ck0001027596-20221031
VegTechTM
Plant-based Innovation & Climate ETF
(EATV)
Listed
on NYSE Arca, Inc.
PROSPECTUS
February 28,
2023
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved
of these securities or passed upon the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
VegTechTM
Plant-based Innovation & Climate ETF
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Investments
by Registered Investment Companies |
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FUND
SUMMARY
Investment Objective
The
VegTechTM Plant-based Innovation & Climate ETF
(the “Fund”) seeks long-term growth of capital.
Fees and Expenses of the Fund
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
0.75% |
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Distribution
and/or Service (12b-1) Fees |
0.00% |
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Other
Expenses(1) |
0.00% |
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Total
Annual Fund Operating Expenses |
0.75% |
(1) Pursuant to an investment
advisory agreement, VegTechTM
LLC (“VegTech” or the “Adviser”) pays all other expenses of the Fund (other than
taxes and governmental fees, brokerage fees, commissions and other transaction
expenses, certain foreign custodial fees and expenses, costs of borrowing money,
including interest expenses, and extraordinary expenses (such as litigation and
indemnification expenses and shareholder proxy)).
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 or hold all of your Shares
at the end of those periods. The Example also assumes that your investment has a
5% return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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| 1 Year |
3
Years |
5
Years |
10
Years |
| $77 |
$240 |
$417 |
$930 |
Portfolio Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
Example, affect the Fund’s performance. For the fiscal year ended October 31,
2022, the Fund’s portfolio turnover rate was 133.36% of the average value of its
portfolio.
Principal Investment
Strategy
The
Fund invests in innovative and sustainable solutions in the food and materials
sectors. This involves investing across the entire food and materials supply
chain, starting with agriculture technology (“AgTech”) and proceeding through
food, nutrition, bio-tech, flavor and texture, ingredient and consumer goods
companies. These types of companies focus on enhancing the sustainability and
efficiency of the food and materials supply system.
The
Fund is an actively managed exchange-traded fund (“ETF”). The Fund will invest under
normal circumstances at least 80% of its net assets (plus any borrowings for
investment purposes) in the securities of plant-based innovation companies
(“VegTechTM Companies”) or companies making a positive
impact on climate change matters (“Climate Companies”).
VegTechTM
Companies are companies that (1) innovate or use technology in their
primary products by utilizing at least one plant ingredient, or innovate or use
technology to enable or support companies that do the same; and (2) the end
product is animal-free, except for trace amounts. The Adviser believes that
VegTechTM
Companies are a critical component in the global food and materials systems
shift towards sustainability and efficiency, and that they promote positive
climate change.
In
looking for VegTechTM
Companies, the Adviser searches for companies it considers to be innovators in
developing products and technologies contributing to a nutritional, efficient
and sustainable food supply system, such as plant-based products, alternative
proteins, innovative production and materials processes, advancements in
nutrition, food and bio-tech innovations, and the latest technology and
advancements in scientific research.
Technology
is a critical element of these advancements. These include cell-cultured and
precision fermentation technology companies that use plant-based carbohydrates
in the process of growing cells, nutrients, proteins, flavors, and ingredients.
It also includes plant-based agriculture and AgTech, such as vertical farming
and agricultural robotics companies, and innovative plant-based materials and
scientific services.
To
be considered an innovator by the Adviser, a company should work to advance a
nutritious, efficient and sustainable food supply system and must use at least
one plant or plant-derived ingredient and the end product, component, or service
is animal-free; or, the company may help other businesses produce animal-free
(inclusive of trace amounts) end products using plant-derived ingredients by
offering specialized products, machinery, services, or technologies. These
companies are part of a long-term secular trend towards building a food and
materials supply system that is efficient and sustainable and prolific with the
end goal of feeding more people, more nutritiously, in a shorter amount of time,
using fewer resources while creating less damage. The Adviser looks for
VegTechTM
Companies that are also part of a circular economy with an established food
waste goal or policy.
Further,
the company should show positive performance, as determined through an analysis
of quantitative and fundamental data or expert knowledge of the sector.
Additionally, a VegTechTM
Company produces no primary products designed solely for industrial farm animal
production (“primary products” meaning more than 50% of revenues come in their
entirety from the sale of these products, as shown conclusively in a public
financial statement), must not perform animal testing unless required to do so
by law in order to bring a product to market, and must have a minimum market
capitalization of $25 million.
For
a VegTechTM
Company to qualify as such, the issuer’s plant-based “primary products,”
“primary services,” or “primary assets” must account for more than 50% of the
company’s revenues or assets, as disclosed in public financial statements as
available. The Adviser performs a qualitative and quantitative analysis as
feasible to determine whether a company is a VegTechTM
Company.
The
Adviser believes VegTechTM
Companies contribute to several United Nations (UN) Sustainable Development
Goals (“SDG”). Within the SDG framework, these goals include “Climate Action,”
“Life on Land,” “Life Below Water,” “Zero Hunger,” and “Good Health and
Well-being.”
To
qualify as a Climate Company, the issuer must meet at least one of the following
criteria:
(1) The
company has committed to reducing greenhouse gas emissions by signing a pledge
to measure and reduce those emissions. Acceptable pledges include, but are not
limited to, the United Nations “Climate Neutral Now” and Global Optimism’s “The
Climate Pledge;”
(2) The
company sells a product that generates less greenhouse gas emissions than
typical replacement products, as determined by a formal evaluation. Acceptable
evaluations follow the standards defined by the International Organization for
Standardization (ISO 14040 or ISO 14044);
(3) The
company has disclosed a commitment to reducing greenhouse gas emissions;
(4) The
company has greenhouse gas emissions lower than its average peer, per unit of
sales or assets, as measured by Bloomberg or a similar data provider;
or
(5) The
company has a Climate Rating from a third-party environmental, social and
governance (“ESG”) data provider such as Bloomberg or Ethos ESG that is above
average for peers or that indicates the company is aligned with the Paris
Agreement to limit global warming to 2 and preferably 1.5 degrees
Celsius.
The
Fund will predominantly invest in the equity securities of VegTechTM
and Climate companies, which may include, but are not limited to, common and
preferred publicly-traded stocks of U.S. and foreign companies, rights and
warrants, partnership interests and business trust shares. The Fund may also
invest in initial public offerings (“IPOs”) of VegTechTM
or Climate companies or in companies that have recently completed an IPO. The
Fund’s foreign investments may be direct or through American Depositary Receipts
(“ADRs”) and Global Depositary Receipts (“GDRs”). The Fund’s portfolio is
expected to be a focused portfolio with typically fewer than 50 holdings,
although the number of such holdings may increase
over
time if the universe of VegTechTM
and Climate companies increases. The Fund may experience high portfolio turnover
from time to time.
The
Adviser maintains an internal, proprietary, and systematic research process to
determine which companies qualify as VegTechTM
or Climate companies. The Adviser conducts its own screening research by
reviewing financial statements, websites, and brochures. The Adviser may also
conduct company interviews and analyzes product labels prior to investing in any
company.
In
identifying VegTechTM
Companies, the Adviser considers companies with primary products, services, or
assets in the following categories:
•Plant-based
and Alternative Protein Companies. Companies
that produce end products that are typically derived from plants, fungi,
microbes, or algae, to support a sustainable, efficient and nutritious food
supply system. These may include companies that employ food scientists to
develop beef alternatives or alternative proteins that use less land and water
and generate less methane than standard animal agriculture, or may include food
or materials companies that produce products that include plants and plant
derivatives. It could also include companies that offer products or services
that support and enable the plant-based category, such as specialized food
processors, and food machinery companies.
•Cell-cultured
Technology Companies.
Companies that use bioscience and engineering to produce, or help produce,
cell-cultured foods or alternative proteins. These foods are sometimes called
“cell-based,” “lab-grown,” or “cultured” products and are considered part of the
field of synthetic biology. These technologies can increase food production and
mitigate environmental impact by growing animal cells outside of animals in a
nutrient solution that includes plant-derived carbohydrates and other
ingredients in a way that significantly changes the production of protein. This
reduces the use of land, water, and antibiotics. These companies need only use a
trace amount (i.e.,
1%
or less) of animal cells to grow a significantly larger amount, and thus can
positively impact food security. These companies may also support and enable
other companies to use plant carbohydrates to grow animal cells, by producing
bioreactors (a temperature controlled tank filled with the nutrient solution and
used to grow cells outside of an animal), cell culture media (a solution of
basic nutrients, including plant-derived carbohydrates, designed to allow cells
to grow in a bioreactor), or cell culture meat scaffolding (this can be a
plant-based material made into a shape that resembles a piece of meat, used in a
bioreactor; as the cells grow on the material, the material degrades and is
replaced by cells).
•Precision
Fermentation Technology Companies.
Companies that grow algae or microbes, such as yeasts and fungi fed with
plant-derived carbohydrates to produce nutrients, alternative proteins, flavors,
and ingredients. These companies may include one that uses microbes in a
bioreactor to produce casein,
whey,
or heme. Similar to cell-cultured food companies, these companies can produce
greater quantities of food in a way that significantly reduces the need for
deleterious industrial farming of protein, thus reducing the use of land, water
and antibiotics and positively impacting food security. It could also include
companies that support and enable the category such as a bioreactor maker or a
yeast bioengineering company.
•Sustainable
Agricultural and AgTech Companies.
Companies that produce plants (vegetables, pulses, tubers, legumes, fruits,
nuts, seeds, and grains), fungi, microbes, and algae; or companies that offer
technologies, services, or products that support the business of plant-based
agriculture. These companies may include ones using vertical farming technology
and robotics to grow food near population centers with less land, water,
pesticide, and manure than standard industrialized animal factories, furthering
the Fund’s sustainability goals. It may include companies that support and
enable this category, such as makers of farm equipment, sustainable fertilizers,
water conservation equipment, carbon sequestration services, biodiversity
protection services, agroecology services, greenhouse technology, or offer
robotic and automation tools for plant-based farming.
•Sustainable
Materials and Packaging.
It includes issuers that use plant-based ingredients in their products,
including cosmetics companies that do not engage in animal testing. These
companies could produce eco-friendly packaging, body care products, textiles,
building materials, or various biodegradable and compostable materials, for
example. Companies may use biobased inputs such as food waste, and turn it into
usable materials while diverting it from landfills, as part of a circular
economy. It may include companies with products or services that support and
enable the category, such as companies that engage in ecologically minded
construction or develop machinery for biobased recycling.
•Scientific
Services.
Companies in bioengineering, bioscience, nutrition, or food science that support
or enable businesses in sustainable food production, such as alternative
proteins and plant-based products. A scientific service
company
may include one that sequences and tests plant genomes to identify high protein
variants of food for human consumption or for use in materials.
The
Fund is non-diversified, which means that it may invest a significant portion of
its assets in the securities of a single issuer or small number of
issuers.
The
Adviser may sell securities from the portfolio if the company’s fundamentals no
longer meet the Adviser’s criteria for a VegTechTM
Company. The Adviser may sell a security when its price reaches a set target, or
if it believes that other investments are more attractive, or for other reasons
we may determine. In selling a security, the Adviser will take into account
prudent portfolio management practices and the interests of shareholders, which
may result in the position being sold over a period of time, rather than
immediately, even if the issuer no longer qualifies as a VegTechTM
or Climate Company.
Principal Risks of Investing in the Fund
By
itself, the Fund is not a complete, balanced investment plan. The Fund cannot
guarantee that it will achieve its investment objectives. Losing all or a portion of your investment is a risk of
investing in the Fund. The following risks are considered
principal and could affect the value of your investment in the Fund:
•Newer
Adviser Risk. The
Adviser is a newly organized investment adviser and has limited operating
history or performance track record, which may increase the risks associated
with investments in the Fund.
•Management
Risk.
As an actively-managed ETF, the Fund is subject to management risk. The ability
of the Adviser to successfully implement the Fund’s investment strategies will
significantly influence the Fund’s performance. The success of the Fund will
depend in part upon the skill and expertise of certain key personnel of the
Adviser, and there can be no assurance that any such personnel will continue to
be associated with the Fund.
•Climate
Change and VegTechTM
Policy Risk.
The Fund’s policy of investing in companies as a means to promote positive
climate change could cause the Fund to perform differently compared to similar
funds that do not have such a policy. This policy may result in the Fund
foregoing opportunities to buy certain securities when it might otherwise be
economically advantageous to do so, or selling securities when it might be
otherwise economically disadvantageous for it to do so. The Fund will vote
proxies in a manner which is consistent with its VegTechTM
and climate policy themes, which may not always be consistent with maximizing
short-term performance of the issuer.
•Market
and Regulatory Risk.
Economies
and financial markets throughout the world are becoming increasingly
interconnected, which increases the likelihood that events or conditions in one
country or region will adversely impact markets or issuers in other countries or
regions. Securities in the Fund’s portfolio may underperform in comparison to
securities in general financial markets, a particular financial market or other
asset classes due to a number of factors, including: inflation (or expectations
for inflation); interest rates; global demand for particular products or
resources; natural disasters or events; pandemic diseases; terrorism; regulatory
events; and government controls. 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.
•Equity
Securities Risk.
The
value of the Fund’s shares will go up or down based on the movement of the
overall stock market and the value of the individual securities held by the
Fund, both of which can sometimes be volatile.
•ETF
Risks.
The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
•Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform
these
services, or (ii) market makers and/or liquidity providers exit the
business or significantly reduce their business activities and no other entities
step forward to perform their functions.
•Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
•Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
•Trading. Although
Shares are listed for trading on NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares, and this could lead to differences between the market price of the
Shares and the underlying value of those Shares.
•Initial
Public Offering Risk.
The market value of IPO shares may fluctuate considerably due to factors such as
the absence of a prior public market, unseasoned trading, the small number of
shares available for trading and limited information about the issuer. The
purchase of IPO shares may involve high transaction costs. IPO shares are
subject to market risk and liquidity risk.
•Foreign
Securities Risk.
Foreign securities may be more volatile and less liquid than domestic (U.S.)
securities, which could affect the Fund’s investments. Securities markets of
other countries are generally smaller than U.S. securities markets.
•Depositary
Receipt Risk.
Foreign receipts, which include ADRs, GDRs, and EDRs, are securities that
evidence ownership interests in a security or a pool of securities issued by a
foreign issuer. The risks of depositary receipts include many risks associated
with investing directly in foreign securities, such as individual country risk
and liquidity risk. Unsponsored ADRs, which are issued by a depositary bank
without the participation or consent of the issuer, involve additional risks
because U.S. reporting requirements do not apply, and the issuing bank will
recover shareholder distribution costs from movement of share prices and payment
of dividends.
•Newer
Fund Risk.
The
Fund is a recently organized investment company with limited operating history.
There can be no assurance that the Fund will grow to or maintain an economically
viable size, in which case the Board may determine to liquidate the Fund.
•Non-Diversification
Risk.
The Fund is non-diversified, which means that
it may invest a high percentage of its assets in a limited number of securities.
Since the Fund is non-diversified, its NAV and total returns may fluctuate or
fall more than a diversified fund. Gains or losses on a single stock may have a
greater impact on the Fund.
•Market
Capitalization Risk.
•Large-Capitalization
Companies Risk.
Larger, more established companies may be unable to respond quickly to new
competitive challenges like changes in consumer tastes or innovative smaller
competitors. In addition, large-cap companies are sometimes unable to attain the
high growth rates of successful, smaller companies, especially during extended
periods of economic expansion.
•Mid-Capitalization
Companies Risk.
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
Market Capitalization Risks. Stocks
of companies with small market capitalizations involve a higher degree of risk
than investments in the broad-based equities market. Small-capitalization stocks
are often more volatile and less liquid than investments in larger companies,
and are more likely to be adversely affected by poor economic or market
conditions. In addition, small-capitalization companies may lack the management
experience, financial resources and product diversification of larger companies,
making them more susceptible to market pressures and business
failure.
•Sector
Emphasis Risk.
The securities of companies in the same or related businesses, if comprising a
significant portion of the Fund’s portfolio, could react in some circumstances
negatively to market conditions, interest rates and economic, regulatory or
financial developments and adversely affect the value of the portfolio to a
greater extent than if such business comprised a lesser portion of the Fund’s
portfolio.
•Portfolio
Turnover Risk. A high portfolio turnover rate (100% or
more) has the potential to result in the realization and distribution to
shareholders of higher capital gains, which may subject you to a higher tax
liability.
Performance
The performance
information that follows gives some indication of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for the most
recent calendar year, and the table compares the Fund’s average annual returns
with those of a broad measure of market performance for the most recent calendar
year. Please note that the Fund’s past
performance (before and after taxes) is not necessarily an indication of how the
Fund will perform in the future. Updated performance information is
available on the Fund’s website at eatv.vegtechinvest.com.
Calendar
Year Returns as of December 31
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| Best
Quarter |
Worst
Quarter |
| Q4 2022 |
Q2 2022 |
| 9.78% |
-20.37% |
Average Annual Total Returns through December
31, 2022
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| 1
Year |
Since
Inception
(December 28,
2021) |
|
VegTechTM
Plant-based Innovation & Climate ETF |
| |
| Return Before
Taxes |
-35.13% |
-34.87% |
| Return After Taxes on
Distributions |
-35.15% |
-34.90% |
| Return After Taxes on Distributions and
Sale of Fund Shares |
-20.78% |
-26.56% |
|
S&P
500 Index
(reflects no deduction for
fees, expenses or taxes) |
-18.11% |
-18.31% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates and do not reflect the impact of state and local taxes.
Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-advantaged arrangements such as 401(k) plans or individual retirement
accounts. The return after taxes on
distribution and sale of fund shares may be higher than the return before taxes
because the method of calculation assumes generally that you can use the
short-term capital loss realized upon the sale of fund shares to offset income
of the same tax character from other sources thereby reducing the amount of tax
you otherwise might owe.
Management
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|
Adviser |
VegTechTM
LLC (the “Adviser”) |
| Sub-Adviser |
Penserra
Capital Management LLC (“Penserra” or the “Sub-Adviser”) |
| Portfolio
Managers |
Dr.
Sasha Goodman has been a portfolio manager of the Fund since its inception
in 2021.
|
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| Dustin
Lewellyn, CFA, Managing Director of Penserra, has been a portfolio manager
of the Fund since its inception in 2021. |
|
| Ernesto
Tong, CFA, Managing Director of Penserra, has been a portfolio manager of
the Fund since its inception in 2021. |
|
| Anand
Desai, Senior Vice President of Penserra, has been a portfolio manager of
the Fund since its inception in 2021. |
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and most investors will buy and sell Shares through
brokers at market prices, rather than NAV. Because Shares trade at market prices
rather than NAV, Shares may trade at a price greater than NAV (premium) or less
than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem.
Creation Units generally consist of 15,000 Shares, though this may change from
time to time. The Fund generally issues and redeems Creation Units in exchange
for a portfolio of securities closely approximating the holdings of the Fund
(the “Deposit Securities”) and/or a designated amount of U.S. cash.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an
individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
ADDITIONAL
INFORMATION
ABOUT
THE
FUND
Investment
Objective.
The VegTechTM
Plant-based Innovation & Climate ETF (the “Fund”) seeks long-term growth of
capital. The Fund’s investment objective has been adopted as a non-fundamental
investment policy and may be changed without shareholder approval upon written
notice to shareholders. The investment policy of the Fund concerning “80% of the
Fund’s net assets” (“80% Policy”) may be changed by the Board of Trustees
without shareholder approval, but shareholders would be given at least 60 days’
written notice before any such change.
Additional
Information About the Fund’s Principal Investment Strategies.
The
Fund invests in innovative and sustainable solutions in the food and materials
sectors. This involves investing across the entire food and materials supply
chain, starting with agriculture technology (“AgTech”) and proceeding through
food, nutrition, bio-tech, flavor and texture, ingredient and consumer goods
companies. These types of companies focus on enhancing the sustainability and
efficiency of the food and materials supply system.
The
Fund is an actively managed exchange-traded fund (“ETF”). The Fund will invest
under normal circumstances at least 80% of its net assets (plus any borrowings
for investment purposes) in the securities of plant-based innovation companies
(“VegTechTM
Companies”) or companies making a positive impact on climate change matters
(“Climate Companies”). VegTechTM
Companies are companies that (1) innovate or use technology in their
primary products by utilizing at least one plant ingredient, or innovate or use
technology to enable or support companies that do the same; and (2) the end
product is animal-free, except for trace amounts. The Adviser believes that
VegTechTM
Companies are a critical component in the global food and materials systems
shift towards sustainability and efficiency, and that they promote positive
climate change.
The
Adviser maintains an internal, proprietary, and systematic research process to
determine which companies qualify as VegTechTM
or Climate companies. The Adviser conducts its own screening research by
reviewing financial statements, websites, and brochures. The Adviser may also
conduct company interviews and analyzes product labels prior to investing in any
company.
The
Adviser has a multistage screening process that depends on research,
quantitative analysis, and Adviser judgement to determine eligibility of
companies into the Fund. The Adviser follows an established set of criteria as
part of a methodology reviewed by the VegTechTM
President
and CEO. As part of the process, the Adviser’s quantitative analysis seeks to
identify market leading companies using factors including, but not limited to,
momentum, volatility, liquidity and volume. This quantitative analysis may
exclude companies from the Fund, which the Adviser may decide to accept or
reject. Due to ongoing research, the Adviser may modify the characteristics
utilized in the investment strategy, or eliminate or substitute factors without
prior notice to shareholders. Ultimately, the Adviser has discretion over Fund
choices. However, any such changes would not result in a change to the Fund’s
80% Policy without prior notice to shareholders.
Temporary
or Cash Investments.
Under normal market conditions, the Funds will invest according to its principal
investment strategies noted above. However, the Fund may temporarily depart from
its principal investment strategy and make short-term investments in cash, cash
equivalents, short-term debt securities and money market instruments in response
to adverse market, economic or political conditions. As a result, to the extent
the Fund makes such “defensive investments,” it may not achieve its investment
objective. For longer periods of time, the Fund may hold a substantial cash
position. If the market advances during periods when the Fund is holding a large
cash position, the Fund may not realize as significant a gain as it would
otherwise have, had it been more fully invested. To the extent the Fund invests
in a money market fund for its cash position, there will be some duplication of
expenses because the Fund will bear its pro rata portion of such money market
fund’s advisory fees and operational expenses.
Principal
Risks of Investing in the Fund. The
principal risks of investing in the Fund that may adversely affect the Fund’s
net asset value (“NAV”) or total return were previously summarized and are
discussed in more detail below. There can be no assurance that the Fund will
achieve its investment objective.
•New
Adviser Risk. The
Adviser is a new entity formed in 2021, and had not previously managed an ETF.
ETFs and their advisers are subject to restrictions and limitations imposed by
the Investment Company Act of 1940, as amended (the “1940 Act”) and the
Internal Revenue Code. As a result, investors do not have a long-term track
record of managing a mutual fund from which to judge the newly-formed Adviser
and the Adviser may not achieve the intended result in managing the
Fund.
•Management
Risk.
The investment strategies, practices and risk analysis used by the portfolio
managers may not produce the desired results.
The
ability of the Fund to meet its investment objective is directly related to the
Adviser’s investment strategies for the Fund.
The
value of your investment in the Fund may vary with the effectiveness of the
Adviser’s research, analysis and asset allocation among portfolio
securities.
If
the Adviser’s investment strategies do not produce the expected results, your
investment could be diminished or even lost.
•Climate
Change and VegTechTM
Policy Risk.
The Fund’s policy of investing in VegTechTM
and Climate companies as a means to promote positive climate change could cause
the Fund to perform differently compared to similar funds that do not have such
a policy. This policy may result in the Fund foregoing opportunities to buy
certain securities when it might otherwise be economically advantageous to do
so, or selling securities when it might be otherwise economically
disadvantageous for it to do so. The Fund will vote proxies in a manner which is
consistent with its VegTechTM
and climate policy themes, which may not always be consistent with maximizing
short-term performance of the issuer.
•Market
and Regulatory Risk.
Economies and financial markets throughout the world are becoming increasingly
interconnected, which increases the likelihood that events or conditions in one
country or region will adversely impact markets or issuers in other countries or
regions. Securities in the Fund’s portfolio may underperform in comparison to
securities in general financial markets, a particular financial market or other
asset classes due to a number of factors, including: inflation (or expectations
for inflation); interest rates; global demand for particular products or
resources; natural disasters or events; pandemic diseases; terrorism; regulatory
events; and government controls. 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.
•Equity
Securities Risk.
The price of equity securities may rise or fall because of changes in the broad
market or changes in a company’s financial condition, sometimes rapidly or
unpredictably. These price movements may result from factors affecting
individual companies, sectors or industries selected for the Fund’s portfolio or
the securities market as a whole, such as changes in economic or political
conditions. Equity securities are subject to “stock market risk” meaning that
stock prices in general (or in particular, the prices of the types of securities
in which the Fund invests) may decline over short or extended periods of time.
When the value of the Fund’s securities goes down, your investment in the Fund
decreases in value.
•ETF
Risks.
The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
•APs,
Market Makers, and Liquidity Providers Concentration Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
•Costs
of Buying or Selling Shares.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid-ask spread.” The bid-ask spread varies over time for Shares
based on trading volume and market liquidity, and the spread is generally lower
if Shares have more trading volume and market liquidity and higher if Shares
have little trading volume and market liquidity. Further, a relatively small
investor base in the Fund, asset swings in the Fund, and/or increased market
volatility may cause increased bid-ask spreads. Due to the costs of buying or
selling Shares, including bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
•Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price and the NAV vary
significantly, including due to supply and demand of the Fund’s Shares and/or
during periods of market volatility. Thus, you may pay more (or less) than NAV
intra-day when you buy Shares in the secondary market, and you may receive more
(or less) than NAV when you sell those Shares in the secondary market. This risk
is heightened in times of market volatility, periods of steep market declines,
and periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
•Trading.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500®
Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than Shares, and this
could lead to differences between the market price of the Shares and the
underlying value of those Shares.
•Initial
Public Offering Risk.
The market value of IPO shares may fluctuate considerably due to factors such as
the absence of a prior public market, unseasoned trading, the small number of
shares available for trading and limited information about the issuer. The
purchase of IPO shares may involve high transaction costs. IPO shares are
subject to market risk and liquidity risk. When the Fund’s asset base is small,
a significant portion of the Fund’s performance could be attributable to
investments in IPOs, because such investments would have a magnified impact on
the Fund.
•Foreign
Securities Risk.
Foreign securities may be more volatile and less liquid than domestic (U.S.)
securities, which could affect the Fund’s investments. Securities markets of
other countries are generally smaller than U.S. securities markets. The exchange
rates between U.S. dollar and foreign currencies might fluctuate, which could
negatively affect the value of the Fund’s investments. Foreign securities are
also subject to higher political, social and economic risks. These risks
include, but are not limited to, a downturn in the country’s economy, excessive
taxation, political instability, and expropriation of assets by foreign
governments. Compared to the U.S., foreign governments and markets often have
less stringent accounting, disclosure, and financial reporting
requirements.
•Depositary
Receipt Risk.
Foreign receipts, which include ADRs, GDRs, and EDRs, are securities that
evidence ownership interests in a security or a pool of securities issued by a
foreign issuer. The risks of depositary receipts include many risks associated
with investing directly in foreign securities, such as individual country risk
and liquidity risk. Unsponsored ADRs, which are issued by a depositary bank
without the participation or consent of the issuer, involve additional risks
because U.S. reporting requirements do not apply, and the issuing bank will
recover shareholder distribution costs from movement of share prices and payment
of dividends.
•Newer
Fund Risk.
The
Fund is a recently organized investment company with limited operating history.
There can be no assurance that the Fund will grow to or maintain an economically
viable size, in which case the Board may determine to liquidate the Fund. The
Board can liquidate the Fund without shareholder vote and, while shareholder
interests will be the paramount consideration, the timing of any liquidation may
not be favorable to certain individual shareholders.
•Non-Diversification
Risk.
The Fund is “non-diversified,” which means it is permitted to invest a greater
percentage of its assets in the securities of a single issuer than a diversified
fund. Thus, the Fund may have fewer holdings than other funds. As a result, a
decline in the value of those investments would cause the Fund’s overall value
to decline to a greater degree than if the Fund held a more diversified
portfolio.
•Market
Capitalization Risk.
•Large-Capitalization
Companies Risk.
Larger, more established companies may be unable to respond quickly to new
competitive challenges like changes in consumer tastes or innovative smaller
competitors. In addition, large-cap companies are sometimes unable to attain the
high growth rates of successful, smaller companies, especially during extended
periods of economic expansion.
•Mid-Capitalization
Companies Risk.
The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies, but they may also be subject to slower growth
than small-capitalization companies during times of economic expansion. 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, but they may also be
nimbler and more responsive to new challenges than large-capitalization
companies. 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.
•Smaller
Market Capitalization Risks. The
securities of small-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some 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.
•Sector
Emphasis Risk.
The
Fund’s investing approach may result in an emphasis on certain sectors or
sub-sectors of the market at any given time. To the extent the Fund invests more
heavily in one sector or sub-sector of the market, it thereby presents a more
concentrated risk and its performance will be especially sensitive to
developments that significantly affect those sectors or sub-sectors. In
addition, the value of Shares may change at different rates compared to the
value of shares of a fund with investments in a more diversified mix of sectors
and industries. An individual sector or sub-sector of the market may have
above-average performance during particular periods, but may also move up and
down more than the broader market. The several industries that constitute a
sector may all react in the same way to economic, political or regulatory
events. The Fund’s performance could also be affected if the sectors or
sub-sectors do not perform as expected. Alternatively, the lack of exposure to
one or more sectors or sub-sectors may adversely affect performance.
•Portfolio
Turnover Risk –
A high portfolio turnover rate (100% or more) has the potential to result in the
realization and distribution to shareholders of higher capital gains, which may
subject you to a higher tax liability. A high portfolio turnover rate also leads
to higher transactions costs, which could negatively affect the Fund’s
performance. Distributions to shareholders of short-term capital gains are taxed
as ordinary income under federal tax laws.
PORTFOLIO
HOLDINGS
INFORMATION
Information
about the Fund’s daily portfolio holdings is available at
eatv.vegtechinvest.com. A complete description of the Fund’s policies and
procedures with respect to the disclosure of the Fund’s portfolio holdings is
available in the Fund’s Statement of Additional Information (“SAI”).
MANAGEMENT
Adviser
VegTechTM
LLC serves as the investment adviser and has overall responsibility for the
general management and administration of the Fund. The Adviser is a registered
investment adviser with offices located at 1842 Purdue Avenue #103, Los Angeles,
California 90025. The Adviser also arranges for transfer agency, custody, fund
administration, and all other related services necessary for the Fund to
operate.
The
Adviser provides the Fund with advice on buying and selling securities. The
Adviser also furnishes the Fund with office space and certain administrative
services and provides most of the personnel needed by the Fund. For the services
it provides to the Fund, the Fund pays the Adviser a unified management fee,
which is calculated daily and paid monthly, at an annual rate of 0.75% of the
Fund’s average daily net assets.
Under
the Investment Advisory Agreement, the Adviser has agreed to pay all expenses of
the 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, shareholder proxy 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.
The
basis for the Board’s approval of the Fund’s Investment Advisory Agreement is
available in the Fund’s shareholder report dated April 30,
2022.
Manager-of-Managers
Arrangement
Section
15(a) of the 1940 Act requires that all contracts pursuant to which persons
serve as investment advisers to investment companies be approved by
shareholders. This requirement also applies to the appointment of sub-advisers
to the Fund. The Trust and the Adviser have applied for exemptive relief from
the SEC (the “Order”), which will permit the Adviser, on behalf of the Fund and
subject to the approval of the Board, including a majority of the independent
members of the Board, to hire, and to modify any existing or future subadvisory
agreement with, unaffiliated sub-advisers and affiliated sub-advisers, including
sub-advisers that are wholly-owned subsidiaries (as defined in the 1940 Act) of
the Adviser or its parent company and sub-advisers that are partially-owned by,
or otherwise affiliated with, the Adviser or its parent company (the
“Manager-of-Managers Structure”). The Adviser has the ultimate responsibility
for overseeing the Fund’s sub-advisers and recommending their hiring,
termination and replacement, subject to oversight by the Board. Assuming the
Order is granted, it will also provide relief from certain disclosure
obligations with regard to sub-advisory fees. With this relief, the Fund may
elect to disclose the aggregate fees payable to the Adviser and wholly-owned
sub-advisers and the aggregate fees payable to unaffiliated sub-advisers and
sub-advisers affiliated with Adviser or its parent company, other than
wholly-owned sub-advisers. The Order will be subject to various conditions,
including that the Fund will notify shareholders and provide them with certain
information required by the exemptive order within 90 days of hiring a new
sub-adviser. The Fund may also rely on any other current or future laws, rules
or regulatory guidance from the SEC or its staff applicable to the
Manager-of-Managers Structure. The sole initial shareholder of the Fund has
approved the operation of the Fund under a Manager-of-Managers Structure with
respect to any affiliated or unaffiliated subadviser, including in the manner
that is permitted by the Order.
The
Manager-of-Managers Structure will enable the Trust to operate with greater
efficiency by not incurring the expense and delays associated with obtaining
shareholder approvals for matters relating to sub-advisers or sub-advisory
agreements. Operation of the Fund under the Manager-of-Managers Structure will
not permit management fees paid by the Fund to the Adviser to be increased
without shareholder approval. Shareholders will be notified of any changes made
to the Sub-Adviser or material changes to sub-advisory agreements within 90 days
of the change. There is no assurance the Order will be granted.
The
Adviser and its affiliates may have other relationships, including significant
financial relationships, with current or potential sub-advisers or their
affiliates, which may create a conflict of interest. However, in making
recommendations to the Board to appoint or to change a sub-adviser, or to change
the terms of a sub-advisory agreement, the Adviser considers the sub-adviser’s
investment process, risk management, and historical performance with the goal of
retaining sub-advisers for the Fund that the Adviser believes are skilled and
can deliver appropriate risk-adjusted returns over a full market cycle. The
Adviser does not consider any other relationship it or its affiliates may have
with a sub-adviser or its affiliates, and the Adviser discloses to the Board the
nature of any material relationships it has with a sub-adviser or its affiliates
when making recommendations to the Board to appoint or to change a sub-adviser,
or to change the terms of a sub-advisory agreement.
Sub-Adviser
The
Adviser has retained Penserra Capital Management, LLC to serve as sub-adviser
for the Fund. The Sub-Adviser is responsible for the day-to-day management of
the Fund. The Sub-Adviser is a registered investment adviser and New York
limited liability company whose principal office is located at 4 Orinda Way,
Suite 100-A, Orinda, California 94563. The Sub-Adviser provides investment
management services to investment companies and other investment advisers. The
Sub-Adviser is responsible for trading portfolio securities for the Fund,
including selecting broker-dealers to execute purchase and sale transactions or
in connection with the rebalancing of the portfolio, subject to the supervision
of the Adviser and the Board. For its services, the Adviser will pay the
Sub-Adviser a management fee. The management fee paid to the Sub-Adviser is paid
by the Adviser and not the Fund.
The
basis for the Board of Trustees’ approval of the Fund’s Sub-Advisory Agreement
is available in the Fund’s shareholder report dated April 30,
2022.
Portfolio
Managers
Dr.
Sasha Goodman, Dustin Lewellyn, CFA, Managing Director of the Sub-Adviser,
Ernesto Tong, CFA, Managing Director of the Sub-Adviser, and Anand Desai,
Associate of the Sub-Adviser, are the Fund’s portfolio managers (the “Portfolio
Managers”) and are jointly responsible for the day to day management of the
Fund. The Portfolio Managers are responsible for various functions related to
portfolio management, including, but not limited to, identifying companies that
meet the Adviser’s strict VegTechTM
criteria and to continue to monitor those companies, investing cash inflows,
implementing investment strategy, researching and reviewing issuers and
potential investment opportunities, and overseeing members of their portfolio
management team with more limited responsibilities.
Dr.
Sasha Goodman has been working as a portfolio manager at VegTechTM
since 2021. He has 18 years of experience in statistical software development,
expertise in the R programming language, and develops portfolio analysis
software. In his career, he has also served as a lead quantitative analyst on
empirical projects at universities including Stanford, using econometric and
time series methods to research company survival and growth rates. Dr. Goodman’s
company, New Growth, invests exclusively in plant-based private and public
companies. He is widely regarded as a sustainable food systems
expert.
Mr.
Lewellyn has been a Managing Director with the Sub-Adviser since 2012. He was
President and Founder of Golden Gate Investment Consulting LLC from 2011 through
2015. Prior to that, Mr. Lewellyn was a managing director at Charles Schwab
Investment Management, Inc. (“CSIM”), which he joined in 2009, and head of
portfolio management for Schwab ETFs. Prior to joining CSIM, he worked for two
years as director of ETF product management and development at a major financial
institution focused on asset and wealth management. Prior to that, he was a
portfolio manager for institutional clients at a financial services firm for
three years. In addition, he held roles in portfolio accounting and portfolio
management at a large asset management firm for more than 6 years.
Mr.
Tong has been a Managing Director with the Sub-Adviser since 2015. Prior to
joining Penserra, Mr. Tong spent seven years as a vice president at Blackrock,
where he was a portfolio manager for a number of the iShares ETFs, and prior to
that, he spent two years in the firm’s index research group.
Mr.
Desai has been a Senior Vice President with the Sub-Adviser since 2021 and was
previously an Associate since 2015. Prior to joining Penserra, Mr. Desai spent
five years as a portfolio fund accountant at State Street.
The
SAI provides additional information about the Portfolio Managers’ compensation
structure, other accounts managed by the Portfolio Managers, and the Portfolio
Managers’ ownership of Shares.
HOW
TO
BUY
AND
SELL
SHARES
The
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from the Fund, and only APs may tender their Shares for
redemption directly to the Fund, at NAV. APs must be a member or participant of
a clearing agency registered with the SEC and must execute a Participant
Agreement that has been agreed to by the Distributor (defined below), and that
has been accepted by the Fund’s transfer agent, with respect to purchases and
redemptions of Creation Units. Once created, Shares trade in the secondary
market in quantities less than a Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
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 bid-ask spread on
your transactions. In addition, because secondary market transactions occur at
market prices, you may pay more than NAV when you buy Shares and receive less
than NAV when you sell those Shares.
Book-Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
Share
Trading Prices on the Exchange
Trading
prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market
forces of supply and demand, economic conditions and other factors may affect
the trading prices of Shares. To provide additional information regarding the
indicative value of Shares, the Exchange or a market data vendor disseminates
information every 15 seconds through the facilities of the Consolidated
Tape Association, or other widely disseminated means, an updated “intraday
indicative value” (“IIV”) for Shares as calculated by an information provider or
market data vendor. The Fund is not involved in or responsible for any aspect of
the calculation or dissemination of the IIVs and makes no representation or
warranty as to the accuracy of the IIVs. If the calculation of the IIV is based
on the basket of securities to be delivered in exchange for a Creation Unit
(“Deposit Securities”) and/or a designated amount of U.S. cash, such IIV may not
represent the best possible valuation of the Fund’s portfolio because the basket
of Deposit Securities does not necessarily reflect the precise composition of
the current Fund portfolio at a particular point in time and does not include a
reduction for the fees, operating expenses, or transaction costs incurred by the
Fund. The IIV should not be viewed as a “real-time” update of the Fund’s NAV
because the IIV may not be calculated in the same manner as the NAV, which is
computed only once a day, typically at the end of the business day. The IIV is
generally determined by using both current market quotations and/or price
quotations obtained from broker-dealers that may trade in the Deposit
Securities.
Frequent
Purchases and Redemptions of Shares
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, 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 Fund employs fair value pricing and may impose transaction
fees on purchases and redemptions of Creation Units to cover the custodial and
other costs incurred by the Fund in effecting trades. In addition, the Fund and
the Adviser reserve the right to reject any purchase order at any time.
Determination
of NAV
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern time, each day
the NYSE is open for business. The NAV is calculated by dividing the Fund’s net
assets by its Shares outstanding.
In
calculating its NAV, the Fund generally values its assets on the basis of market
quotations, last sale prices, or estimates of value furnished by a pricing
service or brokers who make markets in such instruments. If such information is
not available for a security held by the Fund or is determined to be unreliable,
the security will be valued at fair value estimates under guidelines established
by the Adviser (as described below).
Fair
Value Pricing
The
Fund employs fair value pricing selectively to ensure greater accuracy in its
daily NAV and to prevent dilution by frequent traders or market timers who seek
to take advantage of temporary market anomalies. The Adviser has developed
procedures which utilize fair value pricing when reliable market quotations are
not readily available or the Fund’s pricing service, if applicable, does not
provide a valuation (or provides a valuation that in the judgment of the Adviser
to the Fund does not represent the security’s fair value), or when, in the
judgment of the Adviser, events have rendered the market value unreliable.
Valuing securities at fair value involves reliance on judgment. Fair value
determinations are made in good faith in accordance with procedures adopted by
the Adviser. There can be no assurance that the Fund will obtain the fair value
assigned
to a security if it were to sell the security at approximately the time at which
the Fund determines its NAV per share. The Board has designated the Adviser as
its “valuation designee” under Rule 2a-5 of the 1940 Act, subject to its
oversight.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Fund. 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 Fund 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
The
Fund intends to pay out dividends and distribute net realized capital gains, if
any, to its shareholders at least annually. The Fund will declare and pay
capital gain distributions, if any, in cash. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to
you.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax advisor
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Fund intends to elect and qualify each year for treatment as a regulated
investment company (“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, the Fund’s failure to qualify as a RIC or to meet minimum distribution
requirements would result (if certain relief provisions were not available) in
fund-level taxation and, consequently, a reduction in income available for
distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when the Fund makes distributions, when you sell your Shares listed
on the Exchange; and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions. The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long the Fund owned the investments that generated them,
rather than how long a shareholder has owned his or her Shares. Sales of assets
held by the Fund for more than one year generally result in long-term capital
gains and losses, and sales of assets held by the Fund for one year or less
generally result in short-term capital gains and losses. Distributions of the
Fund’s net capital gain (the excess of net long-term capital gains over net
short-term capital losses) that are reported by the Fund as capital gain
dividends (“Capital Gain Dividends”) will be taxable as long-term capital gains,
which for non-corporate shareholders are subject to tax at reduced rates of up
to 20% (lower rates apply to individuals in lower tax brackets). Distributions
of short-term capital gain will generally be taxable as ordinary income.
Dividends and distributions are generally taxable to you whether you receive
them in cash or reinvest them in additional Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that the Fund received in respect of stock of certain
foreign corporations may be qualified dividend income if that stock is readily
tradable on an established U.S. securities market. Dividends received by a Fund
from an ETF or underlying fund taxable as a RIC may be treated as qualified
dividend income generally only to the extent so reported by such ETF or
underlying fund. 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 amount and
character of any distributions received from the Fund.
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your investment.
If
the Fund’s distributions exceed its earnings and profits, all or a portion of
the distributions made for a taxable year may be recharacterized as a return of
capital to shareholders. A return of capital distribution will generally not be
taxable, but will reduce each shareholder’s cost basis in Shares and result in a
higher capital gain or lower capital loss when the Shares are sold. After a
shareholder’s basis in Shares has been reduced to zero, distributions in excess
of earnings and profits in respect of those Shares will be treated as gain from
the sale of the Shares.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares generally are not subject to U.S. taxation, unless you are a
nonresident alien individual who is physically present in the U.S. for 183 days
or more per year. The Fund may, under certain circumstances, report all or a
portion of a dividend as an “interest-related dividend” or a “short-term capital
gain dividend,” which would generally be exempt from this 30%
U.S. withholding tax, provided certain other requirements are met.
Different tax consequences may result if you are a foreign shareholder engaged
in a trade or business within the United States or if a tax treaty applies.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act),
the Fund is required to withhold 30% of certain ordinary dividends it pays to
shareholders that are foreign entities and that fail to meet prescribed
information reporting or certification requirements.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale or redemption proceeds paid to
any shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that he, she or it is not subject to such withholding.
Taxes
When Shares are Sold on the Exchange.
Taxes
on Purchases and Redemptions of Creation Units. An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash sales” (for an AP who does not mark-to-market their
holdings), or on the basis that there has been no significant change in economic
position. APs exchanging securities should consult their own tax advisor with
respect to whether wash 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 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.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax 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
The
Distributor, Quasar Distributors, LLC, is a broker-dealer registered with the
SEC. The Distributor distributes Creation Units for the Fund on an agency basis
and does not maintain a secondary market in Shares. The Distributor has no role
in determining the policies of the Fund or the securities that are purchased or
sold by the Fund. The Distributor’s principal address is 111 East Kilbourn
Avenue, Suite 2200, Milwaukee, Wisconsin 53202.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year for certain
distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to
impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because the fees are paid out of the Fund’s assets, over time these fees
will increase the cost of your investment and may cost you more than certain
other types of sales charges.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often Shares traded on the Exchange at a price above (i.e., at
a premium) or below (i.e., at
a discount) the NAV per Share is available, free of charge, on the Fund’s
website at eatv.vegtechinvest.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 and the Fund make no representation or warranty, express or implied, to
the owners of Shares or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly.
VegTechTM
Plant-based Innovation & Climate ETF
FINANCIAL
HIGHLIGHTS
The
financial highlights table is intended to help you understand the Fund’s
financial performance for the period of the Fund’s operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Tait, Weller & Baker
LLP, an independent registered public accounting firm, whose report, along with
the Fund’s financial statements, are included in the annual report dated October
31, 2022, which are available upon request.
For
a share outstanding throughout the period
|
|
|
|
|
|
|
|
| |
|
| For
the period December 28, 2021*
through
October 31, 2022 |
|
| Net
asset value, beginning of period |
$ |
24.86 |
| |
|
|
| |
| Income
from investment operations: |
| |
| Net
investment loss |
(0.00) |
(3) |
| Net
realized and unrealized loss on investments |
(9.29) |
| |
| Total
from investment operations |
(9.29) |
| |
|
|
| |
| Net
asset value, end of period |
$ |
15.57 |
| |
|
|
| |
| Total
return, at NAV |
-37.37 |
% |
(2) |
| Total
return, at Market |
-37.33 |
% |
(2) |
|
|
| |
| Ratios/supplemental
data: |
| |
| Net
assets, end of period (thousands) |
$ |
4,671 |
| |
| Ratio
of expenses to average net assets |
0.75 |
% |
(1) |
| Ratio
of net investment loss to average net assets |
(0.02) |
% |
(1) |
|
Portfolio
turnover rate(4) |
133.36 |
% |
(2) |
(1) Annualized.
(2) Not
Annualized.
(3) Amount
is less than $(0.01).
(4) Excludes
impact of in-kind transactions.
* Commencement
of operations.
VegTechTM
Plant-based Innovation & Climate ETF
|
|
|
|
|
|
|
|
|
|
|
| |
|
Adviser |
VegTechTM
LLC
1842
Purdue Avenue #103
Los
Angeles, California 90025 |
Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Drive
Milwaukee,
Wisconsin 53212 |
| Sub-Adviser |
Penserra
Capital Management LLC
4
Orinda Way, Suite 100-A
Orinda,
California 94563 |
Distributor |
Quasar
Distributors, LLC
111
East Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202 |
|
Transfer
Agent, Administrator, and Fund Accountant |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Legal
Counsel |
Sullivan
& Worcester LLP
1633
Broadway, 32nd Floor
New
York, New York 10019 |
| Independent
Registered Public Accounting Firm |
Tait,
Weller & Baker LLP
Two
Liberty Place
50
South 16th Street, Suite 2900
Philadelphia,
Pennsylvania 19102 |
| |
Investors
may find more information about the Fund in the following documents:
Statement
of Additional Information: The
Fund’s SAI provides additional details about the investments and techniques of
the Fund and certain other additional information. A current SAI is on file with
the SEC and is herein incorporated by reference into this Prospectus. It is
legally considered a part of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments will be available in the Fund’s annual
or semi-annual reports to shareholders. In the annual report you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at VegTechTM
ETF, c/o U.S. Bank Global Fund Services, P.O. Box 701, Milwaukee, Wisconsin
53201-0701 or calling 1-800-617-0004.
Shareholder
reports and other information about the Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Fund’s Internet website at eatv.vegtechinvest.com;
or
(SEC
Investment Company Act File No. 811-07959)
