ck0001540305-20221231
Prospectus
April 30,
2023
U.S.
Global ETFs
Exchange-Traded
Funds (“ETFs”)
U.S. Global Jets ETF (NYSE Arca
Ticker: JETS)
U.S. Global GO GOLD and Precious Metal Miners
ETF (NYSE Arca Ticker: GOAU)
U.S. Global Sea to Sky Cargo ETF
(NYSE Arca Ticker: SEA)
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.
U.S.
Global Jets ETF
U.S.
Global GO GOLD and Precious Metal Miners ETF
U.S.
Global Sea to Sky Cargo ETF
TABLE
OF CONTENTS
Investment Objective
The U.S. Global Jets ETF (the
“Fund”) seeks to track the performance, before fees and expenses, of the U.S.
Global Jets Index (the “Index”).
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) |
Management
Fees |
0.60% |
Distribution
and/or Service (12b-1) Fees |
None |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.60% |
Expense Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then continue to hold or redeem all of
your Shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year |
3
Years |
5
Years |
10
Years |
$61 |
$192 |
$335 |
$750 |
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
December 31, 2022, the Fund’s portfolio turnover rate was 43% of the average value of its
portfolio.
Principal Investment Strategy
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 exchange-listed common stock (or depositary receipts) of U.S. and
international passenger airlines, aircraft manufacturers, airports, terminal
services companies, and airline-related internet media and services companies
(e.g.,
websites for purchasing airline tickets), each as determined by independent
industry listings (collectively, “Airline Companies”). The Index may include
small-, mid-, and large-capitalization companies.
U.S.
Global Jets Index
The
Index tracks the performance of Airline Companies across the globe with an
emphasis on domestic passenger airlines. The universe of Airline Companies is
screened for investibility (e.g.,
must be listed on a securities exchange), a minimum market capitalization of
$100 million, and liquidity (minimum average daily value traded). U.S. Global
Investors, Inc., the Fund’s investment adviser (the “Adviser”), generally
expects the Index to include 50 Airline Companies. The Index is rebalanced and
reconstituted quarterly in March, June, September, and December.
At
the time of each reconstitution of the Index, each of the four largest U.S.
passenger airline companies, as measured primarily by their market
capitalization and average dollar value traded and, to a lesser extent, their
passenger load factor, receives a 10 percent weighting allocation of the Index.
Each of the next eight largest U.S. or Canadian passenger airline companies
receives a 3 percent weighting allocation of the Index.
The
remaining Airline Companies meeting the Index criteria are then scored based on
multiple fundamental factors. Their score is primarily driven by their cash flow
return on invested capital (CFROIC) and average dollar value traded with
additional inputs based on sales per share growth, gross margins, and sales
yield. Each of the eight U.S. or Canadian companies with the highest composite
scores receives a 2 percent weighting allocation of the Index, each of the 10
non-U.S. companies with the next highest composite
scores
receives a 1 percent weighting allocation of the Index, and each of the 20
non-U.S. companies with the next highest composite scores receives a
0.5 percent weighting allocation of the Index.
The
Index was developed by U.S. Global Indices, LLC (the “Index Provider”), a
wholly-owned subsidiary of the Adviser, in 2015 in anticipation of the
commencement of operations of the Fund and is constructed using an objective,
rules-based methodology.
The
Index calculation agent is Indxx, LLC, which is not affiliated with the Fund,
the Adviser, the Index Provider, or the Fund’s distributor. The Index
calculation agent provides information to the Fund about the constituents of the
Index and does not provide investment advice with respect to the desirability of
investing in, purchasing or selling securities.
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 percent of the Fund’s total assets (exclusive of any collateral held
from securities lending) will be invested in the component securities of the
Index and investments that have economic characteristics that are substantially
identical to the economic characteristics of such component securities
(e.g.,
depositary receipts).
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 in approximately the same proportion as in the Index. However, the
Fund may use a “representative sampling” strategy, meaning it may invest in a
sample of the securities in the Index whose risk, return and other
characteristics closely resemble the risk, return and other characteristics of
the Index as a whole, when the Adviser believes it is in the best interests of
the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
The
Fund generally may invest in securities or other investments not included in the
Index, but which the Adviser believes will help the Fund track the Index. For
example, the Fund may invest in securities that are not components of the Index
to reflect various corporate actions and other changes to the Index (such as
reconstitutions, additions, and deletions).
To
the extent the Index concentrates (i.e., holds more than 25 percent 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 Adviser expects that the Index, and consequently the
Fund, will generally be concentrated in the securities of passenger airline
companies.
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 other funds. Each risk summarized below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Funds.”
•Airline
Companies Risk.
Airline
Companies may be adversely affected by a downturn in economic conditions that
can result in decreased demand for air travel. Airline Companies may also be
significantly affected by changes in fuel prices, which may be very volatile,
the imposition of tariffs, and/or changes in labor relations and insurance
costs. Airline Companies may also be highly dependent on aircraft or related
equipment from a small number of suppliers, and consequently, issues affecting
the availability, reliability, safety, or longevity of such aircraft or
equipment (e.g.,
the inability of a supplier to meet aircraft demand or the grounding of an
aircraft due to safety concerns) may have a significant effect on the operations
and profitability of Airline Companies.
Airline
Companies operating airline-related internet media and services (e.g.,
websites for purchasing airline tickets) face intense competition, which may
have an adverse effect on profit margins. Such companies may have limited
product lines, markets, financial resources, or personnel, and their products
may face obsolescence due to rapid technological developments and frequent new
product introduction. Such companies may face unpredictable changes in growth
rates, competition for the services of qualified personnel, and competition from
foreign competitors with lower production costs. Companies operating websites
and other media may be heavily dependent on patent and intellectual property
rights, the loss or impairment of which may adversely affect the profitability
of these companies.
•Concentration
Risk.
The Index, and consequently the Fund, is expected to concentrate its investments
(i.e.,
hold more than 25% of its total assets) in the securities of passenger airline
companies. As a result, the value of the Fund’s shares may rise and fall more
than the value of shares of a fund that invests in securities of companies in a
broader range of industries. In addition, at times, the airline industry may be
out of favor and underperform other industries or groups of industries or the
market as a whole.
•Currency
Exchange Rate Risk.
The Fund’s assets may include investments denominated in non-U.S. currencies or
in securities that provide exposure to such currencies. Changes in currency
exchange rates and the relative value of non-U.S. currencies will
affect
the value of the Fund’s investment and the value of your Shares. Currency
exchange rates can be very volatile and can change quickly and unpredictably. As
a result, the value of an investment in the Fund may change quickly and without
warning and you may lose money.
•Depositary
Receipt Risk.
Depositary
Receipts involve risks similar to those associated with investments in foreign
securities, such as changes in political or economic conditions of other
countries and changes in the exchange rates of foreign currencies. Depositary
Receipts listed on U.S. exchanges are issued by banks or trust companies and
entitle the holder to all dividends and capital gains that are paid out on the
underlying foreign shares (“Underlying Shares”). When the Fund invests in
Depositary Receipts as a substitute for an investment directly in the Underlying
Shares, the Fund is exposed to the risk that the Depositary Receipts may not
provide a return that corresponds precisely with that of the Underlying Shares.
•Emerging
Markets Risk.
The Fund may invest in companies organized in emerging market nations.
Investments in securities and instruments traded in developing or emerging
markets, or that provide exposure to such securities or markets, can involve
additional risks relating to political, economic, or regulatory conditions not
associated with investments in U.S. securities and instruments or 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. 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.
•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 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. In addition,
local, regional or global events such as war, including Russia’s invasion of
Ukraine, acts of terrorism, spread of infectious diseases or other public health
issues, recessions, rising inflation, or other events could have a significant
negative impact on the Fund and its investments. For example, the global
pandemic caused by COVID-19, a novel coronavirus, and the aggressive responses
taken by many governments, including closing borders, restricting international
and domestic travel, and the imposition of prolonged quarantines or similar
restrictions, has had negative impacts, and in many cases severe impacts, on
markets worldwide. The COVID-19 pandemic has caused prolonged disruptions to the
normal business operations of companies around the world and the impact of such
disruptions is hard to predict. Such events may affect certain geographic
regions, countries, sectors and industries more significantly than others. Such
events could adversely affect the prices and liquidity of the Fund’s portfolio
securities or other instruments and could result in disruptions in the trading
markets.
•ETF
Risks.
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. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums and discounts greater than those of domestic ETFs.
◦Trading. Although
Shares are listed for trading on 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, and this could
lead to differences between the market price of the Shares and the underlying
value of those Shares.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. Investments in non-U.S. securities also
may be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. These and other factors
can make investments in the Fund more volatile and potentially less liquid than
other types of investments.
•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 or lists and trades its
shares on a foreign exchange, it is more likely to be impacted by events or
conditions affecting that country or region.
◦Japan-Specific
Risk.
The Japanese economy may be subject to considerable degrees of economic,
political and social instability, which could have a negative impact on Japanese
securities and markets. While the Japanese economy has recently emerged from a
prolonged economic downturn, Japan’s economic growth rate may remain relatively
low in the future. In addition, Japan is subject to the risk of natural
disasters, such as earthquakes, volcanoes, typhoons and tsunamis. Additionally,
decreasing U.S. imports, new trade regulations, changes in the U.S. dollar
exchange rates, a recession in the United States or continued increases in
foreclosure rates may have an adverse impact on the economy of Japan. Japan also
has few natural resources, and any fluctuation or shortage in the commodity
markets could have a negative impact on Japanese securities and
markets.
•Index
Provider Risk.
There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Adviser relies upon the Index Provider and its
agents to compile, determine, maintain, construct, reconstitute, rebalance,
compose, calculate (or arrange for an agent to calculate), and disseminate the
Index accurately. Any losses or costs associated with errors made by the Index
Provider or its agents generally will be borne by the Fund and its
shareholders.
•Non-Diversification
Risk. The Fund is considered to be non-diversified,
which means that it may invest more of its assets in the securities of a single
issuer or a smaller number of issuers than if it were a diversified fund. As a
result, the Fund may be more exposed to the risks associated with and
developments affecting an individual issuer or a smaller number of issuers than
a fund that invests more widely. This may increase the Fund’s volatility and
cause the performance of a relatively smaller number of issuers to have a
greater impact on the Fund’s performance. However, the Fund intends to satisfy
the diversification requirements for qualifying as a regulated investment
company (a “RIC”) under Subchapter M of the Internal Revenue Code of 1986, as
amended (the “Code”).
•Passive
Investment Risk.
The Fund is not actively managed and the Adviser would not sell shares of an
equity security due to current or projected underperformance of a security,
industry or sector, unless that security is removed from the Index or the
selling of shares of that security is otherwise required upon a reconstitution
of the Index in accordance with the Index methodology.
•Securities
Lending Risk.
The
Fund may engage in securities lending. The Fund may lose money if the borrower
of the loaned securities delays returning in a timely manner or fails to return
the loaned securities. Securities lending involves the risk that the Fund could
lose money in the event of a decline in the value of collateral provided for
loaned securities. In addition, the Fund bears the risk of loss in connection
with its investment of the cash collateral it receives from a borrower. To the
extent that the value or return of the Fund’s investment of the cash collateral
declines below the amount owed to the borrower, the Fund may incur losses that
exceed the amount it earned on lending the security.
•Smaller
Companies Risk. The
Fund may invest in the securities of smaller-capitalization companies. As a
result, the Fund may be more volatile than funds that invest in larger, more
established companies. The securities of smaller-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. Smaller-capitalization companies may be particularly
sensitive to changes in interest rates, government regulation, borrowing costs
and earnings.
•Tax
Risk.
To qualify for the favorable tax treatment generally available to a RIC, the
Fund must satisfy, among other requirements described in the SAI, certain
diversification requirements. 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 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 be eligible for relief provisions if
the failure is due to reasonable cause and not willful neglect and if a penalty
tax is paid with respect to each failure to satisfy the applicable requirements.
Additionally, relief is provided for certain de minimis failures of the
diversification requirements where the Fund corrects the failure within a
specified period. If the Fund were
to
fail to qualify as a RIC for a tax year, and the relief provisions are not
available, 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. In such case, its shareholders would be taxed as
if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction (subject to certain limitations)
and individuals may be able to benefit from the lower tax rates available to
qualified dividend income. In addition, the Fund could be required to recognize
unrealized gains, pay substantial taxes and interest, and make substantial
distributions before requalifying as a RIC.
•Tracking
Error Risk.
As
with all index funds, the performance of the Fund and the Index may differ from
each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for calendar
years ended December 31. The table illustrates how the Fund’s average annual
returns for the 1-year, 5-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.usglobaletfs.com.
Calendar Year Total Returns
During the period of time shown
in the bar chart, the Fund’s highest quarterly return
was 32.31% for the quarter ended December 31,
2020, and the lowest quarterly return was
-53.46% for the quarter ended March 31,
2020.
Average Annual Total Returns
For the Periods Ended December 31,
2022
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U.S.
Global Jets ETF |
1
Year |
5
Years |
Since
Inception
(4/28/2015) |
Return Before
Taxes |
-18.96% |
-11.67% |
-4.23% |
Return After Taxes on
Distributions |
-18.96% |
-11.80% |
-4.40% |
Return After Taxes on Distributions and
Sale of Fund Shares |
-11.22% |
-8.29% |
-3.06% |
U.S.
Global Jets Index (reflects no deduction for
fees, expenses, or taxes) |
-18.69% |
-11.20% |
-3.73% |
S&P
500 Total Return Index (reflects
no deduction for fees, expenses, or taxes) |
-18.11% |
9.42% |
10.14% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts. In certain cases, the figure
representing “Return After Taxes on Distributions and Sale of Shares” may be
higher than the other return figures for the same period. A higher after-tax
return results when a capital loss occurs upon redemption and provides an
assumed tax deduction that benefits the
investor.
Management
Investment
Adviser
U.S.
Global Investors, Inc. serves as investment adviser to the Fund.
Portfolio
Managers
The
Fund is managed by a team consisting of the following individuals: Frank E.
Holmes, Chief Executive Officer and Director for the Adviser, has been a
portfolio manager of the Fund since its inception in April 2015. Ralph P. Aldis,
CFA, a Portfolio Manager for the Adviser, has been a portfolio manager of the
Fund since its inception in April 2015.
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.usglobaletfs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser 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.
Investment Objective
The U.S. Global GO GOLD and
Precious Metal Miners ETF (the “Fund”) seeks to track the performance, before
fees and expenses, of the U.S. Global Go Gold and Precious Metal Miners Index
(the “Index”).
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) |
Management
Fees |
0.60% |
Distribution
and/or Service (12b-1) Fees |
None |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.60% |
Expense Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then continue to hold or redeem all of
your Shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year |
3
Years |
5
Years |
10
Years |
$61 |
$192 |
$335 |
$750 |
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 December
31, 2022, the Fund’s portfolio turnover rate was 106% of the average value of its
portfolio.
Principal Investment Strategy
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 exchange-listed common stock (or American Depositary Receipts (“ADRs”)) of
U.S. and international (including emerging markets) companies that earn at least
50 percent of their aggregate revenue from precious metals (“Precious Metals
Companies”). Precious metals consist of gold, silver, platinum, and palladium.
The Index may include small-, mid-, and large-capitalization companies.
U.S.
Global Go Gold and Precious Metal Miners Index
The
Index universe consists of the common stock or ADRs
of Precious Metals Companies across the globe that earn at
least 50 percent of their aggregate revenue from precious metals through active
(i.e.,
mining or production) or passive (i.e.,
owning royalties or production streams) means. The universe of Precious Metals
Companies is screened for investibility (e.g.,
must be listed on a securities exchange) and liquidity (minimum average daily
value traded). Precious Metals Companies that rely primarily on debt to finance
their business are eliminated from the Index. To qualify for inclusion in the
Index, Precious Metals Companies must have their common stock or a sponsored ADR
listed on one of the following exchanges: Toronto Stock Exchange, TSX Venture,
New York Stock Exchange (main market only), Nasdaq, London Stock Exchange (main
market only), Hong Kong Stock Exchange, Johannesburg Stock Exchange, or
Australian Securities Exchange. As described below, at the time of each
rebalance of the Index, at least 30% of the Index will be allocated to Precious
Metals Companies whose stock is listed on an exchange in the United States
or Canada and that earn a majority of their revenue from gold and silver, and
the top three such companies will each receive a 10% Index allocation.
The
Index is composed of four “tiers” of Precious Metals Companies based on certain
fundamental factors, their country of listing, and other criteria described in
the table below. Each tier will first be populated with Precious Metals
Companies having a gross margin of at least 25% and whose business description
includes the terms “royalty” or “streaming” (“Priority Companies”) before other
Precious
Metals
Companies are eligible to be included in the Index. Each Precious Metals Company
included in the Index universe receives a composite score based on multiple
fundamental factors. Composite scores for Priority Companies are based on their
revenue per employee, operating cash flow per employee, and gross margin, and
scores for other companies are based primarily on their
operating-cash-flow-to-enterprise-value ratio.
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Tier
1 (30%) |
The
three highest-scoring Precious Metals Companies that (i) derive a majority
of their revenue from silver or gold, (ii) have their common stock
listed on an exchange in the United States or Canada, and (iii) have a
market capitalization of at least $1 billion are individually
weighted at 10%. |
Tier
2 (20%) |
The
next five highest-scoring Precious Metals Companies that (i)(a) have their
common stock listed on an exchange in the United States or Canada or (b)
have a U.S.-listed ADR and have their common stock listed on an exchange
in Australia, South Africa, or the United Kingdom, and (ii) have a market
capitalization of at least $400 million are individually weighted at
4%. |
Tier
3 (30%) |
The
next ten highest-scoring Precious Metals Companies that (i)(a) have their
common stock listed on an exchange in the United States or Canada or (b)
have a U.S.-listed ADR and have their common stock listed on an exchange
in Australia, South Africa, or the United Kingdom, and (ii) have a market
capitalization of at least $300 million are individually weighted at
3%. |
Tier
4 (20%) |
The
next ten highest-scoring Precious Metals Companies that (i) have their
common stock listed on an exchange outside of the United States or Canada
and (ii) have a market capitalization of at least $200 million are
individually weighted at 2%. |
U.S.
Global Investors, Inc., the Fund’s investment adviser (the “Adviser”), generally
expects the Index to include approximately 28 Precious Metals Companies. The
Index is rebalanced and reconstituted quarterly.
The
Index was developed in 2017 by U.S. Global Indices, LLC (the “Index Provider”),
a wholly-owned subsidiary of the Adviser, in anticipation of the commencement of
operations of the Fund and is constructed using an objective, rules-based
methodology.
The
Index calculation agent is Indxx, LLC, which is not affiliated with the Fund,
the Adviser, the Index Provider, or the Fund’s distributor. The Index
calculation agent provides information to the Fund about the constituents of the
Index and does not provide investment advice with respect to the desirability of
investing in, purchasing, or selling securities.
The
Fund’s Investment Strategy
Under
normal circumstances, the Fund will invest at least 80% of its net assets (plus
borrowings for investment purposes) in Precious Metals Companies and at least
20% of its net assets (plus borrowings for investment purposes) in Precious
Metals Companies that primarily derive their revenue from gold. The specific
precious metals from which the Precious Metals Companies owned by the Fund
derive their revenue may change over time, although the Adviser generally
expects that the Fund will be predominantly invested in Precious Metals
Companies that primarily derive their revenue from gold.
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 in approximately the same proportion as in the Index. However, the
Fund may use a “representative sampling” strategy, meaning it may invest in a
sample of the securities in the Index whose risk, return and other
characteristics closely resemble the risk, return and other characteristics of
the Index as a whole, when the Adviser believes it is in the best interests of
the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
The
Fund generally may invest in securities or other investments not included in the
Index, but which the Adviser believes will help the Fund track the Index. For
example, the Fund may invest in securities that are not components of the Index
to reflect various corporate actions and other changes to the Index (such as
reconstitutions, additions, and deletions).
To
the extent the Index concentrates (i.e., holds more than 25 percent 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 Adviser expects that the Index, and consequently the
Fund, will generally be concentrated in the metals and mining
industry.
To the extent the Index has significant
exposure to certain geographic regions, the Fund will have approximately the
same exposure. The Adviser expects that the Index, and consequently the Fund,
will generally have significant exposure to investments in South Africa,
Australia, and Canada.
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 other funds. Each risk summarized below is considered a “principal risk” of
investing in the Fund, regardless of the order in which it appears.
As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”),
trading
price, yield, total return and/or ability to meet its objectives. For more
information about the risks of investing in the Fund, see the section in the
Fund’s Prospectus titled “Additional Information About the Funds.”
•Concentration
Risk.
The Index, and consequently the Fund, is expected to concentrate its investments
(i.e.,
hold more than 25% of its total assets) in the securities of the metals and
mining industry. As a result, the value of the Fund’s shares may rise and fall
more than the value of shares of a fund that invests in securities of companies
in a broader range of industries. In addition, at times, the metals and mining
industry may be out of favor and underperform other industries or groups of
industries or the market as a whole.
•Currency
Exchange Rate Risk.
The Fund invests primarily in investments denominated in non-U.S. currencies or
in securities that provide exposure to such currencies. Changes in currency
exchange rates and the relative value of non-U.S. currencies will affect the
value of the Fund’s investment and the value of your Shares. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the value of an investment in the Fund may change quickly and without
warning and you may lose money.
•Depositary
Receipt Risk.
Depositary
Receipts involve risks similar to those associated with investments in foreign
securities, such as changes in political or economic conditions of other
countries and changes in the exchange rates of foreign currencies. Depositary
Receipts listed on U.S. exchanges are issued by banks or trust companies and
entitle the holder to all dividends and capital gains that are paid out on the
underlying foreign shares (“Underlying Shares”). When the Fund invests in
Depositary Receipts as a substitute for an investment directly in the Underlying
Shares, the Fund is exposed to the risk that the Depositary Receipts may not
provide a return that corresponds precisely with that of the Underlying Shares.
•Emerging
Markets Risk.
The Fund may invest in companies organized in emerging market nations.
Investments in securities and instruments traded in developing or emerging
markets, or that provide exposure to such securities or markets, can involve
additional risks relating to political, economic, or regulatory conditions not
associated with investments in U.S. securities and instruments or 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. 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.
•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 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. In addition,
local, regional or global events such as war, including Russia’s invasion of
Ukraine, acts of terrorism, spread of infectious diseases or other public health
issues, recessions, rising inflation, or other events could have a significant
negative impact on the Fund and its investments. For example, the global
pandemic caused by COVID-19, a novel coronavirus, and the aggressive responses
taken by many governments, including closing borders, restricting international
and domestic travel, and the imposition of prolonged quarantines or similar
restrictions, has had negative impacts, and in many cases severe impacts, on
markets worldwide. The COVID-19 pandemic has caused prolonged disruptions to the
normal business operations of companies around the world and the impact of such
disruptions is hard to predict. Such events may affect certain geographic
regions, countries, sectors and industries more significantly than others. Such
events could adversely affect the prices and liquidity of the Fund’s portfolio
securities or other instruments and could result in disruptions in the trading
markets.
•ETF
Risks.
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. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums and discounts greater than those of domestic ETFs.
◦Trading. Although
Shares are listed for trading on 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, and this could lead to differences between the market price of the
Shares and the underlying value of those Shares.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. Investments in non-U.S. securities also
may be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. These and other factors
can make investments in the Fund more volatile and potentially less liquid than
other types of investments.
•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.
◦Australia-Specific
Risk.
Because investments in the metals and mining industry may be geographically
concentrated in Australian companies or companies that have a significant
presence in Australia, investment results could be dependent on the financial
condition of the Australian economy. Investments in Australian issuers may
subject the Fund to regulatory, political, currency, security, and economic risk
specific to Australia. The Australian economy is heavily dependent on exports
from the agricultural and mining sectors. This makes the Australian economy
susceptible to fluctuations in the commodity markets. Australia is also
dependent on trading with key trading partners.
◦Canada-Specific
Risk. Because
investments in the metals and mining industry may be geographically concentrated
in Canadian companies or companies that have a significant presence in Canada,
investment results could be dependent on the financial condition of the Canadian
economy. The Canadian economy is reliant on the sale of natural resources and
commodities, which can pose risks such as the fluctuation of prices and the
variability of demand for exportation of such products. Changes in spending on
Canadian products by the economies of other countries or changes in any of these
economies may cause a significant impact on the Canadian economy.
◦South
Africa-Specific Risk.
Because investments in the metals and mining industry may be geographically
concentrated in South African companies or companies that have a significant
presence in South Africa, investment results could be dependent on the financial
condition of the South African economy. The securities markets in South Africa
are subject to greater risks associated with market volatility, lower market
capitalization, lower trading volume, illiquidity, currency devaluation,
inflation, greater price fluctuations, adverse social and economic conditions in
a neighboring country, natural disasters and environmental events, uncertainty
regarding the existence of trading markets, governmental control, and heavy
regulation of labor and industry. Additionally, the agriculture and mining
sectors of South Africa’s economy account for a large portion of its exports,
and thus the South African economy is susceptible to fluctuations in these
commodity markets.
• Gold
and Precious Metals Risk. The
Fund will be sensitive to changes in, and its performance will depend to a
greater extent on, the overall condition of the metals and mining industry.
Competitive pressures may have a significant effect on the financial condition
of companies in such industry. Also, such companies are highly dependent on the
price of certain precious metals. These prices may fluctuate substantially over
short periods of time, so the Fund’s Share price may be more volatile than other
types of investments. The prices of precious metals rise and fall in response to
many factors, including: economic cycles; changes in inflation or expectations
about inflation in various countries; interest rates; currency fluctuations;
metal sales by governments, central banks, or international agencies; investment
speculation; resource availability; fluctuations in industrial and commercial
supply and demand; government regulation of the metals and materials industries;
and government prohibitions or restrictions on the private ownership of certain
precious and rare metals. The Index measures the performance of equity
securities of Precious Metals Companies and does not measure the performance of
direct investment in precious metals. Consequently, the Fund’s Share price may
not move in the same direction and to the same extent as the spot prices of
precious metals.
•Index
Provider Risk.
There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Adviser relies upon the Index Provider and its
agents to compile, determine, maintain, construct, reconstitute, rebalance,
compose, calculate (or arrange for an agent to calculate), and disseminate the
Index accurately. Any losses or costs associated with errors made by the Index
Provider or its agents generally will be borne by the Fund and its
shareholders.
•Non-Diversification
Risk. The Fund is considered to be non-diversified,
which means that it may invest more of its assets in the securities of a single
issuer or a smaller number of issuers than if it were a diversified fund. As a
result, the Fund may be more exposed to the risks associated with and
developments affecting an individual issuer or a smaller number of issuers than
a fund that invests more widely. This may increase the Fund’s volatility and
cause the performance of a relatively smaller number of issuers to have a
greater impact on the Fund’s performance. However, the Fund intends to satisfy
the diversification requirements for qualifying as a regulated investment
company (a “RIC”) under Subchapter M of the Internal Revenue Code of 1986, as
amended (the “Code”).
•Passive
Investment Risk.
The Fund is not actively managed and the Adviser would not sell shares of an
equity security due to current or projected underperformance of a security,
industry or sector, unless that security is removed from the Index or the
selling of shares of that security is otherwise required upon a reconstitution
of the Index in accordance with the Index methodology.
•Portfolio
Turnover Risk. The
Fund may trade all or a significant portion of the securities in its portfolio
in connection with each rebalance and reconstitution of its Index. A high
portfolio turnover rate increases transaction costs, which may increase the
Fund’s expenses. Frequent trading may also cause adverse tax consequences for
investors in the Fund due to an increase in short-term capital gains.
•Securities
Lending Risk.
The
Fund may engage in securities lending. The Fund may lose money if the borrower
of the loaned securities delays returning in a timely manner or fails to return
the loaned securities. Securities lending involves the risk that the Fund could
lose money in the event of a decline in the value of collateral provided for
loaned securities. In addition, the Fund bears the risk of loss in connection
with its investment of the cash collateral it receives from a borrower. To the
extent that the value or return of the Fund’s investment of the cash collateral
declines below the amount owed to the borrower, the Fund may incur losses that
exceed the amount it earned on lending the security.
•Smaller
Companies Risk.
The Fund may invest in the securities of smaller-capitalization companies. As a
result, the Fund may be more volatile than funds that invest in larger, more
established companies. The securities of smaller-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. Smaller-capitalization companies may be particularly
sensitive to changes in interest rates, government regulation, borrowing costs
and earnings.
• Tax
Risk.
To qualify for the favorable tax treatment generally available to a RIC, the
Fund must satisfy, among other requirements described in the SAI, certain
diversification requirements. 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 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 be eligible for relief provisions if
the failure is due to reasonable cause and not willful neglect and if a penalty
tax is paid with respect to each failure to satisfy the applicable requirements.
Additionally, relief is provided for certain de
minimis
failures of the diversification requirements where the Fund corrects the failure
within a specified period. If the Fund were to fail to qualify as a RIC for a
tax year, and the relief provisions are not available, 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. In such
case, its shareholders would be taxed as if they received ordinary dividends,
although corporate shareholders could be eligible for the dividends received
deduction (subject to certain limitations) and individuals may be able to
benefit from the lower tax rates available to qualified dividend income. In
addition, the Fund could be required to recognize unrealized gains, pay
substantial taxes and interest, and make substantial distributions before
requalifying as a RIC.
•Tracking
Error Risk.
As
with all index funds, the performance of the Fund and the Index may differ from
each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for calendar
years ended December 31. The table illustrates how the Fund’s average annual
returns for the 1-year, 5-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.usglobaletfs.com.
Calendar Year Total Returns
During the period of time shown
in the bar chart, the Fund’s highest quarterly return
was 69.41% for the quarter ended June 30,
2020, and the lowest quarterly return was
-31.04% for the quarter ended June 30,
2022.
Average Annual Total Returns
For the Periods Ended December 31,
2022
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U.S.
Global GO GOLD and Precious Metal Miners ETF |
1
Year |
5
Years |
Since
Inception
(6/27/2017) |
Return Before
Taxes |
-11.67% |
5.97% |
6.68% |
Return After Taxes on
Distributions |
-11.81% |
5.45% |
6.20% |
Return After Taxes on Distributions and
Sale of Fund Shares |
-6.50% |
4.66% |
5.26% |
U.S.
Global Go Gold and Precious Metal Miners Index
(reflects no deduction for
fees, expenses, or taxes) |
-10.38% |
7.31% |
8.08% |
S&P
500 Total Return Index
(reflects
no deduction for fees, expenses, or taxes) |
-18.11% |
9.42% |
10.70% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts. In certain cases, the figure
representing “Return After Taxes on Distributions and Sale of Shares” may be
higher than the other return figures for the same period. A higher after-tax
return results when a capital loss occurs upon redemption and provides an
assumed tax deduction that benefits the
investor.
Management
Investment
Adviser
U.S.
Global Investors, Inc. serves as investment adviser to the Fund.
Portfolio
Managers
The
Fund is managed by a team consisting of the following individuals: Frank E.
Holmes, Chief Executive Officer and Director for the Adviser, has been a
portfolio manager of the Fund since its inception in June 2017. Ralph P. Aldis,
CFA, a Portfolio Manager for the Adviser, has been a portfolio manager of the
Fund since its inception in June 2017.
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.usglobaletfs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser 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.
Investment Objective
The U.S. Global Sea to Sky
Cargo ETF (the “Fund”) seeks to track the performance, before fees and expenses,
of the U.S. Global Sea to Sky Cargo Index (the “Index”).
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) |
Management
Fees |
0.60% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
1.69% |
Total
Annual Fund Operating Expenses |
2.29% |
Less:
Fee Waiver and/or Expense Reimbursement |
(1.69)% |
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense
Reimbursement1 |
0.60% |
(1)
Pursuant to a contractual
operating expense limitation between U.S. Global Investors, Inc., the Fund’s
investment adviser (the “Adviser”), and the Fund, the Adviser has agreed to
waive its management fees and/or reimburse Fund expenses to ensure that Total
Annual Fund Operating Expenses (excluding interest charges on any borrowings,
taxes, brokerage commissions and other expenses incurred in placing orders for
the purchase and sale of securities and other investment instruments, acquired
fund fees and expenses, accrued deferred tax liability, extraordinary expenses,
and distribution fees and expenses paid by the Fund under any distribution plan
adopted pursuant to Rule 12b‑1 (collectively, “Excludable Expenses”)) do not
exceed 0.60% for the first $100 million of the Fund’s average daily net assets
and 0.70% for net assets greater than $100 million, through at least
April 30,
2024, unless terminated sooner by, or with the consent of, the
Trust’s Board of Trustees (the “Board of Trustees” or the “Board”). To the
extent the Fund incurs Excludable Expenses, Total Annual Fund Operating Expenses
After Fee Waiver and/or Expense Reimbursement will exceed the applicable expense
limitation. The Adviser may request recoupment of previously waived fees and
paid expenses from the Fund for up to three years from the date such fees and
expenses were waived or paid, if such reimbursement will not cause the Fund’s
total expense ratio to exceed the lesser of: (1) the expense limitation in place
at the time of the waiver and/or expense payment; or (2) the expense limitation
in place at the time of the recoupment.
Expense Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then continue to hold or redeem all of
your Shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year |
3
Years |
5
Years |
10
Years |
$61 |
$553 |
$1,071 |
$2,494 |
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 period January 19, 2022
(commencement of operations) through December 31, 2022, the Fund’s portfolio
turnover rate was 103% of the average value of its
portfolio.
Principal Investment Strategy
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 exchange-listed common stock (or depositary receipts) of marine shipping,
air freight and courier, and port and harbor operating companies of any size
across the globe in developed or emerging markets.
U.S.
Global Sea to Sky Cargo Index
The
Index tracks the performance of marine shipping, air freight and courier, and
port and harbor operating companies (collectively, “Cargo
Companies”).
At
the time of each quarterly reconstitution and rebalance of the Index, 70% of the
Index’s weight is allocated to marine shipping and port/harbor companies and 30%
of the Index’s weight is allocated to air freight/courier companies. The
universe of Cargo Companies is screened for investibility (e.g.,
must be listed on a securities exchange), a minimum market capitalization of
$100 million, and a minimum three-month average dollar value traded of $5
million. As of March 31, 2023, the Index consisted of 25 Cargo Companies. The
Index is reconstituted and rebalanced quarterly at the close of trading on the
second Friday in each March, June, September, and December based on data as of a
prior date (the “Selection Date”).
As
of each Selection Date, each Cargo Company is ranked based on four factors (each
assigned a factor weighting): cash flow return on invested capital (“CFROIC”)
(33%), market capitalization (33%), earnings-to-price ratio (33%), and
cash-flow-to-price ratio (1%). A composite score is assigned to each Cargo
Company based on such rankings.
At
the time of each reconstitution and rebalance of the Index, the top six marine
shipping and port/harbor companies with the highest composite scores and a
minimum market capitalization of US$400 million each receive a five percent
weighting allocation of the Index; the next top seven marine shipping and
port/harbor companies with the highest composite scores and a minimum market
capitalization of US$300 million each receive a four percent weighting
allocation of the Index; the next top six marine shipping and port/harbor
companies with the highest composite scores and a minimum market capitalization
of US$100 million each receive a two percent weighting allocation of the
Index; and the top ten air freight/courier companies with the highest composite
scores and a minimum market capitalization of US$200 million each receive a
three percent weighting allocation of the Index.
As
of March 31, 2023, the Index had significant exposure to companies in Europe,
Japan, China/Hong Kong and Taiwan. The Index’s geographic exposure may change
significantly with each reconstitution or based on market movements in between
reconstitutions.
The
Index was developed by U.S. Global Indices, LLC (the “Index Provider”), a
wholly-owned subsidiary of the Adviser, in 2021 in anticipation of the
commencement of operations of the Fund and is constructed using an objective,
rules-based methodology.
The
Index calculation agent is Indxx, LLC, which is not affiliated with the Fund,
the Adviser, the Index Provider, or the Fund’s distributor. The Index
calculation agent provides information to the Fund about the constituents of the
Index and does not provide investment advice with respect to the desirability of
investing in, purchasing or selling securities.
The
Fund’s Investment Strategy
Under
normal circumstances, the Fund will invest at least 80% of its net assets (plus
borrowings for investment purposes) in Cargo Companies. The foregoing policy may
be changed without shareholder approval upon 60 days’ written notice to
shareholders.
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 in approximately the same proportion as in the Index. However, the
Fund may use a “representative sampling” strategy, meaning it may invest in a
sample of the securities in the Index whose risk, return and other
characteristics closely resemble the risk, return and other characteristics of
the Index as a whole, when the Adviser believes it is in the best interests of
the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
The
Fund generally may invest in securities or other investments not included in the
Index, but which the Adviser believes will help the Fund track the Index. For
example, the Fund may invest in securities that are not components of the Index
to reflect various corporate actions and other changes to the Index (such as
reconstitutions, additions, and deletions).
The
Fund is considered to be non-diversified, which means that it may invest more of
its assets in the securities of a single issuer or a smaller number of issuers
than if it were a diversified fund.
To
the extent the Index concentrates (i.e., holds more than 25 percent 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 Adviser expects that the Index, and consequently the
Fund, will generally be concentrated in the securities of Cargo
Companies.
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 other funds. Each risk summarized below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Fund.”
•Concentration
in Cargo Companies Risk.
The
Index, and consequently the Fund, is expected to concentrate its investments
(i.e.,
hold more than 25% of its total assets) in the securities of Cargo Companies. As
a result, the value of the Fund’s shares may rise and fall more than the value
of shares of a fund that invests in securities of companies in a broader range
of industries. In
addition,
at times, the marine shipping, port/harbor operators, and air freight/courier
industries may be out of favor and underperform other industries or groups of
industries or the market as a whole.
Cargo
Companies may be adversely affected by a downturn in economic conditions that
can result in decreased demand for marine shipping, ports, and air freight.
Cargo Companies may also be significantly affected by changes in fuel prices,
which may be very volatile, the imposition of tariffs or trade wars, changes in
labor relations or availability, insurance costs, commodities prices in general,
international politics and conflicts, changes in airborne or seaborne
transportation patterns, changes to marine shipping and air freight routes,
weather patterns and events, including hurricane activity, maritime accidents,
canal closures, and port congestion. Cargo Companies may also be highly
dependent on aircraft, ships, or related equipment from a small number of
suppliers, and consequently, issues affecting the availability, reliability,
safety, or longevity of such aircraft, ships, or equipment (e.g.,
the inability of a supplier to meet demand or the grounding of an aircraft due
to safety concerns) may have a significant effect on the operations and
profitability of Cargo Companies.
•Currency
Exchange Rate Risk.
The Fund’s assets may include investments denominated in non-U.S. currencies or
in securities that provide exposure to such currencies. Changes in currency
exchange rates and the relative value of non-U.S. currencies will affect the
value of the Fund’s investment and the value of your Shares. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the value of an investment in the Fund may change quickly and without
warning and you may lose money.
•Depositary
Receipt Risk.
Depositary
receipts involve risks similar to those associated with investments in foreign
securities, such as changes in political or economic conditions of other
countries and changes in the exchange rates of foreign currencies. Depositary
receipts listed on U.S. exchanges are issued by banks or trust companies and
entitle the holder to all dividends and capital gains that are paid out on the
underlying foreign shares (“Underlying Shares”). When the Fund invests in
depositary receipts as a substitute for an investment directly in the Underlying
Shares, the Fund is exposed to the risk that the depositary receipts may not
provide a return that corresponds precisely with that of the Underlying Shares.
•Emerging
Markets Risk.
The Fund may invest in companies organized in emerging market nations.
Investments in securities and instruments traded in developing or emerging
markets, or that provide exposure to such securities or markets, can involve
additional risks relating to political, economic, or regulatory conditions not
associated with investments in U.S. securities and instruments or 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. 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.
•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 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. In addition,
local, regional or global events such as war, including Russia’s invasion of
Ukraine, acts of terrorism, spread of infectious diseases or other public health
issues, recessions, rising inflation, or other events could have a significant
negative impact on the Fund and its investments. For example, the global
pandemic caused by COVID-19, a novel coronavirus, and the aggressive responses
taken by many governments, including closing borders, restricting international
and domestic travel, and the imposition of prolonged quarantines or similar
restrictions, has had negative impacts, and in many cases severe impacts, on
markets worldwide. The COVID-19 pandemic has caused prolonged disruptions to the
normal business operations of companies around the world and the impact of such
disruptions is hard to predict. Such events may affect certain geographic
regions, countries, sectors and industries more significantly than others. Such
events could adversely affect the prices and liquidity of the Fund’s portfolio
securities or other instruments and could result in disruptions in the trading
markets.
•ETF
Risks.
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. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums and discounts greater than those of domestic ETFs.
◦Trading. Although
Shares are listed for trading on 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, and this could lead to differences between the market price of the
Shares and the underlying value of those Shares.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. There may be less information publicly
available about a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may be
subject to different accounting, auditing, financial reporting and investor
protection standards than U.S. issuers. Investments in non-U.S. securities may
be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. With respect to certain
countries, there is the possibility of government intervention and expropriation
or nationalization of assets. Because legal systems differ, there is also the
possibility that it will be difficult to obtain or enforce legal judgments in
certain countries. Since foreign exchanges may be open on days when the Fund
does not price its Shares, the value of the securities in the Fund’s portfolio
may change on days when shareholders will not be able to purchase or sell the
Shares. Conversely, Shares may trade on days when foreign exchanges are closed.
Each of these factors can make investments in the Fund more volatile and
potentially less liquid than other types of investments.
•Geographic
Investment Risk.
To
the extent that the Fund invests a significant portion of its assets in the
securities of companies of a single country or region or lists and trades its
shares on a foreign exchange, it is more likely to be impacted by events or
conditions affecting that country or region. For example, political and economic
conditions and changes in regulatory, tax, or economic policy in a country could
significantly affect the market in that country and in surrounding or related
countries and have a negative impact on the Fund’s performance. Currency
developments or restrictions, political and social instability, and changing
economic conditions have resulted in significant market volatility.
◦China
and Hong Kong-Specific Risk. Investments
in the securities of Chinese issuers that trade on an exchange in Hong Kong
subject the Fund to risks specific to China and Hong Kong. China and Hong Kong
may be subject to considerable degrees of economic, political and social
instability. China and Hong Kong are developing markets and demonstrate
significantly higher volatility from time to time in comparison to developed
markets. Over the past 25 years, the Chinese government has undertaken reform of
economic and market practices and is expanding the sphere of private ownership
of property in China. However, Chinese markets generally continue to experience
inefficiency, volatility and pricing anomalies resulting from governmental
influence, a lack of publicly available information and/or political and social
instability. Internal social unrest or confrontations with other neighboring
countries, including military conflicts in response to such events, may also
disrupt economic development in China and result in a greater risk of currency
fluctuations, currency convertibility, interest rate fluctuations and higher
rates of inflation. Export growth continues to be a major driver of China’s
rapid economic growth. Reduction in spending on Chinese products and services,
institution of tariffs or other trade barriers, or a downturn in any of the
economies of China’s key trading partners may have an adverse impact on the
Chinese economy. China is also vulnerable economically to the impact of a public
health crisis, which could depress consumer demand, reduce economic output, and
potentially lead to market closures, travel restrictions, and quarantines, all
of which would negatively impact China’s economy and could affect the economies
of its trading partners. Further, any attempt by China to tighten its control
over Hong Kong’s political, economic, legal or social policies may result in an
adverse effect on Hong Kong’s markets.
For
purposes of raising capital offshore on exchanges outside of China, including on
U.S. exchanges, many Chinese-based operating companies are structured as
Variable Interest Entities (“VIEs”). In this structure, the Chinese-based
operating company is the VIE and establishes a shell company in a foreign
jurisdiction, such as the Cayman Islands. The shell company lists on a foreign
exchange and enters into contractual arrangements with the VIE. This structure
allows Chinese companies in which the government restricts foreign ownership to
raise capital from foreign investors. While the shell company has no
equity
ownership of the VIE, these contractual arrangements permit the shell company to
consolidate the VIE’s financial statements with its own for accounting purposes
and provide for economic exposure to the performance of the underlying Chinese
operating company. Therefore, an investor in the listed shell company, such as
the Fund, will have exposure to the Chinese-based operating company only through
contractual arrangements and has no ownership in the Chinese-based operating
company. Furthermore, because the shell company only has specific rights
provided for in these service agreements with the VIE, its abilities to control
the activities at the Chinese-based operating company are limited and the
operating company may engage in activities that negatively impact investment
value.
◦Europe-Specific
Risk.
The economies and markets of European countries are often closely connected and
interdependent, and events in one country in Europe can have an adverse impact
on other European countries. The Fund makes investments in securities of issuers
that are domiciled in, or have significant operations in, member countries of
the European Union (“EU”) that are subject to economic and monetary controls
that can adversely affect the Fund’s investments. The European financial markets
have experienced volatility and adverse trends in recent years and these events
have adversely affected the exchange rate of the euro and may continue to
significantly affect other European countries. Decreasing imports or exports,
changes in governmental or EU regulations on trade, changes in the exchange rate
of the euro, the default or threat of default by an EU member country on its
sovereign debt, and/or an economic recession in an EU member country may have a
significant adverse effect on the economies of EU member countries and their
trading partners, including some or all of the European countries in which the
Fund invests.
The
UK formally exited from the EU on January 31, 2020 (known as “Brexit”), and
effective December 31, 2020, the UK ended a transition period during which it
continued to abide by the EU’s rules and the UK’s trade relationships with the
EU were generally unchanged. Following this transition period, the impact on the
UK and European economies and the broader global economy could be significant,
resulting in negative impacts, such as increased volatility and illiquidity, and
potentially lower economic growth of markets in the UK, Europe and globally,
which may adversely affect the value of the Fund’s investments.
Russia’s
large-scale invasion of Ukraine on February 24, 2022 has led to various
countries imposing economic sanctions on certain Russian individuals and Russian
corporate and banking entities. A number of jurisdictions have also instituted
broader sanctions on Russia. Further, as of the date of this Prospectus, the
Russian securities markets effectively have not been open for trading by foreign
investors since February 28, 2022. Russia’s military incursion and resulting
sanctions could have a severe adverse effect on both regional and global
economies, which in turn could affect the value of the Fund’s
investments.
◦Japan-Specific
Risk.
The Japanese economy may be subject to considerable degrees of economic,
political and social instability, which could have a negative impact on Japanese
securities and markets. While the Japanese economy has recently emerged from a
prolonged economic downturn, Japan’s economic growth rate may remain relatively
low in the future. In addition, Japan is subject to the risk of natural
disasters, such as earthquakes, volcanoes, typhoons and tsunamis. Additionally,
decreasing U.S. imports, new trade regulations, changes in the U.S. dollar
exchange rates, a recession in the United States or continued increases in
foreclosure rates may have an adverse impact on the economy of Japan. Japan also
has few natural resources, and any fluctuation or shortage in the commodity
markets could have a negative impact on Japanese securities and
markets.
◦Taiwan-Specific
Risk.
Investments in Taiwanese issuers may subject the Fund to legal, regulatory,
political, currency and economic risks that are specific to Taiwan.
Specifically, Taiwan’s geographic proximity and history of political contention
with China have resulted in ongoing tensions between the two countries. These
tensions may materially affect the Taiwanese economy and its securities market.
Taiwan’s economy is export-oriented, so it depends on an open world trade regime
and remains vulnerable to fluctuations in the world economy. The Taiwanese
economy is dependent on the economies of Asia, mainly those of Japan and China,
and the United States. Reduction in spending by any of these countries on
Taiwanese products and services or negative changes in any of these economies
may cause an adverse impact on the Taiwanese economy.
•Index
Provider Risk. There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Adviser relies upon the Index Provider and its
agents to compile, determine, maintain, construct, reconstitute, rebalance,
compose, calculate (or arrange for an agent to calculate), and disseminate the
Index accurately. Any losses or costs associated with errors made by the Index
Provider or its agents generally will be borne by the Fund and its
shareholders.
•Limited
Operating History Risk.
The Fund is a recently organized 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.
•Non-Diversification
Risk. The Fund is considered to be
non-diversified, which means that it may invest more of its assets in the
securities of a single issuer or a smaller number of issuers than if it were a
diversified fund. As a result, the Fund may be more
exposed to the risks associated with and
developments affecting an individual issuer or a smaller number of issuers than
a fund that invests more widely. This may increase the Fund’s volatility and
cause the performance of a relatively smaller number of issuers to have a
greater impact on the Fund’s performance. However, the Fund intends to satisfy
the diversification requirements for qualifying as a regulated investment
company (a “RIC”) under Subchapter M of the Internal Revenue Code of 1986, as
amended (the “Code”).
•Passive
Investment Risk.
The Fund is not actively managed and the Adviser would not sell shares of an
equity security due to current or projected underperformance of a security,
industry or sector, unless that security is removed from the Index or the
selling of shares of that security is otherwise required upon a reconstitution
of the Index in accordance with the Index methodology.
•Portfolio
Turnover Risk. The
Fund may trade all or a significant portion of the securities in its portfolio
in connection with each rebalance and reconstitution of its Index. A high
portfolio turnover rate increases transaction costs, which may increase the
Fund’s expenses. Frequent trading may also cause adverse tax consequences for
investors in the Fund due to an increase in short-term capital gains.
•Securities
Lending Risk.
The
Fund may engage in securities lending. The Fund may lose money if the borrower
of the loaned securities delays returning in a timely manner or fails to return
the loaned securities. Securities lending involves the risk that the Fund could
lose money in the event of a decline in the value of collateral provided for
loaned securities. In addition, the Fund bears the risk of loss in connection
with its investment of the cash collateral it receives from a borrower. To the
extent that the value or return of the Fund’s investment of the cash collateral
declines below the amount owed to the borrower, the Fund may incur losses that
exceed the amount it earned on lending the security.
•Smaller-Companies
Risk. The
Fund may invest in the securities of smaller-capitalization companies. As a
result, the Fund may be more volatile than funds that invest in larger, more
established companies. The securities of smaller-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. Smaller-capitalization companies may be particularly
sensitive to changes in interest rates, government regulation, borrowing costs
and earnings.
•Tax
Risk.
To qualify for the favorable tax treatment generally available to a regulated
investment company (“RIC”), the Fund must satisfy, among other requirements
described in the SAI, certain diversification requirements. 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 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 be
eligible for relief provisions if the failure is due to reasonable cause and not
willful neglect and if a penalty tax is paid with respect to each failure to
satisfy the applicable requirements. Additionally, relief is provided for
certain de minimis failures of the diversification requirements where the Fund
corrects the failure within a specified period. If the Fund were to fail to
qualify as a RIC for a tax year, and the relief provisions are not available, 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. In such case, its shareholders would be taxed as if they received
ordinary dividends, although corporate shareholders could be eligible for the
dividends received deduction (subject to certain limitations) and individuals
may be able to benefit from the lower tax rates available to qualified dividend
income. In addition, the Fund could be required to recognize unrealized gains,
pay substantial taxes and interest, and make substantial distributions before
requalifying as a RIC.
•Tracking
Error Risk.
As
with all index funds, the performance of the Fund and the Index may differ from
each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
Performance
Performance information for the Fund is not
included because the Fund did not have a full calendar year of performance prior
to the date of this Prospectus. In the future, performance
information for the Fund will be presented in this section. Updated performance
information is available on the Fund’s website at www.usglobaletfs.com.
Management
Investment
Adviser
U.S.
Global Investors, Inc. serves as investment adviser to the Fund.
Portfolio
Managers
The
Fund is managed by a team consisting of the following individuals: Frank E.
Holmes, Chief Executive Officer and Director for the Adviser, has been a
portfolio manager of the Fund since its inception in January 2022. Ralph P.
Aldis, CFA, a Portfolio Manager for the Adviser, has been a portfolio manager of
the Fund since its inception in January 2022.
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.usglobaletfs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser 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.
Each
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed without shareholder approval upon written notice to
shareholders.
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Glossary
Passenger
Load Factor: The
ratio of revenue passenger miles to available seat miles for an
airline.
Cash
Flow Return On Invested Capital (CFROIC): A
company’s net cash flow from operations divided by average invested
capital.
Average
Dollar Value Traded:
The volume of a company’s shares traded over the past 3 months multiplied
by its last closing price.
Sales
Per Share Growth: A
company’s last 12 months percent change in sales per share.
Gross
Margin: A
company’s gross income, divided by net sales or revenue.
Sales
Yield: A
company’s sales per share divided by its price per
share. |
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An
Airline Company is excluded from the Index if (i) its common stock is listed
solely on a securities exchange in a country that does not allow the transfer of
securities “free of payment” (e.g.,
Brazil, China, India, Russia, South Korea, Taiwan) and (ii) no depositary
receipts for such company are listed on a securities exchange in a country other
than those listed above.
At
the time of each reconstitution of the Index, the minimum market capitalization
and liquidity (minimum average daily value traded) are determined based on the
aggregate net assets of investment products (including the Fund) tracking the
Index. The minimum market capitalization increases from $100 million to $500
million if such products have net assets exceeding $1 billion. The minimum
liquidity increases from $500,000 to $5 million if such products have net assets
of $100 million to $1 billion and increases further to $10 million if such
products have net assets of at least $1 billion.
Each
company included in the U.S. Global Go Gold and Precious Metal Miners Index
universe is scored based on multiple fundamental factors. The following
definitions apply to the scoring criteria for Precious Metals
Companies:
Gross
Margin:
A
company’s sales revenue minus its cost of goods sold and depreciation, divided
by sales revenue.
Operating-Cash-Flow-to-Enterprise-Value
Ratio:
A company’s cash from operations divided by its enterprise value.
Enterprise
Value (EV): A
company’s market capitalization of equity, plus debt, minority interest and
preferred shares, less cash and cash equivalents.
Precious
Metals Companies that earn revenue from precious metals through passive means
may do so by owning royalties or production streams. Royalties are the right of
a company to receive a percentage of the revenues generated from a mine’s
production. Production streams are an arrangement where a company provides an
upfront payment in exchange for the right to purchase all or a portion of
certain metals produced from a mine and may specify a price for such metals in
advance of production.
If
a Precious Metals Company announces that it is being acquired by another company
in exchange for shares of the other company, such Precious Metals Company will
be removed from the Index. If a Precious Metals Company announces that it is
acquiring another company, such Precious Metals Company will be removed from the
Index if the Index Provider determines that the transaction is dilutive
(i.e.,
such transaction is not expected to increase the acquiring firm’s per share
revenue, cash flow, or reserves). In such event, the Precious Metals Company
removed from the Index will not be eligible to be added to the Index for the two
reconstitution dates following the company’s removal from the
Index.
If
a Precious Metals Company is removed from the Index due to its announcement of
acquiring or being acquired by another company, the weight of such position will
be re-allocated equally among the remaining Index constituents.
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Glossary
Cash
Flow Return On Invested Capital (CFROIC): A
company’s net cash flow from operations divided by average invested
capital.
Cash-Flow-to-Price
Ratio: A
company’s operating cash flow per share divided by its price per
share.
Earnings-to-Price
Ratio: A
company’s earnings per share divided by its price per
share. |
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The
Index tracks the performance of marine shipping, air freight and courier, and
port and harbor operating companies (as determined by the FactSet Revere
Business and Industry Classification System (“FactSet RBICS”) or the North
American Industry Classification
System
(“NAICS”)). The Index uses industry data from FactSet RBICS to determine the
companies included in the marine shipping and air freight/courier industries.
FactSet RBICS determines a company’s classification using artificial
intelligence that scans public filings and market data. To be classified by
FactSet RBICS as a marine shipping company or an air freight/courier company, a
company must derive at least 50% of its revenue from either the marine shipping
or the air freight/courier industries or at least 50% of their revenue from a
combination of the marine shipping and the air freight/courier
industries.
The
Index uses industry data from NAICS to determine the companies included in the
port/harbor operating industries if those companies were not identified by
FactSet RBICS as either marine shipping or air freight/courier companies. NAICS
determines a company’s classification using U.S. Census data that considers the
activities that generate the most revenue for a company.
A
Cargo Company is excluded from the Index if (i) its common stock is listed
solely on a securities exchange in a country that does not allow the transfer of
securities “free of payment,” except Taiwan and South Korea, and (ii) no
depositary receipts for such company are listed on a securities exchange in a
country other than those that do not allow the transfer of securities “free of
payment.”
The
Index Provider’s Index Committee is responsible for setting policy, determining
Index composition, and administering the Index in accordance with the Index
methodology. The Index Provider cannot foresee all possible facts and
circumstances that may render the inclusion or exclusion of a stock in or from
the Index inappropriate for the investibility of the Index. Consequently, under
unusual circumstances, the Index Committee may consider qualitative factors to
include, exclude, adjust, or postpone the inclusion of a stock in the Index in
keeping with the Index theme, and a stock may be considered for exclusion by the
Index Committee on the basis of corporate governance, accounting policies, lack
of transparency, and lack of representation, despite meeting all the criteria
provided in the Index methodology.
The
Funds and the Adviser have received exemptive relief from the SEC permitting the
Adviser (subject to certain conditions and the approval of the Funds’ Board of
Trustees (the “Board”)) to select or change sub-advisers without obtaining
shareholder approval. The relief also permits the Adviser to materially
amend the terms of agreements with a sub-adviser (including an increase in the
fee paid by the Adviser to the sub-adviser (and not paid by the Funds)) or to
continue the employment of a sub-adviser after an event that would otherwise
cause the automatic termination of services with Board approval, but without
shareholder approval. Shareholders will be notified of any sub-adviser
changes.
This
section provides additional information regarding the principal risks described
in each Fund Summary. As in each Fund Summary, the principal risks below are
presented in alphabetical order to facilitate finding particular risks and
comparing them with other funds. Each risk described below is considered a
“principal risk” of investing in the applicable Fund, regardless of the order in
which it appears. Each of the factors below could have a negative impact on the
applicable Fund’s performance and trading prices.
•Airline
Companies Risk (U.S.
Global Jets ETF (the “Jets ETF”) only).
Airline Companies may be adversely affected by a downturn in economic conditions
that can result in decreased demand for air travel. Due to the discretionary
nature of business and leisure travel spending, airline industry revenues are
heavily influenced by the condition of the U.S. economy and economies in other
regions of the world. Airline Companies may also be significantly affected by
changes in fuel prices, which may be very volatile. Due to the competitive
nature of the airline industry, Airline Companies may not be able to pass on
increased fuel prices to customers by increasing fares. Airline Companies may
also be significantly affected by the imposition of tariffs and/or changes in
labor relations, insurance costs, and the imposition by the United States or
other countries of taxes or tariffs applicable to airline travel, aircraft
manufacturing, or aircraft sales. The trend in the United States has been to
deregulate transportation companies, which could have a favorable long-term
effect, but future government decisions could adversely affect Airline
Companies. Airline Companies may also be highly dependent on aircraft or related
equipment from a small number of suppliers, and consequently, issues affecting
the availability, reliability, safety, or longevity of such aircraft or
equipment (e.g.,
the inability of a supplier to meet aircraft demand or the grounding of an
aircraft due to safety concerns) may have a significant effect on the operations
and profitability of Airline Companies.
Airline
Companies operating airline-related
internet media and services
face intense competition, which may have an adverse effect on profit margins.
Such companies may have limited product lines, markets, financial resources, or
personnel, and their products may face obsolescence due to rapid technological
developments and frequent new product introduction. Such companies may face
unpredictable changes in growth rates, competition for the services of qualified
personnel, and competition from foreign competitors with lower production costs.
Companies operating websites and other media may be heavily dependent on patent
and intellectual property rights, the loss or impairment of which may adversely
affect the profitability of these companies.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and in many cases unprecedented volatility and
severe losses due to the global pandemic caused by COVID‑19, a novel
coronavirus.
The pandemic resulted in a wide range of social and economic disruptions,
including closed borders and reduced or prohibited domestic or international
travel. Some sectors of the economy and individual issuers, including Airline
Companies, experienced particularly large losses. Such disruptions may continue
for an extended period of time or reoccur in the future to a similar or greater
extent. Travel restrictions imposed in the United States and other countries
resulted in Airline Companies seeing dramatically reduced passenger demand and,
consequently, reducing flight schedules at unprecedented rates. In particular,
certain U.S. passenger airlines eliminated nearly all international flights for
an undetermined length of time. The U.S. airline industry requested and received
financial assistance from the U.S. government due to the impact of the pandemic;
however, there can be no guarantee as to whether such assistance will be
successful in supporting U.S. Airline Companies until the impact of the pandemic
subsides.
In
addition, the Russian invasion of Ukraine and the resulting Russian sanctions by
Western countries, including the United States, Canada, European Union, Japan,
United Kingdom, and others, as well as retaliatory measures by Russia, may have
a significant impact on Airline Companies. Bans on oil and energy imports from
Russia, as well as commitments to phase out such imports in the near future, by
certain Western countries may increase the costs of jet fuel. In addition,
certain Western nations have closed their airspace to all Russian airlines, as
well as Russian-owned and Russian-operated aircraft. Also, Western companies
have issued a recall of aircraft leased to Russian airlines and, in certain
cases, have seized such aircraft located in Western airports. In response,
Russia has closed its airspace to certain Western aircraft, and Russia has
seized certain leased aircraft and equipment located in Russia. These actions
may lead to higher ticket prices, flight cancellations, longer routes, fewer
diversion airports (i.e., airports along a route where a plane can land safely
if it is diverted), a decreased demand for travel, and the permanent loss of
property for Western companies that leased aircraft to Russian airlines.
Increased costs and reduced supply of certain metals exported from Russia, such
as titanium, may also slow the production of aircraft and engines, making it
more difficult for Airline Companies to increase passenger capacity and repair
or upgrade their aircraft. These and any related events could significantly and
adversely affect the Fund’s performance and the value of an investment in the
Fund.
•Concentration
in Cargo Companies Risk (U.S.
Global Sea to Sky Cargo ETF (the “Sea ETF”) only).
The Index, and consequently the Fund, is expected to concentrate its investments
(i.e.,
hold more than 25% of its total assets) in the securities of Cargo Companies. As
a result, the value of the Fund’s shares may rise and fall more than the value
of shares of a fund that invests in securities of companies in a broader range
of industries. In addition, at times, the marine shipping, port/harbor
operators, and air freight/courier industries may be out of favor and
underperform other industries or groups of industries or the market as a whole.
Cargo
Companies may be adversely affected by a downturn in economic conditions that
can result in decreased demand for marine shipping and air freight. Due to the
discretionary nature of consumer spending on many goods that are shipped by air
or sea, Cargo Companies’ revenues are heavily influenced by the condition of the
U.S. economy and economies in other regions of the world. Cargo Companies may
also be significantly affected by changes in fuel or oil prices, which may be
very volatile. Due to the competitive nature of the marine shipping and air
freight industries, Cargo Companies may not be able to pass on increased fuel
prices to customers by increasing fees or prices. Cargo Companies may also be
significantly affected by the imposition of tariffs, trade wars, and/or changes
in labor relations or availability, insurance costs, and the imposition by the
United States or other countries of taxes or tariffs applicable to ship or
aircraft equipment.
Cargo
Companies may also be highly dependent on aircraft, ships, or related equipment
from a small number of suppliers, and consequently, issues affecting the
availability, reliability, safety, or longevity of such aircraft, ships, or
equipment (e.g.,
the inability of a supplier to meet aircraft demand or the grounding of an
aircraft due to safety concerns) may have a significant effect on the operations
and profitability of Cargo Companies. Cargo Companies may be greatly affected by
changes in statutes or regulations of the United States or other countries,
which may affect levels of competition, the cost of providing marine shipping or
air freight services, or the prices that they can charge customers. Cargo
Companies are also subject to disruptions that may be caused by cyberattacks on
their businesses, operations, or third-party companies on which they depend for
part of their operations.
Additionally,
marine shipping and port/harbor operating companies are subject to volatile
fluctuations in the price and supply of steel, raw materials, and other products
transported by containerships. In particular, a decreased demand for coal
shipping resulting from a shift to cleaner fuel sources may negatively impact
Cargo Companies. In addition, international politics and conflicts, changes in
seaborne transportation patterns, changes to marine shipping and air freight
routes, weather patterns and events, including hurricane activity and other
natural disasters, maritime accidents, canal closures, port congestion, spill
events, embargoes, acts of terrorism or piracy, and labor strikes, can
significantly affect Cargo Companies involved in the maritime shipping of crude
oil, dry bulk, and container cargo. Marine shipping and port/harbor operating
companies are also subject to numerous safety, environmental, and other laws and
regulations that impact their operations, are costly to comply with, and could
expose them to materially adverse liabilities. Marine shipping and port/harbor
operating companies may be negatively affected by capacity constraints at ports
or a lack of available labor.
Air
freight and courier companies are subject to the additional risk that a small
number of companies may represent a large portion of the industry, and these
companies can be particularly sensitive to adverse economic, regulatory, or
financial developments. The air freight industry can also be significantly
affected by policies of various domestic and foreign governments, which can
affect the profitability of individual carriers as well as the entire industry.
Air freight companies may also be affected by a significant reduction on the
number of aircraft that are in current operation, which may limit an air freight
company’s ability to take advantage of increased demand.
In
addition, the Russian invasion of Ukraine and the resulting Russian sanctions by
Western countries, including the United States, Canada, European Union, Japan,
United Kingdom, and others, as well as retaliatory measures by Russia, may have
a significant impact on Cargo Companies. Bans on oil and energy imports from
Russia, as well as commitments to phase out such imports in the near future, by
certain Western countries may increase the costs of fuel for shipping and air
freight. In addition, certain Western nations have closed their ports and
airspace to all Russian cargo ships and airlines, as well as Russian-owned and
Russian-operated shipping vessels and aircraft. In response, Russia has closed
its ports and airspace to certain Western vessels and aircraft. These actions
may lead to higher shipping costs, longer routes, and fewer diversion ports and
airports (i.e.,
ports and airports along a route where a ship or plane can be diverted safely in
the case of an emergency). Increased costs and reduced supply of certain metals
exported from Russia, such as titanium, may also slow the production of shipping
vessels, aircraft and engines, making it more difficult for Cargo Companies to
increase shipping or freight capacity and repair or upgrade their fleet. These
and any related events could significantly and adversely affect the Fund’s
performance and the value of an investment in the Fund.
•Concentration
Risk
(Jets
ETF and U.S. Global GO GOLD and Precious Metal Miners ETF (the “Miners ETF”)
only).
Each Fund may be susceptible to an increased risk of loss, including losses due
to adverse occurrences affecting the Fund more than the market as a whole, to
the extent that the Fund’s investments are concentrated in the securities of a
particular issuer or issuers, country, group of countries, region, market,
industry, group of industries, sector or asset class. In addition, at times, a
Fund may concentrate in an industry that is out of favor and underperforms other
industries or groups of industries or the market as a whole.
•Currency
Exchange Rate Risk.
Changes
in currency exchange rates and the relative value of non-U.S. currencies will
affect the value of the Funds’ investments and the value of your Shares. Because
the Funds’ NAV is determined on the basis of U.S. dollars, the U.S. dollar value
of your investment in the Funds may go down if the value of the local currency
of the non-U.S. markets in which the Funds invest depreciates against the U.S.
dollar. This is true even if the local currency value of securities in the
Funds’ holdings goes up. Conversely, the dollar value of your investment in the
Funds may go up if the value of the local currency appreciates against the U.S.
dollar. The value of the U.S. dollar measured against other currencies is
influenced by a variety of factors. These factors include: national debt levels
and trade deficits, changes in balances of payments and trade, domestic and
foreign interest and inflation rates, global or regional political, economic or
financial events, monetary policies of governments, actual or potential
government intervention, and global energy prices. Political instability, the
possibility of government intervention and restrictive or opaque business and
investment policies may also reduce the value of a country’s currency.
Government monetary policies and the buying or selling of currency by a
country’s government may also influence exchange rates. Currency exchange rates
can be very volatile and can change quickly and unpredictably. As a result, the
value of an investment in the Funds may change quickly and without warning, and
you may lose money.
•Depositary
Receipt Risk.
The Funds may hold the securities of non-U.S. companies in the form of ADRs and
Global Depositary Receipts (“GDRs”). ADRs are negotiable certificates issued by
a U.S. financial institution that represent a specified number of shares in a
foreign stock and trade on a U.S. national securities exchange, such as the New
York Stock Exchange (“NYSE”). Sponsored ADRs are issued with the support of the
issuer of the foreign stock underlying the ADRs and carry all of the rights of
common shares, including voting rights. GDRs are similar to ADRs, but may be
issued in bearer form and are typically offered for sale globally and held by a
foreign branch of an international bank. The underlying issuers of certain
depositary receipts, particularly unsponsored or unregistered depositary
receipts, are under no obligation to distribute shareholder communications to
the holders of such receipts, or to pass through to them any voting rights with
respect to the deposited securities. Issuers of unsponsored depositary receipts
are not contractually obligated to disclose material information in the U.S.
and, therefore, such information may not correlate to the market value of the
unsponsored depositary receipt. The underlying securities of the ADRs and GDRs
in a Fund’s portfolio are usually denominated or quoted in currencies other than
the U.S. Dollar. As a result, changes in foreign currency exchange rates may
affect the value of a Fund’s portfolio. In addition, because the underlying
securities of ADRs and GDRs trade on foreign exchanges at times when the U.S.
markets are not open for trading, the value of the securities underlying the
ADRs and GDRs may change materially at times when the U.S. markets are not open
for trading, regardless of whether there is an active U.S. market for the
shares.
•Emerging
Markets Risk.
Investments
in securities and instruments traded in developing or emerging markets, or that
provide exposure to such securities or markets, can involve additional risks
relating to political, economic, or regulatory
conditions
not associated with investments in U.S. securities and instruments. For example,
developing and emerging markets may be subject to (i) greater market volatility,
(ii) lower trading volume and liquidity, (iii) greater social, political
and economic uncertainty, (iv) governmental controls on foreign investments
and limitations on repatriation of invested capital, (v) lower disclosure,
corporate governance, auditing and financial reporting standards, (vi) fewer
protections of property rights, (vii) restrictions on the transfer of securities
or currency, and (viii) settlement and trading practices that differ from those
in U.S. markets. Each of these factors may impact the ability of the Funds to
buy, sell or otherwise transfer securities, adversely affect the trading market
and price for Shares and cause the Funds to decline in value.
◦Capital
Controls and Sanctions Risk.
Economic conditions, such as volatile currency exchange rates and interest
rates, political events, military action and other conditions may, without prior
warning, lead to government intervention (including intervention by the U.S.
government with respect to foreign governments, economic sectors, foreign
companies and related securities and interests) and the imposition of capital
controls and/or sanctions, which may also include retaliatory actions of one
government against another government, such as seizure of assets. Capital
controls and/or sanctions include the prohibition of, or restrictions on, the
ability to transfer currency, securities or other assets. Levies may be placed
on profits repatriated by foreign entities (such as the Funds). Capital controls
and/or sanctions may also impact the ability of the Funds to buy, sell or
otherwise transfer securities or currency, negatively impact the value and/or
liquidity of such instruments, adversely affect the trading market and price for
Shares, and cause the Funds to decline in value.
◦Geopolitical
Risk.
Some countries and regions in which the Funds invest have experienced security
concerns, war or threats of war and aggression, terrorism, economic uncertainty,
natural and environmental disasters and/or systemic market dislocations that
have led, and in the future may lead, to increased short-term market volatility
and may have adverse long-term effects on the U.S. and world economies and
markets generally. Such geopolitical and other events may also disrupt
securities markets and, during such market disruptions, the Funds’ exposure to
the other risks described herein will likely increase. Each of the foregoing may
negatively impact the Funds’ investments.
•Equity
Market Risk.
Common stocks are susceptible to general stock market fluctuations and to
volatile increases and decreases in value as market confidence in and
perceptions of their issuers change. These investor perceptions are based on
various and unpredictable factors including: expectations regarding government,
economic, monetary and fiscal policies; inflation and interest rates; economic
expansion or contraction; local, regional or global events
such
as acts of terrorism or war, including Russia’s invasion of Ukraine; and global
or regional political, economic, public health, and banking crises. If you held
common stock, or common stock equivalents, of any given issuer, you would
generally be exposed to greater risk than if you held preferred stocks and debt
obligations of the issuer because common stockholders, or holders of equivalent
interests, generally have inferior rights to receive payments from issuers in
comparison with the rights of preferred stockholders, bondholders, and other
creditors of such issuers.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and, in many cases, unprecedented volatility and
severe losses due to the global pandemic caused by COVID-19, a novel
coronavirus. The pandemic resulted in a wide range of social and economic
disruptions, including closed borders, voluntary or compelled quarantines of
large populations, stressed healthcare systems, reduced or prohibited domestic
or international travel, and supply chain disruptions affecting the United
States and many other countries. Some sectors of the economy and individual
issuers have experienced particularly large losses as a result of these
disruptions, and such disruptions may continue for an extended period of time or
reoccur in the future to a similar or greater extent. In response, the U.S.
government and the Federal Reserve have taken extraordinary actions to support
the domestic economy and financial markets. Many countries, including the U.S.,
are subject to few restrictions related to the spread of COVID-19. It is unknown
how long circumstances related to the pandemic will persist, whether they will
reoccur in the future, whether efforts to support the economy and financial
markets will be successful, and what additional implications may follow from the
pandemic. The impact of these events and other epidemics or pandemics in the
future could adversely affect Fund performance.
•ETF
Risks.
Each
Fund is an ETF, and, as a result of an ETF’s structure, is exposed to the
following risks:
◦APs,
Market Makers, and Liquidity Providers Concentration Risk.
Each Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a
fixed
amount and may be a significant proportional cost for investors seeking to buy
or sell relatively small amounts of Shares. In addition, secondary market
investors will also incur the cost of the difference between the price at which
an investor is willing to buy Shares (the “bid” price) and the price at which an
investor is willing to sell Shares (the “ask” price). This difference in bid and
ask prices is often referred to as the “spread” or “bid/ask spread.” The bid/ask
spread varies over time for Shares based on trading volume and market liquidity,
and is generally lower if Shares have more trading volume and market liquidity
and higher if Shares have little trading volume and market liquidity. Further, a
relatively small investor base in a Fund, asset swings in a 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 a 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 Funds may trade on foreign exchanges that are closed when
such Fund’s primary listing exchange is open, each such Fund is likely to
experience premiums and discounts greater than those of domestic
ETFs.
◦Trading.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500® Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of a Fund’s underlying
portfolio holdings, which can be significantly less liquid than
Shares.
•Foreign
Securities Risk.
Investments
in non-U.S. securities involve certain risks that may not be present with
investments in U.S. securities. For example, investments in non-U.S. securities
may be subject to risk of loss due to foreign currency fluctuations or to
political or economic instability. There may be less information publicly
available about a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may be
subject to different accounting, auditing, financial reporting and investor
protection standards than U.S. issuers. Investments in non-U.S. securities may
be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. With respect to certain
countries, there is the possibility of government intervention and expropriation
or nationalization of assets. Because legal systems differ, there is also the
possibility that it will be difficult to obtain or enforce legal judgments in
certain countries. Since foreign exchanges may be open on days when a Fund does
not price its Shares, the value of the securities in a Fund’s portfolio may
change on days when shareholders will not be able to purchase or sell the Fund’s
Shares. Conversely, Shares may trade on days when foreign exchanges are closed.
Each of these factors can make investments in a Fund more volatile and
potentially less liquid than other types of investments.
•Geographic
Investment Risk.
To
the extent that a Fund invests a significant portion of its assets in the
securities of companies of a single country or region or lists and trades its
shares on a foreign exchange, it is more likely to be impacted by events or
conditions affecting that country or region. For example, political and economic
conditions and changes in regulatory, tax, or economic policy in a country could
significantly affect the market in that country and in surrounding or related
countries and have a negative impact on a Fund’s performance. Currency
developments or restrictions, political and social instability, and changing
economic conditions have resulted in significant market volatility.
◦Australia-Specific
Risk
(Miners
ETF only). Because
investments in the metals and mining industry may be geographically concentrated
in Australian companies or companies that have a significant presence in
Australia, the Fund may be subject to regulatory, political, currency, security,
and economic risk specific to Australia. The Australian economy is heavily
dependent on exports from the agricultural and mining sectors. As a result, the
Australian economy is susceptible to fluctuations in the commodity markets. The
Australian economy is also becoming increasingly dependent on its growing
services industry. The Australian economy is dependent on trading with key
trading partners, including the United States, China, Japan, Singapore, and
certain European countries. Reduction in spending on Australian products and
services, or changes in any of the economies, may cause an adverse impact on the
Australian economy. The agricultural and mining sectors of Australia’s economy
account for the majority of its exports. Australia is
susceptible
to fluctuations in the commodity markets and, in particular, in the price and
demand for agricultural products and natural resources. Any negative changes in
these sectors could have an adverse impact on the Australian economy.
Additionally, Australia is located in a part of the world that has historically
been prone to natural disasters, such as hurricanes and droughts, and is
economically sensitive to environmental events. Any such event may adversely
impact the Australian economy, causing an adverse impact on the value of the
Fund’s Australian securities.
◦Canada-Specific
Risk
(Miners
ETF only).
Because investments in the metals and mining industry may be geographically
concentrated in Canadian companies or companies that have a significant presence
in Canada, investment results could be dependent on the financial condition of
the Canadian economy. The Canadian economy is reliant on the sale of natural
resources and commodities, which can pose risks such as the fluctuation of
prices and the variability of demand for exportation of such products. Changes
in spending on Canadian products by the economies of other countries or changes
in any of these economies may cause a significant impact on the Canadian
economy.
◦China-
and Hong Kong-Specific Risk
(Sea
ETF only).
The
economies of China and Hong Kong are subject to a considerable degree of
economic, political and social instability:
•Political
and Social Risk: The
Chinese government is authoritarian and has periodically used force to suppress
civil dissent. Disparities of wealth and the pace of economic liberalization may
lead to social turmoil, violence and labor unrest. In addition, China continues
to experience disagreements related to integration with Hong Kong and religious
and nationalist disputes in Tibet and Xinjiang. There is also a greater risk in
China than in many other countries of currency fluctuations, currency
convertibility, interest rate fluctuations and higher rates of inflation as a
result of internal social unrest or conflicts with other countries.
Unanticipated political or social developments may result in sudden and
significant investment losses. China’s growing income inequality and worsening
environmental conditions also are factors that may affect the Chinese economy.
China is also vulnerable economically to the impact of a public health crisis,
which could depress consumer demand, reduce economic output, and potentially
lead to market closures, travel restrictions, and quarantines, all of which
would negatively impact China’s economy and could affect the economies of its
trading partners.
•Government
Control and Regulations:
The Chinese government has implemented significant economic reforms in order to
liberalize trade policy, promote foreign investment in the economy, reduce
government control of the economy and develop market mechanisms. There can be no
assurance these reforms will continue or that they will be effective. Despite
recent reform and privatizations, significant regulation of investment and
industry is still pervasive, and the Chinese government may restrict foreign
ownership of Chinese corporations and/or repatriate assets. Chinese markets
generally continue to experience inefficiency, volatility and pricing anomalies
that may be connected to governmental influence, a lack of publicly-available
information and/or political and social instability.
•Economic
Risk:
The Chinese economy has grown rapidly during the past several years and there is
no assurance that this growth rate will be maintained. In fact, the Chinese
economy may experience a significant slowdown as a result of, among other
things, a deterioration in global demand for Chinese exports, as well as
contraction in spending on domestic goods by Chinese consumers. In addition,
China may experience substantial rates of inflation or economic recessions,
which would have a negative effect on the economy and securities market. Delays
in enterprise restructuring, slow development of well-functioning financial
markets and widespread corruption have also hindered performance of the Chinese
economy. China continues to receive substantial pressure from trading partners
to liberalize official currency exchange rates. Chinese companies are subject to
the risk that the U.S. government or other governments may sanction Chinese
issuers or otherwise prohibit U.S. persons or funds from investing in certain
Chinese issuers and a lack of transparency with respect to economic activity and
transactions in China. Recent developments in relations between the United
States and China have heightened concerns of increased tariffs and restrictions
on trade between the two countries. It is unclear whether further tariffs and
sanctions may be imposed or other escalating actions may be taken in the future.
•Expropriation
Risk: The
Chinese government maintains a major role in economic policymaking, and
investing in China involves risk of loss due to expropriation, nationalization,
confiscation of assets and property, or the imposition of restrictions on
foreign investments and on repatriation of capital invested.
•Hong
Kong Political Risk:
Hong Kong reverted to Chinese sovereignty on July 1, 1997 as a Special
Administrative Region (SAR) of the PRC under the principle of “one country, two
systems.” Although China is obligated to maintain the current capitalist
economic and social system of Hong Kong through June 30, 2047, the
continuation of economic and social freedoms enjoyed in Hong Kong is dependent
on the government of China. Any attempt by China to tighten its control over
Hong Kong’s political, economic, legal or social policies may result in an
adverse effect on Hong Kong’s markets. In addition, the Hong Kong dollar trades
at a fixed exchange rate in relation to (or, is “pegged” to) the U.S. dollar,
which has contributed to the growth and stability of the Hong Kong economy.
However,
it is uncertain how long the currency peg will continue or what effect the
establishment of an alternative exchange rate system would have on the Hong Kong
economy. Because the Fund’s NAV is denominated in U.S. dollars, the
establishment of an alternative exchange rate system could result in a decline
in the Fund’s NAV.
•Variable
Interest Equity Investment Risk:
For purposes of raising capital offshore on exchanges outside of China,
including on U.S. exchanges, many Chinese-based operating companies are
structured as VIEs. In this structure, the Chinese-based operating company is
the VIE and establishes a shell company in a foreign jurisdiction, such as the
Cayman Islands. The shell company lists on a foreign exchange and enters into
contractual arrangements with the VIE. This structure allows Chinese companies
in which the government restricts foreign ownership to raise capital from
foreign investors. While the shell company has no equity ownership of the VIE,
these contractual arrangements permit the shell company to consolidate the VIE’s
financial statements with its own for accounting purposes and provide for
economic exposure to the performance of the underlying Chinese operating
company. Therefore, an investor in the listed shell company, such as the Fund,
will have exposure to the Chinese-based operating company only through
contractual arrangements and has no ownership in the Chinese-based operating
company. Furthermore, because the shell company only has specific rights
provided for in these service agreements with the VIE, its abilities to control
the activities at the Chinese-based operating company are limited and the
operating company may engage in activities that negatively impact investment
value.
While
the VIE structure has been widely adopted, it is not formally recognized under
Chinese law and therefore there is a risk that the Chinese government could
prohibit the existence of such structures or negatively impact the VIE’s
contractual arrangements with the listed shell company by making them invalid.
If these contracts were found to be unenforceable under Chinese law, investors
in the listed shell company, such as the Fund, may suffer significant losses
with little or no recourse available. If the Chinese government determines that
the agreements establishing the VIE structures do not comply with Chinese law
and regulations, including those related to restrictions on foreign ownership,
it could subject a Chinese-based issuer to penalties, revocation of business and
operating licenses, or forfeiture of ownership interest. In addition, the listed
shell company’s control over a VIE may also be jeopardized if a natural person
who holds the equity interest in the VIE breaches the terms of the agreement, is
subject to legal proceedings or if any physical instruments for authenticating
documentation, such as chops and seals, are used without the Chinese-based
issuer’s authorization to enter into contractual arrangements in China. Chops
and seals, which are carved stamps used to sign documents, represent a legally
binding commitment by the company. Moreover, any future regulatory action may
prohibit the ability of the shell company to receive the economic benefits of
the Chinese-based operating company, which may cause the value of the Fund’s
investment in the listed shell company to suffer a significant loss. For
example, in 2021, the Chinese government prohibited use of the VIE structure for
investment in after-school tutoring companies. There is no guarantee that the
government will not place similar restrictions on other industries.
◦Europe-Specific
Risk (Sea ETF only). The
economies of Europe are highly dependent on each other, both as key trading
partners and as in many cases as fellow members maintaining the euro. Reduction
in trading activity among European countries may cause an adverse impact on each
nation’s individual economies. European countries that are part of the Economic
and Monetary Union of the EU are required to comply with restrictions on
inflation rates, deficits, interest rates, debt levels, and fiscal and monetary
controls, each of which may significantly affect every country in Europe.
Decreasing imports or exports, changes in governmental or EU regulations on
trade, changes in the exchange rate of the euro, the default or threat of
default by an EU member country on its sovereign debt, and recessions in an EU
member country may have a significant adverse effect on the economies of EU
member countries and their trading partners. Recent market events affecting
several of the EU member countries have adversely affected the sovereign debt
issued by those countries, and ultimately may lead to a decline in the value of
the euro. A significant decline in the value of the euro may produce
unpredictable effects on trade and commerce generally and could lead to
increased volatility in financial markets worldwide.
The
United Kingdom (“UK”) formally exited from the EU on January 31, 2020 (known as
“Brexit”), and effective December 31, 2020, the UK ended a transition period
during which it continued to abide by the EU’s rules and the UK’s trade
relationships with the EU were generally unchanged. Following this transition
period, the impact on the UK and European economies and the broader global
economy could be significant, resulting in negative impacts, such as increased
volatility and illiquidity, potentially lower economic growth on markets in the
UK, Europe, and globally, and changes in legal and regulatory regimes to which
certain Fund assets are or become subject, any of which may adversely affect the
value of Fund investments.
The
effects of Brexit will depend, in part, on agreements the UK negotiates to
retain access to EU markets, including, but not limited to, current trade and
finance agreements. Brexit could lead to legal and tax uncertainty and
potentially divergent national laws and regulations, as the UK determines which
EU laws to replace or replicate. The extent of the
impact
of the withdrawal negotiations in the UK and in global markets, as well as any
associated adverse consequences, remain unclear, and the uncertainty may have a
significant negative effect on the value of a Fund investments. If one or more
other countries were to exit the EU or abandon the use of the euro as a
currency, the value of investments tied to those countries or the euro could
decline significantly and unpredictably.
Russia’s
large-scale invasion of Ukraine on February 24, 2022 has led to various
countries imposing economic sanctions on certain Russian individuals and Russian
corporate and banking entities. A number of jurisdictions have also instituted
broader sanctions on Russia, including banning Russia from global payments
systems that facilitate cross-border payments. In response, the government of
Russia has imposed capital controls to restrict movements of capital entering
and exiting the country. As a result, the value and liquidity of Russian
securities and the Russian currency have experienced significant declines.
Further, as of the date of this Prospectus, the Russian securities markets
effectively remain closed for trading by foreign investors and have not been
open to foreign investors since February 28, 2022. Russia’s military incursion
and resulting sanctions could have a severe adverse effect on both regional and
global economies, which in turn could affect the value of the Fund’s
investments.
◦Japan-Specific
Risk (Jets ETF and Sea ETF only). The
Japanese economy may be subject to considerable degrees of economic, political
and social instability, which could have a negative impact on Japanese
securities and markets. While the Japanese economy has recently emerged from a
prolonged economic downturn, Japan’s economic growth rate may remain relatively
low in the future. In addition, Japan is subject to the risk of natural
disasters, such as earthquakes, volcanoes, typhoons and tsunamis. Additionally,
decreasing U.S. imports, new trade regulations, changes in the U.S. dollar
exchange rates, a recession in the United States or continued increases in
foreclosure rates may have an adverse impact on the economy of Japan. Japan also
has few natural resources, and any fluctuation or shortage in the commodity
markets could have a negative impact on Japanese securities and
markets.
◦Taiwan-Specific
Risk
(Sea
ETF only).
Investments
in Taiwanese issuers may subject the Fund to risks specific to Taiwan. Taiwan is
a small island state with few raw material resources and limited land area and
is reliant on imports for its commodity needs. Any fluctuations or shortages in
the commodity markets could have a negative impact on the Taiwanese economy.
Also, continued labor outsourcing may adversely affect the Taiwanese economy.
Taiwan’s economy is intricately linked with economies of Asian countries that
have experienced over-extensions of credit, frequent and pronounced currency
fluctuations, currency devaluations, currency repatriation, rising unemployment
and fluctuations in inflation. The Taiwanese economy is dependent on the
economies of Japan and China, as well as the United States, and negative changes
in their economies or a reduction in purchases by any of them of Taiwanese
products and services would likely have an adverse impact on the Taiwanese
economy. Taiwan’s geographic proximity to China and Taiwan’s history of
political contention with China have resulted in ongoing tensions with China,
including the risk of war with China. These tensions may materially affect the
Taiwanese economy and securities markets.
◦South
Africa-Specific Risk
(Miners
ETF only).
Because investments in the metals and mining industry may be geographically
concentrated in South African companies or companies that have a significant
presence in South Africa, investment results could be dependent on the financial
condition of the South African economy. South Africa’s economy exhibits
characteristics of both a developed country and a developing country and has
historically experienced extremely uneven distribution of wealth and income and
high rates of unemployment. The securities markets in South Africa are subject
to greater risks associated with market volatility, lower market capitalization,
lower trading volume, illiquidity, inflation, greater price fluctuations,
uncertainty regarding the existence of trading markets, governmental control,
and heavy regulation of labor and industry. In addition, South Africa’s currency
has at times been at risk of devaluation due to inadequate foreign currency
reserve. While economic reforms have been enacted in recent periods, there can
be no assurance that these reforms will achieve the intended results.
Furthermore, adverse social and economic conditions in a neighboring country may
have a significant adverse effect on South Africa. Additionally, the agriculture
and mining sectors of South Africa’s economy account for a large portion of its
exports, and thus the South African economy is susceptible to fluctuations in
these commodity markets. South Africa is located in a part of the world that has
historically been prone to natural disasters, such as droughts, and is
economically sensitive to environmental events. Any such event may adversely
impact South Africa’s economy or business operations of companies in South
Africa, causing an adverse impact on the value of the Fund.
•Gold
and Precious Metals Risk (Miners
ETF only).
The
Fund will be sensitive to changes in, and its performance will depend to a
greater extent on, the overall condition of the metals and mining industry.
Competitive pressures may have a significant effect on the financial condition
of companies in such industry. Also, such companies are highly dependent on the
price of certain precious metals. These prices may fluctuate substantially over
short periods of time, so the Fund’s Share price may be more volatile than other
types of investments. The prices of precious metals rise and fall in response to
many factors, including: economic cycles; changes in inflation or expectations
about inflation in various countries; interest rates; currency fluctuations;
metal sales by governments, central banks, or international agencies; investment
speculation; resource
availability;
fluctuations in industrial and commercial supply and demand; government
regulation of the metals and materials industries; and government prohibitions
or restrictions on the private ownership of certain precious and rare metals.
The Index measures the performance of equity securities of Precious Metals
Companies and does not measure the performance of direct investment in precious
metals. Consequently, the Fund’s Share price may not move in the same direction
and to the same extent as the spot prices of precious metals.
In
times of stable economic growth, traditional equity and debt investments could
offer greater appreciation potential, and the value of precious metals may be
adversely affected, which could in turn affect the Fund’s returns. The
production and sale of precious metals by governments, central banks, or other
large holders can be affected by various economic, financial, social, and
political factors, which may be unpredictable and may have a significant impact
on the supply and prices of precious metals. Economic and political conditions
in those countries that are the largest producers of precious metals may have a
direct effect on the production and marketing of such metals and on sales of
central bank holdings. Some precious metals mining operation companies may hedge
their exposure to falls in precious metals prices by selling forward future
production, which may result in lower returns during periods when the price of
precious metals increases. The precious metals industry can be significantly
affected by events relating to international political developments, the success
of exploration projects, commodity prices, and tax and government regulations.
If a natural disaster or other event with a significant economic impact occurs
in a region where the companies in which the Fund invests operate, such disaster
or event could negatively affect the profitability of such companies and, in
turn, the Fund’s investment in them.
•Index
Provider Risk.
There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Adviser relies upon the Index Provider and its
agents to compile, determine, maintain, construct, reconstitute, rebalance,
compose, calculate (or arrange for an agent to calculate), and disseminate the
Index accurately. Any losses or costs associated with errors made by the Index
Provider or its agents generally will be borne by the Fund and its shareholders.
To correct any such error, the Index Provider or its agents may carry out an
unscheduled rebalance of the Index or other modification of Index constituents
or weightings. When the Fund in turn rebalances its portfolio, any transaction
costs and market exposure arising from such portfolio rebalancing will be borne
by the Fund and its shareholders. Unscheduled rebalances also expose the Fund to
additional tracking error risk. Errors in respect of the quality, accuracy, and
completeness of the data used to compile the Index may occur from time to time
and may not be identified and corrected by the Index Provider for a period of
time or at all, particularly where the Index is less commonly used as a
benchmark by funds or advisers. For example, during a period where the Index
contains incorrect constituents, the Fund tracking the Index would have market
exposure to such constituents and would be underexposed to the Index’s other
constituents. Such errors may negatively impact the Fund and its shareholders.
The Index Provider and its agents rely on various sources of information to
assess the criteria of issuers included in the Index, including information that
may be based on assumptions and estimates. Neither the Fund nor the Adviser can
offer assurances that the Index’s calculation methodology or sources of
information will provide an accurate assessment of included
issuers.
•Limited
Operating History Risk (Sea
ETF only).
The Fund is a recently organized 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.
•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, 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.
◦Small-Capitalization
Investing. 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.
•Non-Diversification
Risk.
Each
Fund is considered to be non-diversified, which means that it may invest more of
its assets in the securities of a single issuer or a smaller number of issuers
than if it were a diversified fund. As a result, a Fund may be more exposed to
the risks associated with and developments affecting an individual issuer or a
smaller number of issuers than a fund that invests more widely. This may
increase a Fund’s volatility and cause the performance of a relatively smaller
number of issuers to have a greater impact on such Fund’s performance. However,
each Fund intends to satisfy the diversification requirements for qualifying as
a RIC under Subchapter M of the Code.
•Passive
Investment Risk.
Each Fund invests in the securities included in, or representative of, its Index
regardless of their investment merit. Each Fund does not attempt to outperform
its Index or take defensive positions in declining markets. As a result, a
Fund’s performance may be adversely affected by a general decline in the market
segments relating to its Index. The returns from the types of securities in
which a Fund invests may underperform returns from the various general
securities markets or different asset classes. This may cause a Fund to
underperform other investment vehicles that invest in different asset classes.
Different types of securities (for example, large-, mid- and
small-capitalization stocks) tend to go through cycles of doing better – or
worse – than the general securities markets. In the past, these periods have
lasted for as long as several years.
•Portfolio
Turnover Risk
(Miners
ETF and Sea ETF only). The
Fund may trade all or a significant portion of the securities in its portfolio
in connection with each rebalance and reconstitution of its Index. A high
portfolio turnover rate increases transaction costs, which may increase the
Fund’s expenses. Frequent trading may also cause adverse tax consequences for
investors in the Fund due to an increase in short-term capital gains.
•Securities
Lending Risk.
Each
Fund may engage in securities lending. A Fund may lose money if the borrower of
the loaned securities delays returning in a timely manner or fails to return the
loaned securities. Securities lending involves the risk that a Fund could lose
money in the event of a decline in the value of collateral provided for loaned
securities. In addition, a Fund bears the risk of loss in connection with its
investment of the cash collateral it receives from a borrower. To the extent
that the value or return of a Fund’s investment of the cash collateral declines
below the amount owed to the borrower, a Fund may incur losses that exceed the
amount it earned on lending the security.
•Tax
Risk.
To qualify for the favorable tax treatment generally available to RICs, the
Funds must satisfy, among other requirements described in the SAI, certain
diversification requirements. In particular, at the close of each quarter of a
Fund’s taxable year: (A) at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government securities, securities of
other RICs and other securities, with such other securities limited, in respect
to any one issuer, to an amount not greater than 5% of the value of the Fund’s
total assets and that does not represent more than 10% of the outstanding voting
securities of such issuer, including the equity securities of a qualified
publicly traded partnership, and (B) not more than 25% of the value of its total
assets is invested, including through corporations in which the Fund owns a 20%
or more voting stock interest, in the securities (other than U.S. government
securities or securities of other RICs) of any one issuer or the securities
(other than the securities of another RIC) of two or more issuers that the Fund
controls and which are engaged in the same or similar trades or businesses or
related trades or businesses, or the securities of one or more qualified
publicly traded partnerships. While the weighting of the Index is not
inconsistent with these rules, given the concentration of the Index in a
relatively small number of securities, it may not always be possible for the
Funds to fully implement a replication strategy or a representative sampling
strategy while satisfying these diversification requirements. The Funds’ efforts
to satisfy the diversification requirements may affect a Fund’s execution of
their 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 a
Fund were to fail to satisfy the diversification requirements, it could be
eligible for relief provisions if the failure is due to reasonable cause and not
willful neglect and if a penalty tax is paid with respect to each failure to
satisfy the applicable requirements. Additionally, relief is provided for
certain de
minimis
failures of the diversification requirements where the Fund corrects the failure
within a specified period. If a Fund were to fail to qualify as a RIC for a tax
year, and the relief provisions are not available, 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. In such case, a
Fund’s shareholders would be taxed as if they received ordinary dividends,
although corporate shareholders could be eligible for the dividends received
deduction (subject to certain limitations) and individuals may be able to
benefit from the lower tax rates available to qualified dividend income. In
addition, a Fund could be required to recognize unrealized gains, pay
substantial taxes and interest, and make substantial distributions before
requalifying as a RIC.
•Tracking
Error Risk.
As
with all index funds, the performance of each Fund and its respective Index may
differ from each other for a variety of reasons. For example, the Funds incur
operating expenses and portfolio transaction costs not incurred by an Index. In
addition, the Funds may not be fully invested in the securities of their
respective Index at all times or may hold securities not included in the Index.
A Fund may use a representative sampling strategy to achieve its investment
objective, if the Fund’s Adviser believes it is in the best interest of the
Fund, which generally can be expected to produce a greater non-correlation
risk.
Information
about the Funds’ daily portfolio holdings is available at www.usglobaletfs.com.
A description of the Funds’ policies and procedures with respect to the
disclosure of the Funds’ portfolio holdings is available in the Funds’ Statement
of Additional Information (“SAI”).
U.S.
Global Investors, Inc. (the “Adviser”) has managed various investment portfolios
for clients since 1968, including other investment companies. The Adviser is a
Texas corporation and is located at 7900 Callaghan Road, San Antonio, Texas
78229.
Jets
ETF and Miners ETF
The
Adviser serves as the investment adviser and has overall responsibility for the
general management and administration of the Jets ETF and the Miners ETF. The
Adviser also arranges for transfer agency, custody, fund administration,
distribution and all other related services necessary for the Jets ETF and the
Miners ETF to operate.
For
the services it provides to the Jets ETF and Miners ETF, the Funds pay the
Adviser a unified management fee, which is calculated daily and paid monthly, at
an annual rate of 0.60% of each Fund’s average daily net assets. Under the
investment advisory agreement, the Adviser has agreed to pay all expenses
incurred by the Funds except for interest
charges
on any borrowings, taxes, brokerage commissions and other expenses incurred in
placing orders for the purchase and sale of securities and other investment
instruments, acquired fund fees and expenses, accrued deferred tax liability,
extraordinary expenses, distribution fees and expenses paid by the Funds under
any distribution plan adopted pursuant to Rule 12b‑1 under the Investment
Company Act of 1940, as amended (the “1940 Act”), and the unified management fee
payable to the Adviser.
The
basis for the Board’s approval of the investment advisory agreement for the Jets
ETF and the Miners ETF is available in the Funds’ Annual
Report
to Shareholders for the year ended December 31, 2022.
Sea
ETF
Pursuant
to an investment advisory agreement between the Trust, on behalf of the Sea ETF,
and the Adviser, the Adviser manages and supervises the investment operations
and business affairs of the Sea ETF. The Adviser also furnishes the Sea ETF with
office space and certain administrative services and provides personnel needed
to fulfill its obligations under the Advisory Agreement. For the services it
provides to the Fund, the Fund pays the Adviser a management fee, which is
calculated daily and paid monthly, at an annual rate of 0.60% of the Fund’s
average daily net assets.
The
Sea ETF is responsible for its own operating expenses. However, pursuant to an
operating expense limitation agreement between the Adviser and the Sea ETF, the
Adviser has agreed to waive its management fees and/or reimburse expenses to
ensure that the total amount of the Fund’s operating expenses (excluding
Excludable Expenses) does not exceed 0.60% for the first $100 million of the
Fund’s average daily net assets and 0.70% for net assets greater than $100
million. To the extent the Sea ETF incurs Excludable Expenses, Total Annual Fund
Operating Expenses After Fee Waiver and/or Expense Reimbursement will exceed the
applicable expense limitation. The Adviser may request recoupment of previously
waived fees and paid expenses from the Fund for up to three years from the date
such fees and expenses were waived or paid, subject to the operating expense
limitation agreement, if such reimbursement will not cause the Fund’s total
expense ratio to exceed the lesser of: (1) the expense limitation in place at
the time of the waiver and/or expense payment; or (2) the expense limitation in
place at the time of the recoupment. The Sea ETF must pay its current ordinary
operating expenses before the Adviser is entitled to any recoupment of
management fees and/or expenses. This operating expense limitation agreement is
in effect through at least April 30, 2024, and may be terminated only by,
or with the consent of, the Board of Trustees.
The
basis for the Board’s approval of the investment advisory agreement for the Sea
ETF is available in the Fund’s Semi-Annual
Report
to Shareholders for the period ended June 30, 2022.
The
Funds are managed by a team consisting of the following individuals, each of
whom is equally responsible for the day to day management of each Fund’s
portfolio. Frank E. Holmes, Chief Executive Officer and Director for the Adviser
since 1989 and has been a portfolio manager of the Jets ETF since its inception
in April 2015, of the Miners ETF since its inception in June 2017, and of the
Sea ETF since its inception in January 2022. Ralph P. Aldis, CFA, has been a
Portfolio Manager for the Adviser since 2001 and a portfolio manager of the Jets
ETF since its inception in April 2015, of the Miners ETF since its inception in
June 2017, and of the Sea ETF since its inception in January 2022.
The
Funds’ SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by the Portfolio Managers, and
the Portfolio Managers’ ownership of Shares of each Fund.
Each
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from a Fund, and only APs may tender their Shares for
redemption directly to a Fund, at NAV. APs must be a member or participant of a
clearing agency registered with the SEC and must execute a Participant Agreement
that has been agreed to by the Distributor (defined below), and that has been
accepted by a Fund’s transfer agent, with respect to purchases and redemptions
of Creation Units. Once created, Shares trade in the secondary market in
quantities less than a Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Shares are listed for trading on the secondary market on the Exchange and can be
bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares and receive less than NAV when you sell those Shares.
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.
The
Funds impose no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with a Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Funds accommodate
frequent purchases and redemptions by APs. However, the Board has also
determined that frequent purchases and redemptions for cash may increase
tracking error and portfolio transaction costs and may lead to the realization
of capital gains. To minimize these potential consequences of frequent purchases
and redemptions, the Funds employ fair value pricing and may impose transaction
fees on purchases and redemptions of Creation Units to cover the custodial and
other costs incurred by a Fund in effecting trades. In addition, the Funds and
the Adviser reserve the right to reject any purchase order at any
time.
Each
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern time, each day
the NYSE is open for business. The NAV for each Fund is calculated by dividing
the Fund’s net assets by its Shares outstanding.
In
calculating its NAV, each Fund generally values its assets on the basis of
market quotations, last sale prices, or estimates of value furnished by a
pricing service or brokers who make markets in such instruments. If such
information is not available for a security held by a Fund or is determined to
be unreliable, the security will be valued by the Adviser at fair value pursuant
to procedures established by the Adviser and approved by the Board (as described
below).
The
Adviser has been designated by the Board as the valuation designee for the Funds
pursuant to Rule 2a-5 under the 1940 Act. In its capacity as valuation designee,
the Adviser has adopted procedures and methodologies to fair value Fund
securities whose market prices are not “readily available” or are deemed to be
unreliable. For example, such circumstances may arise when: (i) a security has
been de-listed or has had its trading halted or suspended; (ii) a security’s
primary pricing source is unable or unwilling to provide a price; (iii) a
security’s primary trading market is closed during regular market hours; or (iv)
a security’s value is materially affected by events occurring after the close of
the security’s primary trading market. The Board has appointed the Adviser as
each Fund’s valuation designee to perform all fair valuations of the Funds’
portfolio investments, subject to the Board’s oversight. Accordingly, the
Adviser has established procedures for its fair valuation of each Fund’s
portfolio investments. Generally, when fair valuing a security held by a Fund,
the Adviser will take into account all reasonably available information that may
be relevant to a particular valuation including, but not limited to, fundamental
analytical data regarding the issuer, information relating to the issuer’s
business, recent trades or offers of the security, general and/or specific
market conditions and the specific facts giving rise to the need to fair value
the security. Fair value determinations are made in good faith and in accordance
with the fair value methodologies established by the Adviser. Due to the
subjective and variable nature of determining the fair value of a security or
other investment, there can be no assurance that the Adviser’s fair value will
match or closely correlate to any market quotation that subsequently becomes
available or the price quoted or published by other sources. In addition, a Fund
may not be able to obtain the fair value assigned to the security upon the sale
of such security.
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 a Fund beyond the limits set
forth in section 12(d)(1) subject to certain terms and conditions set forth in
Rule 12d1-4 under the 1940 Act, including that such investment companies enter
into an agreement with a Fund.
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.
Each
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. Each Fund will declare and
pay capital gain distributions, if any, in cash. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to
you.
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. This summary does not apply
to Shares held in an IRA or other tax-qualified plans, which are generally not
subject to current tax. Transactions relating to Shares held in such accounts
may, however, be taxable at some time in the future. This summary is based on
current tax laws, which may change.
Each
Fund has elected or intends to elect and intends to qualify each year for
treatment as a RIC. If a Fund meets certain minimum distribution requirements, a
RIC is not subject to tax at the fund level on income and gains from investments
that are timely distributed to shareholders. However, a Fund’s failure to
qualify as a RIC or to meet minimum distribution requirements would result (if
certain relief provisions were not available) in fund-level taxation and,
consequently, a reduction in income available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA, you need to be aware of the possible tax consequences
when a Fund makes distributions, when you sell your Shares listed on the
Exchange, and when you purchase or redeem Creation Units (APs only).
Each
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long a Fund owned the investments that generated them, rather
than how long a shareholder has owned his or her Shares. Sales of assets held by
a Fund for more than one year generally result in long-term capital gains and
losses, and sales of assets held by a Fund for one year or less generally result
in short-term capital gains and losses. Distributions of a Fund’s net capital
gain (the excess of net long-term capital gains over net short-term capital
losses) that are reported by such Fund as capital gain dividends (“Capital Gain
Dividends”) will be taxable as long-term capital gains, which for non-corporate
shareholders are subject to tax at reduced rates of up to 20% (lower rates apply
to individuals in lower tax brackets). Distributions of short-term capital gain
will generally be taxable as ordinary income. Dividends and distributions are
generally taxable to you whether you receive them in cash or reinvest them in
additional Shares.
Distributions
reported by a Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that a Fund received in respect of stock of certain foreign
corporations may be qualified dividend income if that stock is readily tradable
on an established U.S. securities market. Dividends received by a Fund from an
ETF 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.
Certain of a Fund’s investment strategies may limit its ability to make
distributions eligible for the reduced rates applicable to qualified dividend
income.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from a 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 a Fund before your
investment (and thus were included in the Shares’ NAV when you purchased your
Shares).
You
may wish to avoid investing in a Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your investment.
If
a Fund’s distributions exceed its earnings and profits, all or a portion of the
distributions made for a taxable year may be recharacterized as a return of
capital to shareholders. A return of capital distribution will generally not be
taxable, but will reduce each shareholder’s cost basis in Shares and result in a
higher capital gain or lower capital loss when the Shares are sold. After a
shareholder’s basis in Shares has been reduced to zero, distributions in excess
of earnings and profits in respect of those Shares will be treated as gain from
the sale of the Shares.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
a Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
Shares by non-U.S. shareholders generally are not subject to U.S. taxation,
unless you are a nonresident alien individual who is physically present in the
U.S. for 183 days or more per year. A Fund may, under certain circumstances,
report all or a portion of a dividend as an “interest-related dividend” or a
“short-term capital gain dividend,” which would generally be exempt from this
30% U.S. withholding tax, provided certain other requirements are met. Different
tax consequences may result if you are a foreign shareholder engaged in a trade
or business within the United States or if a tax treaty applies.
Each
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage (currently 24%) of the taxable distributions and sale proceeds paid
to any shareholder who fails to properly furnish a correct taxpayer
identification number, who has underreported dividend or interest income, or who
fails to certify that the shareholder is not subject to such withholding.
Provided
that a shareholder holds Shares as capital assets, any capital gain or loss
realized upon a sale of Shares generally is treated as a long-term capital gain
or loss if Shares have been held for more than one year and as a short-term
capital gain or loss if Shares have been held for one year or less. However, any
capital loss on a sale of Shares held for six months or less is treated as
long-term capital loss to the extent of Capital Gain Dividends paid with respect
to such Shares. Any loss realized on a sale will be disallowed to the extent
Shares of a Fund are acquired, including through reinvestment of dividends,
within a 61-day period beginning 30 days before and ending 30 days after the
disposition of Shares. The ability to deduct capital losses may be limited.
The
cost basis of Shares of a Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your
account.
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash sales” (for an AP who does not mark-to-market its
holdings), or on the basis that there has been no significant change in economic
position. APs exchanging securities should consult their own tax advisor with
respect to whether the wash sales rule applies and when a loss might be
deductible.
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. Such Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause such Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, such Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
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
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, each
such Fund will be eligible to elect to “pass through” to investors the amount of
foreign income and similar taxes (including withholding 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, each such Fund will be entitled to
claim a deduction for certain foreign taxes incurred by such Fund. A Fund (or a
financial intermediary, such as a broker, through which a shareholder owns
Shares) 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 state and local tax on Fund
distributions and sales of Shares. Consult your personal tax advisor about the
potential tax consequences of an investment in Shares
under
all applicable tax laws. For more information, please see the section entitled
“Federal Income Taxes” in the SAI.
The
Distributor, Quasar Distributors, LLC, a wholly-owned subsidiary of Foreside
Financial Group, LLC (d/b/a ACA Group), is a broker-dealer registered with the
SEC. The Distributor distributes Creation Units for the Funds on an agency basis
and does not maintain a secondary market in Shares. The Distributor has no role
in determining the policies of the Funds or the securities that are purchased or
sold by the Funds. The Distributor’s principal address is 111 East Kilbourn
Avenue, Suite 2200, Milwaukee, Wisconsin 53202.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, each Fund is authorized
to pay an amount up to 0.25% of its average daily net assets each year for
certain distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Funds, and there are no plans to
impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because the fees are paid out of Fund assets, over time these fees will
increase the cost of your investment and may cost you more than certain other
types of sales charges.
Information
regarding how often Shares traded on the Exchange at a price above (i.e.,
at a premium) or below (i.e.,
at a discount) the NAV per Share is available, free of charge, on the Funds’
website at www.usglobaletfs.com.
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange makes no
representation or warranty, express or implied, to the owners of the Shares or
any member of the public regarding the ability of the Funds to track the total
return performance of their respective Index or the ability of the Indexes
identified herein to track the performance of their constituent securities. The
Exchange is not responsible for, nor has it participated in, the determination
of the compilation or the calculation of the Indexes, nor in the determination
of the timing of, prices of, or quantities of the Shares to be issued, nor in
the determination or calculation of the equation by which the Shares are
redeemable. The Exchange has no obligation or liability to owners of the Shares
in connection with the administration, marketing, or trading of the Shares.
The
Exchange does not guarantee the accuracy and/or the completeness of the Indexes
or the data included therein. The Exchange makes no warranty, express or
implied, as to results to be obtained by the Funds, owners of the Shares, or any
other person or entity from the use of the Indexes or the data included therein.
The Exchange makes no express or implied warranties, and hereby expressly
disclaims all warranties of merchantability or fitness for a particular purpose
with respect to the Indexes or the data included therein. Without limiting any
of the foregoing, in no event shall the Exchange have any liability for any lost
profits or indirect, punitive, special, or consequential damages even if
notified of the possibility thereof.
The
Adviser, the Index Provider, and the Funds make no representation or warranty,
express or implied, to the owners of Shares or any member of the public
regarding the advisability of investing in securities generally or in the Funds
particularly. The Index Provider is a licensor of certain trademarks, service
marks and trade names of the Funds. The Index Provider has no obligation to take
the needs of the Funds or the owners of Shares into consideration in
determining, composing, or calculating the Index. The Index Provider is not
responsible for, and has not participated in, the determination of the timing
of, prices of, or quantities of Shares to be issued or in the determination or
calculation of the equation by which Shares are redeemable. The Funds and the
Adviser do not guarantee the accuracy, completeness, or performance of the Index
or the data included therein and shall have no liability in connection with the
Index or Index calculation. The Index Calculation Agent maintains and calculates
the Index used by the Funds. The Index Calculation Agent shall have no liability
for any errors or omissions in calculating the Index.
The
financial highlights tables are intended to help you understand each Fund’s
financial performance for each Fund’s five most recent fiscal years (or the life
of the Fund, if shorter). Certain information reflects financial results for a
single Share. The total returns in the tables represent the rate that an
investor would have earned or lost on an investment in a Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Cohen & Company, Ltd., the Funds’ independent registered public
accounting firm, whose report, along with the Funds’ financial statements, is
included in the Funds’ annual report, which is available upon request.
U.S.
Global Jets ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Year
Ended December 31, |
| |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| |
Net
asset value, beginning of year |
$ |
21.09 |
|
| $ |
22.36 |
|
| $ |
31.50 |
|
| $ |
27.94 |
|
| $ |
32.60 |
|
| |
|
|
|
|
|
|
|
|
|
|
| |
INCOME
(LOSS) FROM INVESTMENT OPERATIONS |
|
|
|
|
|
|
|
|
|
| |
Net
investment income (loss) (1) |
(0.02) |
|
| (0.12) |
|
| (0.05) |
|
| 0.31 |
|
| 0.18 |
|
| |
Net
realized and unrealized gain (loss) on investments |
(3.98) |
|
| (1.01) |
|
| (9.08) |
|
| 3.64 |
|
| (4.67) |
|
| |
Total
from investment operations |
(4.00) |
|
| (1.13) |
|
| (9.13) |
|
| 3.95 |
|
| (4.49) |
|
| |
|
|
|
|
|
|
|
|
|
|
| |
DISTRIBUTIONS
TO SHAREHOLDERS |
|
|
|
|
|
|
|
|
|
| |
Distributions
from: |
|
|
|
|
|
|
|
|
|
| |
Net
investment income |
— |
|
| — |
|
| (0.00) |
(2) |
(0.39) |
|
| (0.15) |
|
| |
Capital
gains |
— |
|
| (0.14) |
|
| (0.01) |
|
| — |
|
| (0.02) |
|
| |
Total
distributions to shareholders |
— |
|
| (0.14) |
|
| (0.01) |
|
| (0.39) |
|
| (0.17) |
|
| |
|
|
|
|
|
|
|
|
|
|
| |
CAPITAL
SHARE TRANSACTIONS |
|
|
|
|
|
|
|
|
|
| |
Transaction
fees |
0.00 |
|
(2) |
0.00 |
|
(2) |
0.00 |
(2) |
— |
|
| — |
|
| |
Net
asset value, end of year |
$ |
17.09 |
|
| $ |
21.09 |
|
| $ |
22.36 |
|
| $ |
31.50 |
|
| $ |
27.94 |
|
| |
|
|
|
|
|
|
|
|
|
|
| |
Total
return |
-18.96 |
% |
| -5.05 |
% |
| -28.99 |
% |
| 14.10 |
% |
| -13.76 |
% |
| |
|
|
|
|
|
|
|
|
|
|
| |
SUPPLEMENTAL
DATA |
|
|
|
|
|
|
|
|
|
| |
Net
assets at end of year (000’s) |
$ |
1,971,734 |
|
| $ |
3,231,230 |
|
| $ |
2,903,357 |
|
| $ |
51,976 |
|
| $ |
85,230 |
|
| |
|
|
|
|
|
|
|
|
|
|
| |
RATIOS
TO AVERAGE NET ASSETS |
|
|
|
|
|
|
|
|
|
| |
Expenses
to average net assets |
0.60 |
% |
| 0.60 |
% |
| 0.60 |
% |
| 0.60 |
% |
| 0.60 |
% |
| |
Net
investment income (loss) to average net assets |
-0.12 |
% |
| -0.50 |
% |
| -0.28 |
% |
| 1.02 |
% |
| 0.57 |
% |
| |
Portfolio
turnover rate (3) |
43 |
% |
| 54 |
% |
| 88
% |
| 31 |
% |
| 33 |
% |
| |
(1)Calculated
based on average shares outstanding during the year.
(2)Represents
less than $0.005 per share.
(3)Excludes
the impact of in-kind transactions.
U.S.
Global GO GOLD and Precious Metal Miners ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Year
Ended December 31, |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
Net
asset value, beginning of year |
$ |
17.88 |
|
| $ |
19.84 |
|
| $ |
17.45 |
|
| $ |
11.40 |
|
| $ |
12.81 |
|
|
|
|
|
|
|
|
|
| |
INCOME
(LOSS) FROM INVESTMENT OPERATIONS |
|
|
|
|
|
|
|
| |
Net
investment income (loss) (1) |
0.23 |
|
| 0.23 |
|
| 0.07 |
|
| 0.06 |
|
| 0.06 |
|
Net
realized and unrealized gain (loss) on investments |
(2.32) |
|
| (1.96) |
|
| 3.54 |
|
| 6.02 |
|
| (1.42) |
|
Total
from investment operations |
(2.09) |
|
| (1.73) |
|
| 3.61 |
|
| 6.08 |
|
| (1.36) |
|
|
|
|
|
|
|
|
|
| |
DISTRIBUTIONS
TO SHAREHOLDERS |
|
|
|
|
|
|
|
| |
Distributions
from: |
|
|
|
|
|
|
|
| |
Net
investment income |
(0.24) |
|
| (0.08) |
|
| (0.05) |
|
| (0.03) |
|
| (0.05) |
|
Capital
gains |
— |
|
| (0.15) |
|
| (1.18) |
|
| — |
|
| — |
|
Total
distributions to shareholders |
(0.24) |
|
| (0.23) |
|
| (1.23) |
|
| (0.03) |
|
| (0.05) |
|
|
|
|
|
|
|
|
|
| |
CAPITAL
SHARE TRANSACTIONS |
|
|
|
|
|
|
|
| |
Transaction
fees |
0.00 |
|
(2) |
0.00 |
|
(2) |
0.01 |
|
| — |
|
| — |
|
Net
asset value, end of year |
$ |
15.55 |
|
| $ |
17.88 |
|
| $ |
19.84 |
|
| $ |
17.45 |
|
| $ |
11.40 |
|
|
|
|
|
|
|
|
|
| |
Total
return |
-11.67 |
% |
| -8.72 |
% |
| 20.85 |
% |
| 53.37 |
% |
| -10.60 |
% |
|
|
|
|
|
|
|
|
| |
SUPPLEMENTAL
DATA |
|
|
|
|
|
|
|
| |
Net
assets at end of year (000’s) |
$ |
82,424 |
|
| $ |
92,963 |
|
| $ |
108,114 |
|
| $ |
50,610 |
|
| $ |
11,398 |
|
|
|
|
|
|
|
|
|
| |
RATIOS
TO AVERAGE NET ASSETS |
|
|
|
|
|
|
|
| |
Expenses
to average net assets |
0.60 |
% |
| 0.60 |
% |
| 0.60 |
% |
| 0.60 |
% |
| 0.60 |
% |
Net
investment income (loss) to average net assets |
1.40 |
% |
| 1.20 |
% |
| 0.37 |
% |
| 0.40 |
% |
| 0.49 |
% |
Portfolio
turnover rate (3) |
106 |
% |
| 81 |
% |
| 130 |
% |
| 158 |
% |
| 130 |
% |
(1)Calculated
based on average shares outstanding during the year.
(2)Represents
less than $0.005 per share.
(3)Excludes
the impact of in-kind transactions.
U.S.
Global Sea to Sky Cargo ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the year/period
|
|
|
|
|
|
|
| |
| Period
Ended December 31, |
|
|
2022(1) |
|
Net
asset value, beginning of year/period |
$ |
20.00 |
| |
|
| |
INCOME
(LOSS) FROM INVESTMENT OPERATIONS |
| |
Net
investment income (loss) (2) |
2.40 |
| |
Net
realized and unrealized gain (loss) on investments |
(5.99) |
| |
Total
from investment operations |
(3.59) |
| |
|
| |
DISTRIBUTIONS
TO SHAREHOLDERS |
| |
Distributions
from: |
| |
Net
investment income |
(2.59) |
| |
Total
distributions to shareholders |
(2.59) |
| |
|
| |
CAPITAL
SHARE TRANSACTIONS |
| |
Transaction
fees |
0.05 |
| |
Net
asset value, end of year/period |
$ |
13.87 |
| |
|
| |
Total
return |
-17.92 |
% |
(3) |
|
| |
SUPPLEMENTAL
DATA |
| |
Net
assets at end of year/period (000’s) |
$ |
4,854 |
| |
|
| |
RATIOS
TO AVERAGE NET ASSETS |
| |
Expenses
before fees waived |
2.29 |
% |
(4)(5) |
Expenses
after fees waived |
0.60 |
% |
(4) |
Net
investment income (loss) before fees waived |
11.86 |
% |
(4)(5) |
Net
investment income (loss) after fees waived |
13.55 |
% |
(4) |
Portfolio
turnover rate (6) |
103 |
% |
(3) |
(1)Commencement
of operations on January 19, 2022.
(2)Calculated
based on average shares outstanding during the period.
(3)Not
annualized.
(4)Annualized.
(5)Pursuant
to a contractual operating expense limitation between the Adviser and the Fund,
the Adviser has agreed to waive its management fees and/or reimburse Fund
expenses to ensure that Total Operating Expenses do not exceed 0.60% through at
least April 30, 2023.
(6)Excludes
the impact of in-kind transactions.
U.S.
Global Jets ETF
U.S.
Global GO GOLD and Precious Metal Miners ETF
U.S.
Global Sea to Sky Cargo ETF
|
|
|
|
|
|
|
|
|
|
| |
Adviser |
U.S.
Global Investors, Inc.
7900
Callaghan Road
San
Antonio, Texas 78229 |
Distributor |
Quasar
Distributors, LLC
111
East Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202 |
Index
Provider |
U.S.
Global Indices, LLC
7900 Callaghan Road
San
Antonio, Texas 78229 |
Index
Calculation Agent |
Indxx,
LLC
470
Park Avenue South, Suite 8S
New
York, New York 10016 |
Custodian |
U.S.
Bank National Association
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Transfer
Agent, Fund Accountant and Administrator |
U.S.
Bancorp Fund Services, LLC
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue NW
Washington,
DC 20004-2541 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
Wisconsin 53202 |
Investors
may find more information about the Funds in the following documents:
Statement
of Additional Information: The
Funds’ SAI provides additional details about the investments and techniques of
the Funds and certain other additional information. A current SAI dated
April 30,
2023,
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 the Funds’ 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 the Funds’ performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Funds by contacting the Funds at c/o U.S. Bank
Global Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or by
calling 1-800-617-0004.
Shareholder
reports and other information about the Funds are 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.usglobaletfs.com; or
(SEC
Investment Company Act File No. 811-22668)