees and expenses, of the Index.
The
Index includes all real estate investment trust (“REIT”) securities listed in
developed and emerging markets and included as constituents of the S&P
Global BMI Shariah Index, a comprehensive global Sharia-compliant index of
publicly-traded equity securities. Constituents included in the S&P Global
BMI Shariah Index must have a float-adjusted market capitalization of at least
$100 million and an annual trading value of at least $50 million. A REIT is a
security of a company that invests in real estate, either through real estate
property, mortgages and similar real estate investments, or all of the
foregoing. Islamic religious law commonly known as Sharia has certain
restrictions regarding finance and commercial activities permitted for Muslims,
including interest restrictions and prohibited industries. Constituents of the
S&P Global BMI Shariah Index, and therefore constituents of the Index, have
been screened for non-compliant business activities (companies that offer
products and services that are not compliant with Sharia law such as gambling,
alcohol, or tobacco) and compliance with certain accounting-based financial
ratios (companies must satisfy financial ratios governing leverage, cash, and
the share of revenues derived from non-compliant activities).
The
Index is rebalanced and reconstituted monthly. Each security in the Index is
subject to certain individual security weight caps. As of February 28, 2022, the
Index was composed of 56 constituents, representing investments in 11
countries.
The
Index was developed in 2020 by S&P Dow Jones Indices LLC (the “Index
Provider”), a division of S&P Global, with active contribution by
ShariaPortfolio, Inc. (the “Sub-Adviser”), the Fund’s sub-adviser. The Index is
owned and administered by the Index Provider. The S&P Global BMI Shariah
Index was developed in 2008 by the Index Provider and is owned and administered
by the Index Provider.
The
Fund’s Investment Strategy
The
Fund attempts to invest all, or substantially all, of its assets in the
component securities that make up the Index. Under normal circumstances, at
least 80% of the Fund’s total assets will be invested in the component
securities of the Index. This policy may be changed without shareholder approval
upon 60 days’ written notice to shareholders. The Fund’s investment adviser
expects that, over time, the correlation between the Fund’s performance and that
of the Index, before fees and expenses, will be 95% or better.
The
Fund generally may invest up to 20% of its total assets in Sharia-compliant
securities or other Sharia-compliant investments not included in the Index, but
which the Sub-Adviser believes will help the Fund track the Index. For example,
the Fund may invest in Sharia-compliant securities that are not components of
the Index to reflect various corporate actions and other changes to the S&P
Global BMI Shariah Index (such as reconstitutions, additions, and deletions).
Each investment made by the Fund is pre-screened and approved as Sharia
compliant before investment by the Fund.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning the Fund will generally invest in all of the component
securities of the Index in the same approximate proportions as in the Index.
However, the Fund may use a “representative sampling” strategy, meaning it may
invest in a sample of the securities in the Index whose risk, return, and other
characteristics closely resemble the risk, return, and other characteristics of
the Index as a whole, when the Fund’s investment adviser believes it is in the
best interests of the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
To
the extent the Index concentrates (i.e.,
holds more than 25% of its total assets) in the securities of a particular
industry or group of related industries, the Fund will concentrate its
investments to approximately the same extent as the Index. The Fund is
classified as non-diversified and therefore may invest a larger percentage of
its assets in the securities of a single company or a smaller number of
companies than diversified funds. The Index is expected to be concentrated
(i.e.,
holding more than 25% of its total assets) in
REITs.
The Fund is deemed to be non-diversified
under the Investment Company Act of 1940, as amended (the “1940 Act”) ,which
means that it may invest a greater percentage of its assets in the securities of
a single issuer or a smaller number of issuers than if it was a diversified
fund.
Principal Investment
Risks
The
principal risks of investing in the Fund are summarized below.
The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which they appear. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
investment objective. For more information about the risks of investing in the
Fund, see the section in the Fund’s Prospectus titled “Additional Information
About the Funds—Principal Risks of Investing in Each Fund.”
Concentration
Risk. The
Fund’s investments will be concentrated in an industry or group of industries to
the extent the Index is so concentrated. In such event, the value of Shares may
rise and fall more than the value of shares that invest in securities of
companies in a broader range of industries.
◦Concentration
in REITs
The
Fund is expected to be concentrated in REITs. A REIT is a company that owns or
finances income-producing real estate and meets certain requirements under the
Internal Revenue Code of 1986, as amended (the “Code”), as more fully described
in the Fund’s Statement of Additional Information (“SAI”). Through its
investments in REITs, the Fund is subject to the risks of investing in the real
estate market, including decreases in property revenues, increases in interest
rates, increases in property taxes and operating expenses, legal and regulatory
changes, a lack of credit or capital, defaults by borrowers or tenants,
environmental problems and natural disasters.
REITs
are subject to additional risks, including those related to adverse governmental
actions; declines in property value and the real estate market; the potential
failure to qualify for tax-free pass through of income; and exemption from
registration as an investment company. REITs are dependent upon specialized
management skills and may invest in relatively few properties, a small
geographic area, or a small number of property types. As a result, investments
in REITs may be volatile. To the extent the Fund invests in REITs concentrated
in specific geographic areas or property types, the Fund may be subject to a
greater loss as a result of adverse developments affecting such area or property
types. REITs are pooled investment vehicles with their own fees and expenses and
the Fund will
indirectly
bear a proportionate share of those fees and expenses. As of November 30, 2021,
99.3% of the Fund’s net assets were invested in REITs.
Currency
Risk.
The Fund’s exposure to foreign currencies subjects the Fund to the risk that
those currencies will decline in value relative to the U.S. Dollar. Currency
rates in foreign countries may fluctuate significantly over short periods of
time for any number of reasons, including changes in interest rates and the
imposition of currency controls or other political developments in the U.S. or
abroad.
Emerging
Markets Risk. The
Fund may invest in securities issued by companies domiciled or headquartered in
emerging market nations. Investments in securities traded in developing or
emerging markets, or that provide exposure to such securities or markets, can
involve additional risks relating to political, economic, currency, or
regulatory conditions not associated with investments in U.S. securities and
investments in more developed international markets. Such conditions may impact
the ability of the Fund to buy, sell, or otherwise transfer securities,
adversely affect the trading market and price for Shares and cause the Fund to
decline in value.
Equity
Market Risk. The
Fund will invest in common stocks directly or indirectly through ETFs. Common
stocks are generally exposed to greater risk than other types of securities,
such as preferred stock and debt obligations, because common stockholders
generally have inferior rights to receive payment from specific issuers. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests. Common
stocks, such as those held by the Fund, are generally exposed to greater risk
than other types of securities, such as preferred stock and debt obligations,
because common stockholders generally have inferior rights to receive payment
from issuers.
ETF
Risk.
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration Risk.
The
Fund has a limited number of financial institutions that are authorized to
purchase and redeem Shares directly from the Fund (known as “Authorized
Participants” or “APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become unable to
process creation and/or redemption orders and no other APs step forward to
perform these services; or (ii) market makers and/or liquidity providers exit
the business or significantly reduce their business activities and no other
entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares. Due
to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums and discounts greater than those of ETFs holding only domestic
securities.
◦Trading.
Although Shares are listed on a national securities exchange, such as NYSE Arca,
Inc. (the “Exchange”), and may be traded on U.S. exchanges other than the
Exchange, there can be no assurance that Shares will trade with any volume, or
at all, on any stock exchange. In stressed market conditions, the liquidity of
Shares may begin to mirror the liquidity of the Fund’s underlying portfolio
holdings, which can be significantly less liquid than Shares.
Foreign
Securities Risk. Investments
in securities or other instruments of non-U.S. issuers involve certain risks not
involved in domestic investments and may experience more rapid and extreme
changes in value than investments in securities of U.S. companies. Financial
markets in foreign countries often are not as developed, efficient, or liquid as
financial markets in the United States, and therefore, the prices of non-U.S.
securities and instruments can be more volatile. In addition, the Fund will be
subject to risks associated with adverse political and economic developments in
foreign countries, which may include the imposition of economic sanctions.
Generally, there is less readily available and reliable information about
non-U.S. issuers due to less rigorous disclosure or accounting standards and
regulatory practices.
General
Market Risk.
Securities
markets and individual securities may increase or decrease in value. Security
prices may fluctuate widely over short or extended periods in response to market
or economic news and conditions, and securities markets also tend to move in
cycles. If there is a general decline in the securities markets, it is possible
your investment may lose value regardless of the individual results of the
companies in which the Fund invests. The magnitude of up and down price or
market fluctuations over time is sometimes referred to as “volatility”, and it
can be significant. In addition, different asset classes and geographic markets
may experience periods of significant correlation with each other. As a result
of this correlation, the securities and markets in which the Fund invests may
experience volatility due to market, economic, political or social events and
conditions that may not readily appear to directly relate to such securities,
the securities’ issuer or the markets in which they trade.
Market
Capitalization Risk.
◦Large-Capitalization
Investing. The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing. The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large-capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies.
Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a smaller number of issuers than if it was a diversified fund. As a result, a
decline in the value of an investment in a single issuer or a smaller number of
issuers could cause the Fund’s overall value to decline to a greater degree than
if the Fund held a more diversified portfolio.
Passive
Investment Risk. The
Fund invests in the securities included in, or representative of, its Index
regardless of their investment merit. The Fund does not attempt to outperform
its Index or take defensive positions in declining markets. As a result, the
Fund’s performance may be adversely affected by a general decline in the market
segments relating to its Index.
Recent
Market Events Risk.
U.S. and international markets have experienced significant periods of
volatility in recent years and months due to a number of economic, political and
global macro factors including the impact of COVID-19 as a global pandemic,
which has resulted in a public health crisis, disruptions to business operations
and supply chains, stress on the global healthcare system, growth concerns in
the U.S. and overseas, staffing shortages and the inability to meet consumer
demand, and widespread concern and uncertainty. The global recovery from
COVID-19 is proceeding at slower than expected rates due to the emergence of
variant strains and may last for an extended period of time. Continuing
uncertainties regarding interest rates, rising inflation, political events,
rising government debt in the U.S. and trade tensions also contribute to market
volatility. As a result of continuing political tensions and armed conflicts,
including the war between Ukraine and Russia, the U.S. and the European Union
imposed sanctions on certain Russian individuals and companies, including
certain financial institutions, and have limited certain exports and imports to
and from Russia. The war has contributed to recent market volatility and may
continue to do so.
Recently
Organized Fund Risk.
The Fund is a recently organized, non-diversified management investment company
with a limited operating history. As a result, prospective investors have a
limited track record or history on which to base their investment
decision.
Sharia-Compliant
Investing Risk.
Islamic religious law commonly known as Sharia has certain restrictions
regarding finance and commercial activities permitted for Muslims, including
interest restrictions and prohibited industries, which reduces the size of the
overall universe in which the Fund can invest. The strategy to reduce the
investable universe may limit investment opportunities and adversely affect the
Fund’s performance, especially in comparison to a more diversified fund. Because
Islamic principles preclude the use of interest-paying instruments, cash
reserves do not earn income.
Tax
Risk.
To qualify for the favorable tax treatment generally available to regulated
investment companies (“RICs”), the Fund must satisfy certain diversification
requirements. In particular, the Fund generally may not acquire a security if,
as a result of the acquisition, (i) more than 50% of the value of the Fund’s
assets would be invested in (a) issuers in which the Fund has, in each case,
invested more than 5% of the Fund’s assets or (b) issuers more than 10% of whose
outstanding voting securities are owned by the Fund or (ii) more than 25% of the
value of the Fund’s assets would be invested in (a) the securities of any one
issuer. Given the concentration of the Index in a relatively small number of
securities, it may not always be possible for the Fund to fully implement a
replication strategy or a representative sampling strategy while satisfying
these diversification requirements. The Fund’s efforts to satisfy the
diversification requirements may affect the Fund’s execution of its investment
strategy and may cause the Fund’s return to deviate from that of the Index, and
the Fund’s efforts to replicate or represent the Index may cause it
inadvertently to fail to satisfy the diversification requirements. If the Fund
were to fail to satisfy the diversification requirements, it could incur penalty
taxes and be forced to dispose of certain assets, or it could fail to qualify as
a RIC. If the Fund were to fail to qualify as a RIC, it would be taxed in the
same manner as an ordinary corporation, and distributions to its shareholders
would not be deductible by the Fund in computing its taxable
income.
Tracking
Error Risk.
As with all index funds, the performance of the Fund and its Index may differ
from each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
Underlying
Index Risk. Neither
the Fund’s investment adviser nor the Index Provider is able to guarantee the
continuous availability or timeliness of the production of the Index. The
calculation and dissemination of the Index values may be delayed if the
information technology or other facilities of the Index Provider, calculation
agent, data providers and/or relevant stock exchange malfunction for any reason.
A significant delay may cause trading in shares of the Fund to be suspended.
Errors in Index data, computation and/or the construction in accordance with its
methodology may occur from time to time and may not be identified and corrected
by the Index Provider, calculation agent or other applicable party for a period
of time or at all, which may have an adverse impact on the Fund and its
shareholders.
Performance
The following performance
information provides some indication of the risks of investing in the Fund by
showing changes in the Fund’s performance over time. The bar chart shows the
Fund’s performance for the calendar year ended December 31, 2021. The table
illustrates how the Fund’s average annual returns for the 1-year and since
inception periods compare with those of a broad measure of market performance
and the Index. The Fund’s past performance before and after taxes, does not
necessarily indicate how it will perform in the future. Updated performance
information is available on the Fund’s website at www.sp-funds.com.
Calendar Year Ended December 31,
During the period of time shown
in the bar chart, the Fund’s highest quarterly return
was 20.16% for the quarter ended December 31, 2021 and
the lowest quarterly return was
1.14% for the quarter ended September 30,
2021.
Average
Annual Total Returns
For
the Period Ended December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Year |
|
Since
Inception
(12/29/2020) |
Return Before
Taxes |
43.18% |
|
44.67% |
Return After Taxes on
Distributions |
42.06% |
|
43.55% |
Return After Taxes on Distributions and
Sale of Fund Shares |
25.69% |
|
33.55% |
S&P
Global All Equity REIT Shariah Capped Index (reflects no deduction for
fees, expenses, or taxes) |
44.31% |
|
45.80% |
S&P
500 Total Return Index
(reflects
no deduction for fees, expenses, or taxes) |
28.71% |
|
29.55% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts.
Management
Investment
Adviser
Toroso
Investments, LLC (“Toroso” or the “Adviser”) serves as investment adviser to the
Fund.
Investment
Sub-Adviser
ShariaPortfolio,
Inc. (“ShariaPortfolio” or the “Sub-Adviser”), serves as investment sub-adviser
to the Fund.
Adviser
Portfolio Managers:
Michael
Venuto, Chief Investment Officer for the Adviser, is responsible for the
day-to-day portfolio management of the Fund and has been a portfolio manager of
the Fund since its inception in December 2020.
Charles
A. Ragauss, CFA, Portfolio Manager for the Adviser, is responsible for the
day-to-day portfolio management of the Fund and has been a portfolio manager of
the Fund since its inception in December 2020.
Sub-Adviser
Portfolio Manager:
Naushad
Virji, Chief Executive Officer at ShariaPortfolio, is responsible for ensuring
the Fund follows the character of the Index and providing advice with regard to
the interpretation of and compliance with Sharia principles and has been a
portfolio manager of the Fund since its inception in December 2020.
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities (the “Deposit Securities”) and/or a designated amount of U.S.
cash.
Shares
are listed on a national securities exchange, such as 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).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. This difference in bid and ask
prices is often referred to as the “bid-ask spread.”
When
available, information regarding the Fund’s NAV, market price, how often Shares
traded on the Exchange at a premium or discount, and bid-ask spreads can be
found on the Fund’s website at www.sp-funds.com.
Tax
Information
Fund
distributions are generally taxable to shareholders as ordinary income,
qualified dividend income, qualified REIT dividend income, or capital gains (or
a combination), unless your investment is in an IRA or other tax-advantaged
account. Distributions on investments made through tax-deferred arrangements may
be taxed later upon withdrawal of assets from those arrangements.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser, the Sub-Adviser, or their
affiliates may pay Intermediaries for certain activities related to the Fund,
including participation in activities that are designed to make Intermediaries
more knowledgeable about exchange-traded products, including the Fund, or for
other activities, such as marketing, educational training, or other initiatives
related to the sale or promotion of Shares. These payments may create a conflict
of interest by influencing the Intermediary and your salesperson to recommend
the Fund over another investment. Any such arrangements do not result in
increased Fund expenses. Ask your salesperson or visit the Intermediary’s
website for more information.
ADDITIONAL
INFORMATION ABOUT THE FUNDS
Investment
Objective
Each
Fund seeks to track the performance, before fees and expenses, of the applicable
Index.
An
investment objective is fundamental if it cannot be changed without the consent
of the holders of a majority of the outstanding Shares. The Funds’ investment
objectives have not been adopted as fundamental investment policies and
therefore a Fund’s investment objective may be changed without the consent of a
Fund’s shareholders upon approval by the Board of Trustees (the “Board”) of
Tidal ETF Trust (the “Trust”) and written notice to shareholders.
Principal
Investment Strategies
The
following information is in addition to, and should be read along with, the
description of each Fund’s principal investment strategies in the sections
titled “Fund Summary-Principal Investment Strategies” above.
To
the extent its applicable Index concentrates (i.e., holds more than 25% of its
total assets) in the securities of a particular industry or group of related
industries, a Fund will concentrate its investments to approximately the same
extent as the Index. Each Fund is deemed to be “non-diversified,” which means
that it may invest a greater percentage of its assets in the securities of a
single issuer or a smaller number of issuers than if it was a diversified
fund.
Manager
of Managers Structure
The
Funds and the Adviser have received exemptive relief from the SEC permitting the
Adviser (subject to certain conditions and the approval of the Board) to change
or select new unaffiliated sub-advisers without obtaining shareholder approval.
The relief also permits the Adviser to materially amend the terms of agreements
with an unaffiliated sub-adviser (including an increase in the fee paid by the
Adviser to the unaffiliated sub-adviser (and not paid by a Fund)) or to continue
the employment of an unaffiliated sub-adviser after an event that would
otherwise cause the automatic termination of services with Board approval, but
without shareholder approval. Shareholders will be notified of any unaffiliated
sub-adviser changes. The Adviser has the ultimate responsibility, subject to
oversight by the Board, to oversee a sub-adviser(s) and recommend their hiring,
termination and replacement.
Principal
Risks of Investing in each Fund
The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Funds,
regardless of the order in which it appears. As with any investment, there is a
risk that you could lose all or a portion of your investment in a Fund. Some or
all of these risks may adversely affect a Fund’s NAV per share, trading price,
yield, total return and/or ability to meet its investment objective. The
following risks could affect the value of your performance in the Funds: The
risks below apply to each Fund as indicated in the following table. The number
of risk factors applicable to a Fund does not necessarily correlate to the
overall risk of an investment in that Fund. Additional information about each
such risk and its potential impact on a Fund is set forth below the
table.
|
|
|
|
|
|
|
|
|
|
|
|
|
Sharia
ETF |
Sukuk
ETF |
Global
REIT ETF |
Concentration
Risk |
X |
X |
X |
—Concentration
in REITs |
|
|
X |
Currency
Risk |
|
|
X |
Debt
Securities Risk |
|
X |
|
—
Credit Risk |
|
X |
|
—
Interest Rate Risk |
|
X |
|
Emerging
Markets Risk |
|
X |
X |
Equity
Market Risk |
X |
|
X |
ETF
Risks |
|
|
X |
—Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk |
X |
X |
X |
—
Costs of Buying or Selling Shares |
X |
X |
X |
—
Shares May Trade at Prices Other Than NAV |
X |
X |
X |
—
Trading |
X |
X |
|
Foreign
Government Risk |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sharia
ETF |
Sukuk
ETF |
Global
REIT ETF |
Foreign
Securities Risk |
|
|
X |
General
Market Risk |
X |
X |
X |
Geographic
Investment Risk |
|
X |
|
—Risks
of Investing In Saudi Arabia |
|
X |
|
—Risks
of Investing in the United Arab Emirates |
|
X |
|
Market
Capitalization Risk |
X |
|
X |
—Large-Capitalization
Investing Risk |
X |
|
X |
—Mid-Capitalization
Investing |
|
|
X |
—Small-Capitalization
Investing |
|
|
X |
Models
and Data Risk |
X |
X |
|
Non-Diversification
Risk |
X |
X |
X |
Passive
Investment Risk |
X |
X |
X |
Recent
Market Events Risk |
X |
X |
X |
Recently
Organized Fund Risk |
X |
X |
X |
Sector
Risk |
X |
|
|
—Information
Technology Sector Risk |
X |
|
|
—Consumer
Discretionary Sector Risk |
X |
|
|
Sharia-Compliant
Investing Risk |
X |
X |
X |
Sukuk
Risk |
|
X |
|
Tax
Risk |
|
|
X |
Tracking
Error Risk |
X |
X |
X |
Underlying
Index Risk |
X |
X |
X |
Concentration
Risk. The
Fund’s investments will be concentrated in an industry or group of industries to
the extent the Index is so concentrated. In such event, the value of Shares may
rise and fall more than the value of shares that invest in securities of
companies in a broader range of industries.
◦Concentration
in REITs
The
Fund is expected to be concentrated in REITs. A REIT is a company that owns or
finances income-producing real estate and meets certain requirements under the
Code, as more fully described in the Fund’s SAI. Through its investments in
REITs, the Fund is subject to the risks of investing in the real estate market,
including decreases in property revenues, increases in interest rates, increases
in property taxes and operating expenses, legal and regulatory changes, a lack
of credit or capital, defaults by borrowers or tenants, environmental problems
and natural disasters.
REITs
are subject to additional risks, including those related to adverse governmental
actions; declines in property value and the real estate market; the potential
failure to qualify for tax-free pass through of income; and exemption from
registration as an investment company. REITs are dependent upon specialized
management skills and may invest in relatively few properties, a small
geographic area, or a small number of property types. As a result, investments
in REITs may be volatile. To the extent the Fund invests in REITs concentrated
in specific geographic areas or property types, the Fund may be subject to a
greater loss as a result of adverse developments affecting such area or property
types. REITs are pooled investment vehicles with their own fees and expenses and
the Fund will indirectly bear a proportionate share of those fees and
expenses.
Currency
Risk.
The Fund’s exposure to foreign currencies subjects the Fund to the risk that
those currencies will decline in value relative to the U.S. Dollar. Currency
rates in foreign countries may fluctuate significantly over short periods of
time for any number of reasons, including changes in interest rates and the
imposition of currency controls or other political developments in the U.S. or
abroad.
Debt
Securities Risk.
◦Credit
Risk.
Debt securities are subject to the risk of an issuer’s (or other party’s)
failure or inability to meet its obligations under the security. Multiple
parties may have obligations under a debt security. An issuer or borrower may
fail to pay principal and interest when due. A guarantor, insurer or credit
support provider may fail to provide
the
agreed upon protection. A counterparty to a transaction may fail to perform its
side of the bargain. An intermediary or agent interposed between the investor
and other parties may fail to perform the terms of its service. Also,
performance under a debt security may be linked to the obligations of other
persons who may fail to meet their obligations. The credit risk associated with
a debt security could increase to the extent that the Fund’s ability to benefit
fully from its investment in the security depends on the performance by multiple
parties of their respective contractual or other obligations. The market value
of a debt security is also affected by the market’s perception of the
creditworthiness of the issuer.
◦Interest
Rate Risk.
The income generated by debt securities owned by the Fund will be affected by
changing interest rates. Generally, the value of fixed income securities will
change inversely with changes in interest rates. As interest rates rise, the
market value of fixed income securities tends to decrease. Conversely, as
interest rates fall, the market value of fixed income securities tends to
increase. Securities with longer durations tend to be more sensitive to changes
in interest rates, usually making them more volatile than securities with
shorter durations. Falling interest rates may cause an issuer to redeem or
“call” a security before its stated maturity, which may result in the Fund
having to reinvest the proceeds in lower yielding securities. Rising interest
rates across the U.S. and international financial systems may result in
fixed-income markets becoming more volatile. A rise in rates tends to have a
greater impact on the prices of longer term or duration securities. Interest
rates have recently been historically low, so the Fund faces a heightened risk
that rates may rise.
Emerging
Markets Risk.
The Fund’s investments in emerging market securities impose risks different
from, or greater than, risks of investing in foreign developed countries. These
risks include: smaller market capitalization of securities markets, which may
suffer periods of relative illiquidity; significant price volatility; and
restrictions on foreign investment. Emerging market countries may have
relatively unstable governments and may present the risk of nationalization of
businesses, expropriation, and confiscatory taxation or, in certain instances,
reversion to closed market, centrally planned economies. Emerging market
economies may also experience more severe downturns. In addition, foreign
investors may be required to register or pay taxes or tariffs on the proceeds of
securities sales; future economic or political crises could lead to price
controls, forced mergers, expropriation or confiscatory taxation, seizure,
nationalization, or creation of government monopolies. The currencies of
emerging market countries may experience significant declines against the U.S.
dollar, and devaluation may occur subsequent to investments in these currencies
by the Fund. Inflation and rapid fluctuations in inflation rates have had, and
may continue to have, negative effects on the economies and securities markets
of certain emerging market countries.
Additional
risks of emerging markets securities may include: greater social, economic and
political uncertainty and instability; more substantial governmental involvement
in the economy; less governmental supervision and regulation; unavailability of
currency hedging techniques; companies that are newly organized and small;
differences in auditing and financial reporting standards, which may result in
unavailability of material information about issuers; and less developed legal
systems. Emerging securities markets may have different clearance and settlement
procedures, which may be unable to keep pace with the volume of securities
transactions or otherwise make it difficult to engage in such transactions.
Settlement problems may cause the Fund to miss attractive investment
opportunities, hold a portion of its assets in cash pending investment, or be
delayed in disposing of a portfolio security. Such a delay could result in
possible liability to a purchaser of the security. In addition, less information
may be available about companies in emerging markets than in developed markets
because such emerging markets companies may not be subject to accounting,
auditing and financial reporting standards or to other regulatory practices
required by U.S. companies which may lead to potential errors in index data,
index computation and/or index construction. Such conditions may impact the
ability of the Fund to buy, sell or otherwise transfer securities; adversely
affect the trading market and price for such securities; and/or cause the Fund
to decline in value.
Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests. Common
stocks, such as those held by the Fund, are generally exposed to greater risk
than other types of securities, such as preferred stock and debt obligations,
because common stockholders generally have inferior rights to receive payment
from issuers.
ETF
Risk.
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration Risk.
The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services; or (ii) market
makers
and/or liquidity providers exit the business or significantly reduce their
business activities and no other entities step forward to perform their
functions.
◦Costs
of Buying or Selling Shares. Investors
buying or selling Shares in the secondary market will pay brokerage commissions
or other charges imposed by brokers, as determined by that broker. Brokerage
commissions are often a fixed amount and may be a significant proportional cost
for investors seeking to buy or sell relatively small amounts of Shares. In
addition, secondary market investors will also incur the cost of the bid-ask
spread. The bid-ask spread varies over time for Shares based on trading volume
and market liquidity, and is generally lower if Shares have more trading volume
and market liquidity and higher if Shares have little trading volume and market
liquidity. Further, a relatively small investor base in the Fund, asset swings
in the Fund and/or increased market volatility may cause increased bid-ask
spreads. Due to the costs of buying or selling Shares, including bid-ask
spreads, frequent trading of Shares may significantly reduce investment results
and an investment in Shares may not be advisable for investors who anticipate
regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of the Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of the Shares or during periods of market
volatility. This risk is heightened in times of market volatility or periods of
steep market declines. The market price of Shares during the trading day, like
the price of any exchange-traded security, includes a “bid-ask” spread charged
by the exchange specialist, market makers, or other participants that trade the
Shares. In times of severe market disruption, the bid-ask spread can increase
significantly. At those times, Shares are most likely to be traded at a discount
to NAV, and the discount is likely to be greatest when the price of Shares is
falling fastest, which may be the time that you most want to sell your Shares.
◦Trading.
Although
Shares are listed for trading on the Exchange and may be listed or traded on
U.S. and non-U.S. stock exchanges other than the Exchange, there can be no
assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500 Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than
Shares.
Foreign
Government Risk..
The
Fund’s investment in securities issued by foreign governments or agencies or
instrumentalities of foreign governments (sovereign debt), including those that
issue sukuk through a secondary issuing vehicle, differs from debt obligations
issued by private entities in that, generally, remedies for defaults must be
pursued in the courts of the defaulting party. Legal recourse is therefore
limited. The foreign sovereign debt securities the Fund purchases involve
specific risk, including that (i) the governmental entity that controls the
repayment of sovereign debt may not be willing or able to repay the principal
and/or interest when it becomes due because of political constraints, cash flow
problems and other national economic factors; (ii) governments may default
on their sovereign debt, which may require holders of such sovereign debt to
participate in debt rescheduling or additional lending to defaulting
governments; and (iii) there are no bankruptcy proceedings by which defaulted
sovereign debt may be collected in whole or in part. These and other factors can
make investments in the Fund more volatile and potentially less liquid than
other types of investments that track an index of domestic
securities.
A
country whose exports are concentrated in a few commodities could be vulnerable
to a decline in the international price of such commodities. Another factor
bearing on the ability of a country to repay sovereign debt is the level of the
country’s international reserves. Fluctuations in the level of these reserves
can affect the amount of foreign exchange readily available for external debt
payments and, thus, could have a bearing on the capacity of the country to make
payments on its sovereign debt. Also, there can be no assurance that the holders
of commercial bank loans to the same sovereign entity may not contest payments
to the holders of sovereign debt in the event of default under commercial bank
loan agreements.
Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums and discounts greater than those of ETFs holding only domestic
securities.
Foreign
Securities Risk.
Certain foreign countries may impose exchange control regulations, restrictions
on repatriation of profit on investments or of capital invested, local taxes on
investments, and restrictions on the ability of issuers of non-U.S. securities
to make payments of principal and interest to investors located outside the
country, whether from currency blockage or otherwise. In addition, the Fund will
be subject to risks associated with adverse political and economic developments
in foreign countries, including seizure or nationalization of foreign deposits,
the imposition of economic sanctions, different legal systems and laws relating
to bankruptcy and creditors’ rights, and the potential inability to enforce
legal judgments, all of which could cause the Fund to lose money on its
investments in non-U.S. securities. The cost of servicing external debt will
also generally be adversely affected by rising international interest rates, as
many external debt obligations bear interest at rates which are adjusted based
upon international interest rates. Because non-U.S. securities may trade on days
when Shares are not priced, NAV may change at times when Shares cannot be
sold.
Foreign
banks and securities depositories at which the Fund holds its foreign securities
and cash may be recently organized or new to the foreign custody business and
may be subject to only limited or no regulatory oversight. Additionally, many
foreign governments do not supervise and regulate stock exchanges, brokers and
the sale of securities to the same extent as does the United States and may not
have laws to protect investors that are comparable to U.S. securities laws.
Settlement and clearance procedures in certain foreign markets may result in
delays in payment for or delivery of securities not typically associated with
settlement and clearance of U.S. investments.
In
recent years, the European financial markets have experienced volatility and
adverse trends due to concerns about economic downturns in, or rising government
debt levels of, several European countries. These events may spread to other
countries in Europe, including countries that do not use the Euro. These events
may affect the value and liquidity of certain of the Fund’s
investments.
General
Market Risk.
Securities markets and individual securities may increase or decrease in value.
Security prices may fluctuate widely over short or extended periods in response
to market or economic news and conditions, and securities markets also tend to
move in cycles. If there is a general decline in the securities markets, it is
possible your investment may lose value regardless of the individual results of
the companies in which the Fund invests. The magnitude of up and down price or
market fluctuations over time is sometimes referred to as “volatility”, and it
can be significant. In addition, different asset classes and geographic markets
may experience periods of significant correlation with each other. As a result
of this correlation, the securities and markets in which the Fund invests may
experience volatility due to market, economic, political or social events and
conditions that may not readily appear to directly relate to such securities,
the securities’ issuer or the markets in which they trade.
Geographic
Investment Risk.
To the extent the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region.
◦Risks
of Investing in Saudi Arabia.
The ability of foreign investors to invest in Saudi Arabian issuers is new and
untested. Such ability could be restricted or revoked by the Saudi Arabian
government at any time, and unforeseen risks could materialize due to foreign
ownership in such securities. The economy of Saudi Arabia is dominated by
petroleum exports. A sustained decrease in petroleum prices could have a
negative impact on all aspects of the economy. Investments in securities of
Saudi Arabian issuers involves risks not typically associated with investments
in securities of issuers in more developed countries that may negatively affect
the value of the Fund’s investments. Such heightened risks may include, among
others, expropriation and/or nationalization of assets, restrictions on and
government intervention in international trade, confiscatory taxation, political
instability, including authoritarian and/ or military involvement in
governmental decision making, armed conflict, crime and instability as a result
of religious, ethnic and/or socioeconomic unrest. There remains the possibility
that instability in the larger Middle East region could adversely impact the
economy of Saudi Arabia, and there is no assurance of political stability in
Saudi Arabia.
◦Risks
of Investing in the United Arab Emirates.
The economy of the United Arab Emirates (“UAE”) is dominated by petroleum
exports. A sustained decrease in commodity prices, particularly oil and natural
gas, could have a negative impact on all aspects of the UAE economy. The non-oil
UAE economy, which is concentrated in Dubai’s service sector, could be affected
by declines in tourism, real estate, banking and re-export trade. The UAE and
the governments of the individual emirates exercise substantial influence over
many aspects of the private sector. Governmental actions could have a
significant effect on economic conditions in the UAE, which could adversely
affect the value of the Fund. In addition, recent political instability and
protests in North Africa and the Middle East have caused significant disruptions
to many industries. Continued political and social unrest in these areas may
adversely affect the value of the Fund.
Market
Capitalization Risk.
◦Large-Capitalization
Investing. The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing. The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole. Some mid-capitalization companies have limited product lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization
companies.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. Some small-capitalization companies have limited
product lines, markets, and financial and managerial resources and tend to
concentrate on fewer geographical markets relative to larger-capitalization
companies. There is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and
earnings.
Models
and Data Risk. The
composition of the Index is heavily dependent on proprietary quantitative models
as well as information and data supplied by third parties (“Models and Data”).
When Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon may lead to the inclusion or exclusion of securities from the
Index universe that would have been excluded or included had the Models and Data
been correct and complete. If the composition of the Index reflects such errors,
the Fund’s portfolio can be expected to also reflect the errors.
Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may invest a greater percentage of its
assets in the securities of a single issuer or a smaller number of issuers than
if it was a diversified fund. As a result, a decline in the value of an
investment in a single issuer or a smaller number of issuers could cause the
Fund’s overall value to decline to a greater degree than if the Fund held a more
diversified portfolio. This may increase the Fund’s volatility and have a
greater impact on the Fund’s performance.
Passive
Investment Risk.
The Fund invests in the securities included in, or representative of, its Index
regardless of its investment merit. The Fund does not attempt to outperform its
Index or take defensive positions in declining markets. As a result, the Fund’s
performance may be adversely affected by a general decline in the market
segments relating to its Index.
Recent
Market Events Risk.
U.S.
and international markets have experienced significant periods of volatility in
recent years and months due to a number of economic, political and global macro
factors including the impact of COVID-19 as a global pandemic and related public
health crisis, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, rising inflation, trade tensions, and the threat of tariffs
imposed by the U.S. and other countries. In particular, the global spread of
COVID-19 has resulted in disruptions to business operations and supply chains,
stress on the global healthcare system, growth concerns in the U.S. and
overseas, staffing shortages and the inability to meet consumer demand, and
widespread concern and uncertainty. The global recovery from COVID-19 is
proceeding at slower than expected rates due to the emergence of variant strains
and may last for an extended period of time. Health
crises and related political, social and economic disruptions caused by the
spread of COVID-19 may also exacerbate other pre-existing political, social and
economic risks in certain countries. These developments, as well as other
events, could result in further market volatility and negatively affect
financial asset prices, the liquidity of certain securities and the normal
operations of securities exchanges and other markets, despite government efforts
to address market disruptions. As a result of continuing political tensions and
armed conflicts, including the war between Ukraine and Russia, the U.S. and the
European Union imposed sanctions on certain Russian individuals and companies,
including certain financial institutions, and have limited certain exports and
imports to and from Russia. The war has contributed to recent market volatility,
and may continue to do so. As a result, the risk environment remains elevated.
The Adviser and the Sub-Adviser will monitor developments and seek to manage the
Fund in a manner consistent with achieving the Fund’s investment objective, but
there can be no assurance that they will be successful in doing so.
Recently
Organized Fund Risk. The
Fund is a recently organized, non-diversified management investment company
with a limited operating history. As a result, prospective investors
have a limited track record or history on which to base their
investment decision. There can be no assurance that the Fund will grow to or
maintain an economically viable size.
Sector
Risk. To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors.
◦Information
Technology Sector Risk.
The Fund may invest in companies in the information technology sector, and
therefore the performance of the Fund could be negatively impacted by events
affecting this sector. Market or economic factors impacting information
technology companies and companies that rely heavily on technological advances
could have a significant effect on the value of the Fund’s investments. The
value of stocks of information technology companies and companies that rely
heavily on technology is particularly vulnerable to rapid changes in technology
product cycles, rapid product obsolescence, government regulation and
competition, both domestically and internationally, including competition from
foreign competitors with lower production costs. Stocks of information
technology companies and companies that rely heavily on technology, especially
those of smaller, less-seasoned companies, tend to be more volatile than the
overall market. Information technology companies are heavily dependent on patent
and intellectual property rights, the loss or impairment of which may adversely
affect profitability.
◦Consumer
Discretionary Sector Risk.
The Fund may invest in companies in the consumer discretionary sector, and
therefore the performance of the Fund could be negatively impacted by events
affecting this sector. The success of consumer product manufacturers and
retailers is tied closely to the performance of domestic and international
economies, interest rates, exchange rates, competition, consumer confidence,
changes in demographics and consumer preferences. Companies in the consumer
discretionary sector depend heavily on disposable household income and consumer
spending, and may be strongly affected by social trends and marketing campaigns.
These companies may be subject to severe competition, which may have an adverse
impact on their profitability.
Sharia-Compliant
Investing Risk.
Islamic principles restrict the Fund’s ability to invest in certain market
sectors, such as financial companies and conventional fixed-income securities,
and reduce the size of the overall universe in which a Fund can invest. The
strategy to reduce the investable universe may limit investment opportunities
and adversely affect a Fund’s performance, especially in comparison to a more
diversified fund. Because Islamic principles preclude the use of interest-paying
instruments, cash reserves do not earn income.
Sukuk
Risk. Sukuk
are financial certificates that are similar to conventional bonds but are
structured to comply with Sharia law and its investments principles, which,
among other things, prohibit charging or paying interest. Sukuk involve many of
the same risks that conventional bonds incur such as credit risk and interest
rate risk. In addition to these risks, there are certain risks specific to
sukuk. Sukuk represent undivided shares in the ownership of certificates and
such certificates are linked to a specific investment activity including, but
not limited to, tangible assets or the contractual payment obligations of the
sukuk issuer. Generally, issuers of sukuk include, but are not limited to,
international financial institutions, foreign governments and agencies or
instrumentalities of foreign governments that issue the sukuk through a
secondary issuing vehicle such as a trust. No collateral is pledged as security
for the sukuk. As unsecured investments, sukuk are backed only by the credit of
the issuer or issuing vehicle, which may be a vehicle that holds no other
assets. Sukuk are thus subject to the risk that the issuer or issuing vehicle
may not be able to repurchase the sukuk at the agreed upon date for the agreed
upon price, if at all. Sukuk are also subject to the risks associated with
developing and emerging market economies, which include, among others,
inconsistent accounting and legal principles. The process to resolve a default
on sukuk may take longer than resolving a default on conventional bonds. It is
possible that interpretations of Sharia law by courts or scholars can evolve in
ways that may affect the free transferability of sukuk. While the sukuk market
has grown significantly in recent years, there may be times when the market is
illiquid and it is difficult for the Fund to make an investment in or dispose of
sukuk. Unlike conventional bonds, sukuk are generally held to maturity and
trading is limited to the primary market.
Tax
Risk.
To qualify for the favorable tax treatment generally available to RICs, the Fund
must satisfy certain diversification requirements. In particular, the Fund
generally may not acquire a security if, as a result of the acquisition, (i)
more than 50% of the value of the Fund’s assets would be invested in (a) issuers
in which the Fund has, in each case, invested more than 5% of the Fund’s assets
or (b) issuers more than 10% of whose outstanding voting securities are owned by
the Fund or (ii) more than 25% of the value of the Fund’s assets would be
invested in (a) the securities of any one issuer. Given the concentration of the
Index in a relatively small number of securities, it may not always be possible
for the Fund to fully implement a replication strategy or a representative
sampling strategy while satisfying these diversification requirements. The
Fund’s efforts to satisfy the diversification requirements may affect the Fund’s
execution of its investment strategy and may cause the Fund’s return to deviate
from that of the Index, and the Fund’s efforts to replicate or represent the
Index may cause it inadvertently to fail to satisfy the diversification
requirements. If the Fund were to fail to satisfy the diversification
requirements,
it could incur penalty taxes and be forced to dispose of certain assets, or it
could fail to qualify as a RIC. If the Fund were to fail to qualify as a RIC, it
would be taxed in the same manner as an ordinary corporation, and distributions
to its shareholders would not be deductible by the Fund in computing its taxable
income.
Tracking
Error Risk. As
with all index funds, the performance of the Fund and its Index may differ from
each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index. The use of sampling techniques
may affect the Fund’s ability to achieve close correlation with its Index. The
Fund may use a representative sampling strategy to achieve its investment
objective, if the Sub-Adviser believes it is in the best interests of the Fund,
which generally can be expected to produce a greater non-correlation
risk.
Underlying
Index Risk.
Neither the Adviser nor the Index Provider is able to guarantee the continuous
availability or timeliness of the production of the Index. The calculation and
dissemination of Index values may be delayed if the information technology or
other facilities of the Index Provider, calculation agent, data providers and/or
relevant stock exchange malfunction for any reason. A significant delay may
cause trading in shares of the Fund to be suspended. Errors in Index data,
computation and/or the construction in accordance with its methodology may occur
from time to time and may not be identified and corrected by the Index Provider,
calculation agent or other applicable party for a period of time or at all,
which may have an adverse impact on the Fund and its shareholders.
Additional
Information About Each Index
S&P
Dow Jones Indices LLC is the index provider and calculation agent for each Index
(“S&P” or, as previously defined, the “Index Provider”). S&P Dow Jones
Indices LLC is not affiliated with the Funds, the Adviser, the Sub-Adviser, the
Funds’ distributor, or any of their respective affiliates. The Index Provider
provides information to the Funds about the constituents of the Indexes and does
not provide investment advice with respect to the desirability of investing in,
purchasing, or selling securities.
Sharia
Compliance
Islamic
religious law, commonly known as “Sharia,” has certain restrictions regarding
finance and commercial activities permitted for Muslims, including interest
restrictions and prohibited industries. Each Fund may utilize a liquidation
period of up to 90 days to exit its position in holdings that are deemed to be
non-Sharia compliant. This liquidation period may only be utilized to minimize
liquidation costs.
S&P
500 Shariah Industry Exclusions Index. The
S&P 500 Shariah Industry Exclusions Index is composed of the constituents of
the S&P 500 Shariah Index other than those from the following
sub-industries: Aerospace & Defense, Financial Exchanges & Data, and
Data Processing & Outsourced Services. The S&P 500 Shariah Index
includes all Sharia-compliant constituents of the S&P 500 Index.
Constituents of the S&P 500 Shariah Index have been screened to exclude
companies with non-compliant business activities (companies that offer products
and services that are not compliant with Sharia law such as gambling, alcohol or
tobacco) and to include companies compliant with certain accounting-based
financial ratios (companies must satisfy financial ratios governing leverage,
cash, and the share of revenues derived from non-compliant activities), as
described below. Ratings Intelligence Partners, an independent
London/Kuwait-based consulting company, provides the Sharia screens and filters
the S&P 500 Shariah Index based on these screens. Ratings Intelligence
Partners has a team of qualified Islamic researchers who work directly with a
Sharia supervisory board of five Islamic scholars that interprets business
issues and recommends actions related to the constituents of the S&P 500
Shariah Index.
Companies
that receive income in excess of 5% of its total revenue from Sharia-prohibited
business activities are removed from the list of companies eligible for
inclusion in the S&P 500 Shariah Index. Sharia-prohibited business
activities include:
•Advertising
of all non-Islamic activities;
•Media
& Entertainment (certain producers, distributors and broadcasters of music,
movies, television shows and musical radio shows and cinema
operators);
•Alcohol
production or sale;
•Cloning;
•Conventional
Finance (except: Islamic Banks, Islamic Financial Institutions and Islamic
Insurance Companies);
•Casino
management and gambling;
•Pork-related
products or production, packaging, and process or any other activity related to
pork;
•Pornography;
•Tobacco
manufacturing or sale; and
•Trading
of gold and silver as cash on deferred basis.
After
companies have been screened by their business activities, the remaining
companies’ finances are further examined to ensure they are Sharia compliant.
Only those companies that satisfy the following financial ratios will be
considered Sharia compliant:
•Debt
is less than 33.333% of total assets;
•Cash
and interest-bearing items are less than 33.333% of total assets;
•Accounts
receivable and cash are less than 50% of total assets; and
•Total
interest and non-compliant activities income are less than 5% of total
revenue.
The
S&P 500 Shariah Industry Exclusions Index constituents are reviewed on an
ongoing and monthly basis to ensure they continue to be Sharia-compliant
companies. The S&P 500 Shariah Industry Exclusions Index is reconstituted
monthly.
Dow
Jones Sukuk Total Return (ex-Reinvestment) Index. Only
sukuk, as screened by Thomson Reuters, is eligible for the Dow Jones Sukuk Total
Return (ex-Reinvestment)
Index.
The Index includes fixed and floating rate coupon instruments. The Dow Jones
Sukuk Total Return (ex-Reinvestment)
Index
constituents are reviewed on an ongoing and monthly basis. The Index is
reconstituted monthly.
S&P
Global All Equity REIT Shariah Capped Index. The
S&P Global All Equity REIT Shariah Capped Index is designed to measure all
REIT securities listed in developed and emerging markets and included as
constituents of the S&P Global BMI Shariah Index, a comprehensive global
Sharia-compliant index of publicly-traded equity securities. Constituents of the
S&P Global BMI Shariah Index, and therefore constituents of the Index, have
been screened to exclude companies with non-compliant business activities
(companies that offer products and services that are not compliant with Sharia
law such as gambling, alcohol or tobacco) and to include companies compliant
with certain accounting-based financial ratios (companies must satisfy financial
ratios governing leverage, cash, and the share of revenues derived from
non-compliant activities), as described below. Ratings Intelligence Partners, an
independent London/Kuwait-based consulting company, provides the Sharia screens
and filters the S&P Global BMI Shariah Index based on these screens. Ratings
Intelligence Partners has a team of qualified Islamic researchers who work
directly with a Sharia supervisory board of five Islamic scholars that
interprets business issues and recommends actions related to the constituents of
the S&P Global BMI Shariah Index.
Companies
that receive income in excess of 5% of its total revenue from Sharia-prohibited
business activities are removed from the list of companies eligible for
inclusion in the S&P Global BMI Shariah Index. Sharia-prohibited business
activities include:
•Advertising
of all non-Islamic activities;
•Media
& Entertainment (certain producers, distributors and broadcasters of music,
movies, television shows and musical radio shows and cinema
operators);
•Alcohol
production or sale;
•Cloning;
•Conventional
Finance (except: Islamic Banks, Islamic Financial Institutions and Islamic
Insurance Companies);
•Casino
management and gambling;
•Pork-related
products or production, packaging, and process or any other activity related to
pork;
•Pornography;
•Tobacco
manufacturing or sale; and
•Trading
of gold and silver as cash on deferred basis.
After
companies have been screened by their business activities, the remaining
companies’ finances are further examined to ensure they are Sharia compliant.
Only those companies that satisfy the following financial ratios will be
considered Sharia compliant:
•Debt
is less than 33.333% of total assets;
•Cash
and interest-bearing items are less than 33.333% of total assets;
•Accounts
receivable and cash are less than 50% of total assets; and
•Total
interest and non-compliant activities income are less than 5% of total
revenue.
The
Shariah REIT Index constituents are reviewed on an ongoing and monthly basis to
ensure they continue to be Sharia-compliant companies. Because the Shariah REIT
Index is rebalanced and reconstituted monthly, any portfolio security determined
to be non-Sharia-compliant will be held for no longer than 30 days.
Dividend
Purification
If
a company derives a portion of its total income from interest income and/or
Sharia-prohibited business activities, Sharia investment principles state that
this portion must be “purified” from the distributions paid out to shareholders.
Shareholders
may
purify their portion of prohibited income received by absolving an equivalent
amount to charitable purposes. Accordingly, for investors seeking to purify
prohibited income received from the Funds, if any, ShariaPortfolio will publish
an income purification calculator on the Funds’ website, www.sp-funds.com, to
assist Sharia ETF and Global REIT ETF investors in calculating the per share
amount to be purified on a monthly basis. The Sukuk ETF does not require
purification because sukuk are by definition Sharia-compliant.
ShariaPortfolio,
in conjunction with the Sharia Advisor (defined below), determines such amount
by evaluating income earned from Sharia-prohibited business activities. In
making such determination, ShariaPortfolio and the Sharia Advisor consider the
amount of prohibited income in relation to the number of shares of the company
held by a Fund and the Fund’s holding period of such shares. A company may have
prohibited income whether or not the company’s profits have been distributed and
whether or not the company has declared a profit or suffered a loss.
Such
information will generally be posted prior to each Fund’s scheduled distribution
of any dividend income to shareholders. For additional information about the
Funds’ distribution policies, see “Dividends, Distributions and Taxes” below in
this Prospectus.
PORTFOLIO
HOLDINGS INFORMATION
Information
about each Fund’s daily portfolio holdings is available on the Funds’ website at
www.sp-funds.com. A complete description of the Funds’ policies and procedures
with respect to the disclosure of the Funds’ portfolio holdings is available in
the Funds’ Statement of Additional Information (“SAI”).
MANAGEMENT
Investment
Adviser
Toroso
Investments, LLC, located at 898 N. Broadway, Suite 2, Massapequa, New York
11758, is an SEC-registered investment adviser and a Delaware limited liability
company. Toroso was founded in and has been managing investment companies since
March 2012 and is dedicated to understanding, researching and managing assets
within the expanding ETF universe. As of February 28, 2022, Toroso had assets
under management of approximately $7.7 billion and served as the investment
adviser or sub-adviser for 50 registered funds.
Toroso
serves as investment adviser to the Funds and has overall responsibility for the
general management and administration of the Funds pursuant to an investment
advisory agreement with the Trust, on behalf of each Fund (the “Advisory
Agreement”). The Adviser provides oversight of the Sub-Adviser and review of the
Sub-Adviser’s performance. The Adviser also arranges for sub-advisory, transfer
agency, custody, fund administration, and all other related services necessary
for the Funds to operate.
For
the services it provides to the Funds, each Fund pays the Adviser a unified
management fee, which is calculated daily and paid monthly, at an annual rate
based on the applicable Fund’s average daily net assets as set forth in the
table below.
|
|
|
|
|
|
Name
of Fund |
Management
Fee |
Sharia
ETF |
0.49% |
Sukuk
ETF |
0.59%
1 |
Global
REIT ETF |
0.69% |
1
Effective
November 30, 2021 the Board approved an amendment to the investment advisory
agreement between the Trust, on behalf of the Sukuk ETF, and the Adviser,
pursuant to which the Adviser agreed to reduce the Sukuk ETF’s management fee
from 0.65% to 0.59%.
For
the fiscal year ended November 30, 2021, the Adviser received an aggregate fee
of 0.49% from the Sharia ETF, an aggregate fee of 0.65% from the Sukuk ETF, and
an aggregate fee of 0.69% from the Global REIT ETF.
Under
the Advisory Agreement, in exchange for a single unitary management fee from the
Fund, the Adviser has agreed to pay all expenses incurred by each Fund except
for interest charges on any borrowings, dividends and other expenses on
securities sold short, taxes, brokerage commissions and other expenses incurred
in placing orders for the purchase and sale of securities and other investment
instruments, acquired fund fees and expenses, accrued deferred tax liability,
extraordinary expenses, distribution fees and expenses paid by the Fund under
any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act, and the
unified management fee payable to the Adviser (collectively, the “Excluded
Expenses”).
Investment
Sub-Adviser
ShariaPortfolio,
Inc, 1331 International Pkwy, Suite 2291, Lake Mary, Florida 32746, serves as
the investment sub-adviser to the Funds pursuant to a sub-advisory agreement
between ShariaPortfolio and the Adviser (the “Sub-Advisory Agreement”) and is
responsible for ensuring the Funds follow the character of each applicable Index
and providing advice with regard to the interpretation of and compliance with
Sharia principles. For its services, ShariaPortfolio is paid a fee by the
Adviser, which fee is calculated daily and paid monthly, at an annual rate of
0.02% of each Fund’s average daily net assets. As of February 28, 2022,
ShariaPortfolio had assets under management of approximately $350.47
million.
A
discussion regarding the basis for the Board’s approval of the Sharia ETF’s and
Sukuk ETF’s Investment Advisory Agreement and Sub-Advisory Agreement is
available in the Funds’ semi-annual report to shareholders for the reporting
period ended May 31, 2020.
A
discussion regarding the basis for the Board’s approval of the Global REIT ETF’s
Investment Advisory Agreement and Sub-Advisory Agreement is available in the
Funds’ semi-annual report to shareholders for the reporting period ended May 31,
2021.
Portfolio
Managers
Charles
A. Ragauss, CFA, Portfolio Manager for the Adviser, and Naushad Virji, Portfolio
Manager for the Sub-Adviser, have been portfolio managers of the Sharia ETF and
Sukuk ETF since their inception in December 2019, and each have been portfolio
managers of the Global REIT ETF since its inception in December
2020.
Michael
Venuto, Portfolio Manager for the Adviser, has been a portfolio manager of the
Sharia ETF and Sukuk ETF since March 2021, and has been a portfolio manager of
the Global REIT ETF since its inception in December 2020.
Michael
Venuto, Chief Investment Officer for the Adviser
Mr.
Venuto is a co-founder and has been the Chief Investment Officer of the Adviser
since 2012. Mr. Venuto is an ETF industry veteran with over a decade of
experience in the design and implementation of ETF-based investment strategies.
Previously, he was Head of Investments at Global X Funds where he provided
portfolio optimization services to institutional clients. Before that, he was
Senior Vice President at Horizon Kinetics where his responsibilities included
new business development, investment strategy and client and strategic
initiatives.
Charles
A. Ragauss, CFA, Portfolio Manager for the Adviser
Mr.
Ragauss serves as Portfolio Manager of the Adviser, having joined the Adviser in
September 2020. Mr. Ragauss previously served as Chief Operating Officer and in
other roles at CSat Investment Advisory, L.P. from April 2016 to September 2020.
Previously, Mr. Ragauss was Assistant Vice President at Huntington National Bank
(“Huntington”), where he was Product Manager for the Huntington Funds and
Huntington Strategy Shares ETFs, a combined fund complex of almost $4 billion in
assets under management. At Huntington, he led ETF development bringing to
market some of the first actively managed ETFs. Mr. Ragauss joined Huntington in
2010. Mr. Ragauss attended Grand Valley State University where he received his
Bachelor of Business Administration in Finance and International Business, as
well as a minor in French. He is a member of both the National and West Michigan
CFA societies and holds the CFA designation.
CFA®
is a registered trademark owned by the CFA Institute.
Naushad
Virji, Portfolio Manager for the Sub-Adviser
Naushad
Virji, Chief Executive Officer at ShariaPortfolio, launched ShariaPortfolio in
2014 and ShariaPortfolio Canada, Inc. in 2019. He has also been Chief Executive
Officer at Virji Investments, Inc., a registered investment advisor firm, since
2003. Mr. Virji attended the University of Florida where he received a degree in
business administration.
The
Funds’ SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that a Portfolio Manager manages, and the
Portfolio Managers’ ownership of Shares.
Sharia
Advisor
Raqaba
LLC
has
been appointed as the Sharia adviser (the “Sharia Advisor”) to advise
ShariaPortfolio with regard to its interpretation of and compliance with Sharia
principles. The Sharia Advisor specializes in providing Sharia compliance
services to the financial services sector and provides its services in
accordance with the collective decisions of Islamic jurisprudence, Islamic
financial standards of Accounting and Auditing Organization for Islamic
Financial Institutions (AAOIFI) and the Islamic Financial Services Board (IFSB),
international financial reporting standards and local regulatory frameworks.
The
Sharia Advisor performs annual Sharia audits to assess the Sharia compliance of
each Fund. The Sharia Advisor does not make investment decisions, provide
investment advice, or otherwise act in the capacity of an investment adviser to
the Funds. Additionally, the Sharia Advisor is not involved in the maintenance
of any of the Indices and does not otherwise act in the capacity of an index
provider.
FUND
SPONSOR
The
Adviser has entered into an Agreement with SP Funds Management, LLC (the “Fund
Sponsor”), under which the Fund Sponsor assumes the obligation of the Adviser to
pay all expenses of the Funds, except Excluded Expenses (such expenses of each
Fund, except Excluded Expenses, the “Unitary Expenses”). The Fund Sponsor is
controlled by, and is therefore an affiliated entity of, ShariaPortfolio.
Although the Sponsor has agreed to be responsible for the Unitary Expenses, the
Adviser retains the ultimate obligation to each Fund to pay such expenses. For
assuming the payment obligations, the Adviser has agreed to pay to the Sponsor
the profits, if any, generated by each Fund’s unified management fee. The
Sponsor does not make investment decisions, provide investment advice,
participate in the unified management of the Funds, or otherwise act in the
capacity of an investment adviser to the Funds. The Fund Sponsor is not
involved in the maintenance of any of the Indices and does not act in the
capacity of an index provider.
HOW
TO BUY AND SELL SHARES
Each
Fund issues and redeems Shares only in Creation Units at the NAV per share next
determined after receipt of an order from an AP. Only APs may acquire Shares
directly from a Fund, and only APs may tender their Shares for redemption
directly to a Fund, at NAV. APs must be a member or participant of a clearing
agency registered with the SEC and must execute a Participant Agreement that has
been agreed to by the Distributor (defined below), and that has been accepted by
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.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Individual Shares are listed for trading on the secondary market on the Exchange
and can be bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares, and receive less than NAV when you sell those Shares.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book-entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Funds impose no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Funds, are an essential part of the ETF process and
help keep Share trading prices in line with the NAV. As such, the Funds
accommodate frequent purchases and redemptions by APs. However, the Board has
also determined that frequent purchases and redemptions for cash may increase
tracking error and portfolio transaction costs and may lead to the realization
of capital gains. To minimize these potential consequences of frequent purchases
and redemptions, the Funds employ fair value pricing and may impose transaction
fees on purchases and redemptions of Creation Units to cover the custodial and
other costs incurred by the Funds in effecting trades. In addition, the Funds
and the Adviser reserve the right to reject any purchase order at any
time.
Determination
of Net Asset Value
Each
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern Time, each day
the NYSE is open for business. The NAV for each Fund is calculated by dividing
the Fund’s net assets by its Shares outstanding.
In
calculating its NAV, each Fund generally values its assets on the basis of
market quotations, last sale prices, or estimates of value furnished by a
pricing service or brokers who make markets in such instruments. The values of
non-U.S. dollar denominated securities are converted to U.S. dollars using
foreign currency exchange rates generally determined as of 4:00 p.m., London
time. If such information is not available for a security held by a Fund or is
determined to be unreliable, the security will be valued at fair value estimates
under guidelines established by the Board (as described below).
Fair
Value Pricing
The
Board has adopted procedures and methodologies to fair value Fund securities
whose market prices are not “readily available” or are deemed to be unreliable.
For example, such circumstances may arise when: (i) a security has been delisted
or has had its trading halted or suspended; (ii) a security’s primary pricing
source is unable or unwilling to provide a price; (iii) a security’s primary
trading market is closed during regular market hours; or (iv) a security’s value
is materially affected by events occurring after the close of the security’s
primary trading market. Generally, when fair valuing a security, the Funds will
take into account all reasonably available information that may be relevant to a
particular valuation including, but not limited to, fundamental analytical data
regarding the issuer, information relating to the issuer’s business, recent
trades or offers of the security, general and/or specific market conditions, and
the specific facts giving rise to the need to fair value the security. Fair
value determinations are made in good faith and in accordance with the fair
value methodologies included in the Board-adopted valuation procedures. Due to
the subjective and variable nature of fair value pricing, there can be no
assurance that a Fund will be able to obtain the fair value assigned to the
security upon the sale of such security.
Investments
by Other Registered Investment Companies in the Funds
Section 12(d)(1)
of the 1940 Act restricts investments by registered investment companies in the
securities of other investment companies, including Shares. Registered
investment companies are permitted to invest in the Funds beyond the limits set
forth in Section 12(d)(1), subject to certain terms and conditions set forth in
an SEC exemptive order issued to the Trust or rule under the 1940 Act, including
that such investment companies enter into an agreement with the
Funds.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Funds. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Funds is available through certain broker-dealers.
If you are interested in enrolling in householding and receiving a single copy
of prospectuses and other shareholder documents, please contact your
broker-dealer. If you are currently enrolled in householding and wish to change
your householding status, please contact your broker-dealer.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
Each
Fund will generally declare and distribute net investment income, if any, at
least monthly, and any net realized capital gains to its shareholders at least
annually.
Each
Fund will declare and pay income and capital gain distributions, if any, in
cash. Distributions in cash may be reinvested automatically in additional whole
Shares only if the broker through whom you purchased Shares makes such option
available. Your broker is responsible for distributing the income and capital
gain distributions to you.
Because
the REITs in which the Global REIT ETF invests do not provide complete
information about the taxability of their distributions until after the calendar
year-end, the Global REIT ETF may not be able to determine how much of its
distributions are taxable to shareholders until after the January 31st deadline
for issuing Form 1099-DIV. As a result, the Global REIT ETF may request
permission from the Internal Revenue Service (“IRS”) each year for an extension
of time to issue Form 1099-DIV until February 28th.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Funds. Your investment
in a Fund may have other tax implications. Please consult your tax advisor about
the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
Each
Fund intends to qualify each year for treatment as a regulated investment
company (a “RIC”) under the Code. If it meets certain minimum distribution
requirements, a RIC is not subject to tax at the fund level on income and gains
from investments that are timely distributed to shareholders. However, a Fund’s
failure to qualify as a RIC or to meet minimum distribution requirements would
result (if certain relief provisions were not available) in fund-level taxation
and, consequently, a reduction in income available for distribution to
shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when a Fund makes distributions, when you sell your Shares listed
on the Exchange, and when you purchase or redeem Creation Units (institutional
investors only).
The
following general discussion of certain U.S. federal income tax consequences is
based on provisions of the Code and the regulations issued thereunder as in
effect on the date of this Prospectus. New legislation, as well as
administrative changes or court decisions, may significantly change the
conclusions expressed herein, and may have a retroactive effect with respect to
the transactions contemplated herein.
Taxes
on Distributions
For
federal income tax purposes, distributions of net investment income are
generally taxable to shareholders as ordinary income or qualified dividend
income. Taxes on distributions of net capital gains (if any) are determined by
how long a Fund owned the investments that generated them, rather than how long
a shareholder has owned their Shares. Sales of assets held by a Fund for more
than one year generally result in long-term capital gains and losses, and sales
of assets held by such Fund for one year or less generally result in short-term
capital gains and losses. Distributions of a Fund’s net capital gain (the excess
of net long-term capital gains over net short-term capital losses) that are
reported by such Fund as capital gain dividends (“Capital Gain Dividends”) will
be taxable as long-term capital gains to shareholders. Distributions of
short-term capital gain will generally be taxable to shareholders as ordinary
income. Dividends and distributions are generally taxable to you whether you
receive them in cash or reinvest them in additional Shares.
Distributions
reported by a Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided certain holding period and other requirements are met. “Qualified
dividend income” generally is income derived from dividends paid by U.S.
corporations or certain foreign corporations that are either incorporated in a
U.S. possession or eligible for tax benefits under certain U.S. income tax
treaties. In addition, dividends that a Fund receives in respect of stock of
certain foreign corporations may be qualified dividend income if that stock is
readily tradable on an established U.S. securities market. Corporate
shareholders may be entitled to a dividends-received deduction for the portion
of dividends they receive from a Fund that are attributable to dividends
received by the Fund from U.S. corporations, subject to certain limitations.
Shortly
after the close of each calendar year, you will be informed of the character of
any distributions received from a Fund.
In
addition to the federal income tax, certain individuals, trusts, and estates may
be subject to a Net Investment Income (“NII”) tax of 3.8%. The NII tax is
imposed on the lesser of: (i) a taxpayer’s investment income, net of deductions
properly allocable to such income; or (ii) the amount by which such taxpayer’s
modified adjusted gross income exceeds certain thresholds ($250,000 for married
individuals filing jointly, $200,000 for unmarried individuals and $125,000 for
married individuals filing separately). A Fund’s distributions are
includable in a shareholder’s investment income for purposes of this NII
tax. In addition, any capital gain realized by a shareholder upon a sale or
redemption of Fund shares is includable in such shareholder’s investment income
for purposes of this NII tax.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by a Fund before your
investment (and thus were included in the Shares’ NAV when you purchased your
Shares).
You
may wish to avoid investing in a Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable to you even
though it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
a Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. A Fund may, under certain circumstances,
report all or a portion of a dividend as an “interest-related dividend” or a
“short-term capital gain dividend,” which would generally be exempt from this
30% U.S. withholding tax, provided certain other requirements are
met.
Under
the Foreign Account Tax Compliance Act (“FATCA”), a Fund may be required to
withhold a generally nonrefundable 30% tax on (i) distributions of investment
company taxable income and (ii) distributions of net capital gain and the gross
proceeds
of a sale or redemption of Fund shares paid to (A) certain “foreign financial
institutions” unless such foreign financial institution agrees to verify,
monitor, and report to the IRS the identity of certain of its account-holders,
among other items (or unless such entity is otherwise deemed compliant under the
terms of an intergovernmental agreement between the United States and the
foreign financial institution’s country of residence), and (B) certain
“non-financial foreign entities” unless such entity certifies to the Fund that
it does not have any substantial U.S. owners or provides the name, address, and
taxpayer identification number of each substantial U.S. owner, among other
items. In December 2018, the IRS and Treasury Department released proposed
Treasury Regulations that would eliminate FATCA withholding on Fund
distributions of net capital gain and the gross proceeds from a sale or
redemption of Fund shares. Although taxpayers are entitled to rely on these
proposed Treasury Regulations until final Treasury Regulations are issued, these
proposed Treasury Regulations have not been finalized, may not be finalized in
their proposed form, and are potentially subject to change. This FATCA
withholding tax could also affect a Fund’s return on its investments in foreign
securities or affect a shareholder’s return if the shareholder holds its Fund
shares through a foreign intermediary. You are urged to consult your tax adviser
regarding the application of this FATCA withholding tax to your investment in a
Fund and the potential certification, compliance, due diligence, reporting, and
withholding obligations to which you may become subject in order to avoid this
withholding tax.
Each
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale or redemption proceeds paid to
any shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that they are not subject to such withholding.
Taxes
When Shares are Sold on the Exchange
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares of a Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the sale of substantially identical Shares.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The IRS may
assert, however, that a loss that is realized upon an exchange of securities for
Creation Units may not be currently deducted under the rules governing “wash
sales” (for an AP who does not mark-to-market their holdings) or on the basis
that there has been no significant change in economic position. Persons
exchanging securities should consult their own tax advisor with respect to
whether wash sale rules apply and when a loss might be deductible.
Any
capital gain or loss realized upon redemption of Creation Units is generally
treated as long-term capital gain or loss if Shares comprising the Creation
Units have been held for more than one year and as a short-term capital gain or
loss if such Shares have been held for one year or less.
A
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. A Fund may sell
portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause a Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, a Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Taxation
of REIT Investments
The
Global REIT ETF will invest in REITs. The Tax Act treats “qualified REIT
dividends” (i.e., ordinary REIT dividends other than capital gain dividends and
portions of REIT dividends designated as qualified dividend income eligible for
capital gain tax rates) as eligible for a 20% deduction by non-corporate
taxpayers. In general, qualified REIT dividends that an investor receives
directly from a REIT are automatically eligible for the 20% qualified business
income deduction. The IRS has issued final Treasury Regulations that permit a
dividend or part of a dividend paid by a RIC and reported as a “section 199A
dividend” to be treated by the recipient as a qualified REIT dividend for
purposes of the 20% qualified business income
deduction,
if certain holding period and other requirements have been satisfied by the
recipient with respect to its Fund shares.
Foreign
Investments by a Fund
Interest
and other income received by a Fund with respect to foreign securities may give
rise to withholding and other taxes imposed by foreign countries. Tax treaties
or conventions between certain countries and the United States may reduce or
eliminate such taxes. If as of the close of a taxable year more than 50% of the
value of a Fund’s assets consists of certain foreign stock or securities, such
Fund will be eligible to elect to “pass through” to investors the amount of
foreign income and similar taxes paid by such Fund during that taxable year.
This means that investors would be considered to have received as additional
income their respective shares of such foreign taxes, but may be entitled to
either a corresponding tax deduction in calculating taxable income, or, subject
to certain limitations, a credit in calculating federal income tax. If a Fund
does not so elect, such Fund will be entitled to claim a deduction for certain
foreign taxes incurred by such Fund. A Fund (or its administrative agent) will
notify you if it makes such an election and provide you with the information
necessary to reflect foreign taxes paid on your income tax return.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in each Fund. It is not a substitute for
personal tax advice. You also may be subject to foreign, state and local tax on
Fund distributions and sales of Shares. Consult your personal tax advisor about
the potential tax consequences of an investment in Shares
under
all applicable tax laws. For more information, please see the section entitled
“Federal Income Taxes” in the SAI.
DISTRIBUTION
Foreside
Fund Services, LLC (the “Distributor”), the Funds’ distributor, is a
broker-dealer registered with the SEC. The Distributor distributes Creation
Units for the Funds on an agency basis and does not maintain a secondary market
in Shares. The Distributor has no role in determining the policies of the Funds
or the securities that are purchased or sold by the Funds. The Distributor’s
principal address is Three Canal Plaza, Suite 100, Portland, Maine
04101.
The
Board has adopted a Distribution (Rule 12b-1) Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, each Fund is authorized
to pay an amount up to 0.25% of its average daily net assets each year to pay
distribution fees for the sale and distribution of its Shares.
No
Rule 12b-1 fees are currently paid by the Funds, and there are no plans to
impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because the fees are paid out of Fund assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than certain other types of sales charges.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often Shares of a Fund traded on the Exchange at a price above
(i.e., at a premium) or below (i.e., at a discount) the NAV of the applicable
Fund can be found on the Funds’ website at www.sp-funds.com.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of, the timing,
prices, or quantities of Shares to be issued, nor in the determination or
calculation of the equation by which Shares are redeemable. The Exchange has no
obligation or liability to owners of Shares in connection with the
administration, marketing, or trading of Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser, the Sub-Adviser, and each Fund make no representation or warranty,
express or implied, to the owners of Shares or any member of the public
regarding the advisability of investing in securities generally or in the Funds
particularly.
Each
Index is a product of S&P Dow Jones Indices LLC, a division of S&P
Global, or its affiliates (“SPDJI”), and has been licensed for use by the
Adviser. Standard & Poor’s®, S&P®, and S&P 500® are registered
trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow
Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow
Jones”); and these trademarks have been licensed for use by SPDJI and
sublicensed for certain purposes by the Adviser. It is not possible to invest
directly in an index. The Funds are not sponsored, endorsed, sold or promoted by
SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively,
“S&P Dow Jones Indices”). S&P Dow Jones Indices makes no representation
or warranty, express or implied, to the owners of the Funds or any member of the
public regarding the advisability of investing in securities generally or in the
Funds particularly. Past performance of an index is not an indication or
guarantee of future results. S&P Dow Jones Indices’ only relationship to the
Adviser with respect to each Index is the
licensing
of each Index and certain trademarks, service marks and/or trade names of
S&P Dow Jones Indices and/or its licensors. Each Index is determined,
composed and calculated by S&P Dow Jones Indices without regard to the
Adviser or the Funds. S&P Dow Jones Indices has no obligation to take the
needs of the Adviser or the owners of the Funds into consideration in
determining, composing or calculating each Index. S&P Dow Jones Indices is
not responsible for and has not participated in the determination of the prices,
and amount of shares of the Funds or the timing of the issuance or sale of
shares of the Funds or in the determination or calculation of the equation by
which shares of the Funds are to be converted into cash, surrendered or
redeemed, as the case may be. S&P Dow Jones Indices has no obligation or
liability in connection with the administration, marketing or trading of the
Funds. There is no assurance that investment products based on each Index will
accurately track index performance or provide positive investment returns.
S&P Dow Jones Indices LLC is not an investment or tax advisor. A tax advisor
should be consulted to evaluate the impact of any tax-exempt securities on
portfolios and the tax consequences of making any particular investment
decision. Inclusion of a security within an index is not a recommendation by
S&P Dow Jones Indices to buy, sell, or hold such security, nor is it
considered to be investment advice.
S&P
DOW JONES INDICES DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR
THE COMPLETENESS OF EACH INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION,
INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING
ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL
NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS
THEREIN. S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS
OF THE FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF EACH INDEX OR WITH
RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN
NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT,
SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT
LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY
HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT,
STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY
AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND THE ADVISER,
OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
FINANCIAL
HIGHLIGHTS
The
Financial Highlights table is intended to help you understand each Fund’s
performance for the fiscal year/period shown. Certain information reflects
financial results for a single Fund share. The total returns in the table
represents the rate that an investor would have earned on an investment in a
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Tait, Weller & Baker LLP, the Funds’
independent registered public accounting firm, whose report, along with the
Funds’ financial statements, is included in the Funds’ annual report, which is
available upon request.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sharia
ETF |
|
|
|
|
FINANCIAL
HIGHLIGHTS For a capital share outstanding throughout the period |
|
|
|
|
|
|
|
Year
Ended November 30, 2021 |
|
Period
Ended
November
30,
2020(1) |
|
|
|
|
|
|
Net
asset value, beginning of period/year |
$ |
24.26 |
|
|
$ |
20.00 |
|
|
|
|
|
|
|
Income
from Investment Operations: |
|
|
|
|
Net
investment income (loss)
(2) |
0.17 |
|
|
0.22 |
|
|
Net
realized and unrealized gain (loss) on investments |
8.36 |
|
|
4.25 |
|
|
Total
from investment operations |
8.53 |
|
|
4.47 |
|
|
|
|
|
|
|
Less
Distributions: |
|
|
|
|
From
net investment income |
(0.18) |
|
|
(0.21) |
|
|
From
long-term capital gains |
(0.13) |
|
|
— |
|
|
Total
distributions |
(0.31) |
|
|
(0.21) |
|
|
|
|
|
|
|
Net
asset value, end of period/year |
$ |
32.48 |
|
|
$ |
24.26 |
|
|
Total
return (4)
|
35.40 |
% |
|
22.58 |
% |
(3) |
|
|
|
|
|
Ratios
/ Supplemental Data: |
|
|
|
|
Net
assets, end of period/year (millions) |
$ |
123.4 |
|
|
$ |
38.8 |
|
|
Portfolio
turnover rate |
18 |
% |
|
46 |
% |
(3) |
Ratio
of expenses to average net assets |
0.49 |
% |
|
0.49 |
% |
(5) |
Ratio
of net investment income (loss) to average net assets |
0.60 |
% |
|
1.06 |
% |
(5) |
|
|
|
|
|
|
|
|
|
|
|
(1) |
The
Fund commenced operations on December 17, 2019. The information presented
is from December 17, 2019 to November 30, 2020. |
(2) |
Calculated
using average shares outstanding method. |
(3) |
Not
Annualized. |
(4)
|
The
total return is based on the Fund’s net asset value. |
(5)
|
Annualized.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sukuk
ETF |
|
|
|
|
FINANCIAL
HIGHLIGHTS For a capital share outstanding throughout the period |
|
|
|
|
|
|
|
Year
Ended November 30, 2021 |
|
Period
Ended
November
30,
2020(1) |
|
|
|
|
|
|
Net
asset value, beginning of period/year |
$ |
20.41 |
|
|
$ |
20.00 |
|
|
|
|
|
|
|
Income
from Investment Operations: |
|
|
|
|
Net
investment income (loss)
(2) |
0.27 |
|
|
0.30 |
|
|
Net
realized and unrealized gain (loss) on investments |
(0.42) |
|
|
0.39 |
|
|
Total
from investment operations |
(0.15) |
|
|
0.69 |
|
|
|
|
|
|
|
Less
Distributions: |
|
|
|
|
From
net investment income |
(0.26) |
|
|
(0.28) |
|
|
From
return of capital |
(0.24) |
|
|
— |
|
|
Total
distributions |
(0.50) |
|
|
(0.28) |
|
|
|
|
|
|
|
Net
asset value, end of period/year |
$ |
19.76 |
|
|
$ |
20.41 |
|
|
Total
return (4)
|
(0.73) |
% |
|
3.48 |
% |
(3)
(5) |
|
|
|
|
|
Ratios
/ Supplemental Data: |
|
|
|
|
Net
assets, end of period/year (millions) |
$ |
37.5 |
|
|
$ |
31.1 |
|
|
Portfolio
turnover rate |
28 |
% |
|
15 |
% |
(3) |
Ratio
of expenses to average net assets |
0.65 |
% |
|
0.65 |
% |
(6) |
Ratio
of net investment income (loss) to average net assets |
1.32 |
% |
|
1.61 |
% |
(6) |
|
|
|
|
|
|
|
|
|
|
|
(1) |
The
Fund commenced operations on December 27, 2019. The information presented
is from December 27, 2019 to November 30, 2020. |
(2) |
Calculated
using average shares outstanding method. |
(3) |
Not
Annualized. |
(4)
|
The
total return is based on the Fund’s net asset value. |
(5)
|
Net
increase in payments by affiliates on the disposal of investments due to
trade error added 0.11% to this return. |
(6) |
Annualized.
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
REIT ETF |
|
|
|
FINANCIAL
HIGHLIGHTS For a capital share outstanding throughout the period |
|
|
|
|
|
|
|
Period
Ended
November
30,
2021(1) |
|
|
|
|
|
Net
asset value, beginning of period |
|
$ |
20.00 |
|
|
|
|
|
|
Income
from Investment Operations: |
|
|
|
Net
investment income (loss)
(2) |
|
0.26 |
|
|
Net
realized and unrealized gain (loss) on investments |
|
6.04 |
|
|
Total
from investment operations |
|
6.30 |
|
|
|
|
|
|
Less
Distributions: |
|
|
|
From
net investment income |
|
(0.29) |
|
|
From
long-term capital gains |
|
(0.15) |
|
|
From
return of capital |
|
(0.23) |
|
|
Total
distributions |
|
(0.67) |
|
|
|
|
|
|
Net
asset value, end of period |
|
$ |
25.63 |
|
|
Total
return (3)
(4)
|
|
31.98 |
% |
|
|
|
|
|
Ratios
/ Supplemental Data: |
|
|
|
Net
assets, end of period (millions) |
|
$ |
23.1 |
|
|
Portfolio
turnover rate (3) |
|
79 |
% |
|
Ratio
of expenses to average net assets (5) |
|
0.69 |
% |
|
Ratio
of net investment income (loss) to average net assets (5) |
|
1.19 |
% |
|
|
|
|
|
|
|
|
|
|
|
(1) |
The
Fund commenced operations on December 29, 2020. The information presented
is from December 29, 2020 to November 30, 2021. |
(2) |
Calculated
using average shares outstanding method. |
(3) |
Not
Annualized. |
(4)
|
The
total return is based on the Fund’s net asset value. |
(5) |
Annualized.
|
SP
Funds S&P 500 Sharia Industry Exclusions ETF
SP
Funds Dow Jones Global Sukuk ETF
SP
Funds S&P Global REIT Sharia ETF
|
|
|
|
|
|
|
|
|
|
|
|
Adviser |
Toroso
Investments, LLC
898
N. Broadway, Suite 2
Massapequa,
New York 11758 |
Administrator |
Tidal
ETF Services LLC
898
N. Broadway, Suite 2
Massapequa,
New York 11758 |
Sub-Adviser |
ShariaPortfolio,
Inc.
1331
International Pkwy
Suite
2291
Lake
Mary, Florida 32746 |
Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza
Suite
100
Portland,
Maine 04101 |
Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Dr.
Milwaukee,
Wisconsin 53212 |
Independent
Registered Public Accounting Firm |
Tait,
Weller & Baker LLP
Two
Liberty Place
50
S. 16th Street
Philadelphia,
Pennsylvania 19102 |
Sub-Administrator,
Fund Accountant, and Transfer Agent |
U.S.
Bancorp Fund Services, LLC
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Legal
Counsel |
Godfrey
& Kahn, S.C.
833
East Michigan Street, Suite 1800
Milwaukee,
Wisconsin 53202 |
Investors
may find more information about the Funds in the following documents:
Statement
of Additional Information: The
Funds’ SAI provides additional details about the investments of the Funds and
certain other additional information. A current SAI dated March 30, 2022, as
supplemented from time to time, is on file with the SEC and is herein
incorporated by reference into this Prospectus. It is legally considered a part
of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about each Fund’s investments is available in the Funds’ annual and
semi-annual reports to shareholders. In the annual report you will find a
discussion of the market conditions and investment strategies that significantly
affected each Fund’s performance during the prior fiscal year.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Funds by contacting the Funds at ShariaPortfolio,
c/o U.S. Bank Global Fund Services, P.O. Box 701, Milwaukee, Wisconsin
53201-0701 or calling 425-409-9500.
Shareholder
reports and other information about the Funds are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Funds’ Internet website at www.sp-funds.com; or
(SEC
Investment Company Act File No. 811-23377)