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ACSI |
American
Customer Satisfaction ETF |
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listed
on Cboe BZX Exchange, Inc. |
PROSPECTUS
January 28,
2022
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved
of these securities or passed upon the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
TABLE
OF CONTENTS
Investment Objective
The American Customer
Satisfaction ETF (“ACSI ETF” or the “Fund”) seeks to track the performance,
before fees and expenses, of the American Customer Satisfaction Investable Index
(the “Index”).
Fees and Expenses of the Fund
This 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 |
0.65% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.65% |
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Expense Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year |
3
Years |
5
Years |
10
Years |
$66 |
$208 |
$362 |
$810 |
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in total annual fund operating expenses or
in the Example, affect the Fund’s performance. During the most recent fiscal
year ended September 30, 2021, the Fund’s portfolio turnover rate was
50% 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 based on a
proprietary methodology created and maintained by CSat Investment Advisory, L.P.
(“CSat”), the Fund’s index provider and the investment adviser for the
Predecessor Fund (defined below), in partnership with the American Customer
Satisfaction Index, LLC, an affiliate of CSat and owner/publisher of the leading
national cross-industry measure of customer satisfaction (the “Customer
Satisfaction Data”). Calculation of the Customer Satisfaction Data incorporates
surveys of more than 100,000 household customers each year to identify trends in
customer satisfaction and provide benchmarking insights for companies, industry
trade associations, and government agencies.
American
Customer Satisfaction Investable Index
The
Index uses an objective, rules-based methodology to measure the performance of
U.S.-listed companies whose customers have been surveyed and who have been
assigned a customer satisfaction score as part of the Customer Satisfaction Data
(collectively, “ACSI Companies”).
Construction
of the Index begins with over 400 ACSI Companies across 46 industries and 10
economic sectors. The initial universe is then screened to eliminate companies
whose stock is not principally listed on a U.S. exchange, whose market
capitalization is less than $1 billion, or for which the Customer Satisfaction
Data is statistically insignificant. The Index is comprised of ACSI Companies in
the 25 industries (as classified by the Customer Satisfaction Data) with the
highest customer retention, and the company(ies) with the highest ACSI Score
(described below) in each such industry will be included in the Index (the
“Index Companies”). One to three ACSI Companies from each industry are included
in the Index
based
on the number of ACSI Companies in a given industry. The Index will generally be
comprised of 25 to 35 companies at the time of each rebalance of the
Index.
A
company’s ACSI Score is calculated by utilizing a proprietary model to evaluate
customers’ Customer Satisfaction Data based on questions that measure the
following facets of satisfaction with a product or service:
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Customer
Expectations |
Customer
expectations is a measure of the customer’s anticipation of the quality of
a company’s products or services. Expectations represent both prior
consumption experience, which includes some nonexperiential information
like advertising and word-of-mouth, and a forecast of the company’s
ability to deliver quality in the future. |
Perceived
Quality |
Perceived
quality is a measure of the customer’s evaluation via recent consumption
experience of the quality of a company’s products or services. Quality is
measured in terms of both customization, which is the degree to which a
product or service meets the customer’s individual needs, and reliability,
which is the frequency with which things go wrong with the product or
service. |
Perceived
Value |
Perceived
value is a measure of quality relative to price paid. Although price
(value for money) is often very important to the customer’s first
purchase, it usually has a somewhat smaller impact on satisfaction for
repeat purchases. |
At
the time of each rebalance of the Index, the Index is sector-weighted to reflect
the overall U.S. large cap market, industry-weighted based on the highest ACSI
Score of any Index Company within an industry, and equal-weighted within each
industry, subject to the constraints described below.
Sector
Weighting.
At the time of each rebalance of the Index, the Index weight is allocated to
each economic sector based on the aggregate number of the Index Companies in
each sector relative to that of each other sector, provided that such weights
will be adjusted upward or downward if necessary to better reflect the weight of
such sector in the overall U.S. large cap market. Unallocated Index weight
resulting from such downward adjustments is re-allocated first equally to
sectors requiring an upward weight adjustment and then equally to all sectors to
the extent they stay within the Index’s constraints.
Industry
Weighting. At
the time of each rebalance of the Index, within each economic sector, the Index
weight is allocated to each industry based on the highest ACSI Score of any
Index Company within such industry relative to the highest ACSI Score for
companies in each other industry within such sector.
Security
Weighting.
At the time of each rebalance of the Index, Index Companies within an industry
are equally weighted, subject to a maximum of 12% for any individual Index
Company.
The
Index is rebalanced and reconstituted on a quarterly basis after market close on
the 10th trading day of each January, April, July, and October. The data used to
compute each ACSI Company’s score is updated based on the Customer Satisfaction
Data on a rolling basis, no less often than quarterly, with new data replacing
earlier data collected in the same period of the previous year.
The
Index was created by CSat in 2016 in anticipation of the commencement of
operations of the Predecessor Fund. CSat is not affiliated with the Fund’s
investment adviser.
The
Fund’s Investment Strategy
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning it generally will invest in all of the component securities
of the Index. However, the Fund may use a “representative sampling” strategy,
meaning it may invest in a sample of the securities in the Index whose risk,
return and other characteristics closely resemble the risk, return and other
characteristics of the Index as a whole, when Toroso Investments, LLC (“Toroso”
or 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).
Under
normal circumstances, at least 80% of the Fund’s net assets, plus borrowings for
investment purposes, will be invested in investments that are tied economically
to the United States. Such policy has been adopted as a non-fundamental
investment policy and may be changed without shareholder approval upon approval
by the Board of Trustees (the “Board”) of Tidal ETF Trust (the “Trust”) and
60 days’ written notice to shareholders.
The Fund may invest in
securities or other investments not included in the Index (such as other
exchange-traded funds (“ETFs”)), 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% 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.
Principal Investment
Risks
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with those of other funds. Each risk summarized below is
considered a “principal risk” of investing in the Fund, regardless of the order
in which 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
investment objective. For more information about the risks of investing in the
Fund, see the section in the Fund’s Prospectus titled “Additional Information
About the Fund’s Principal Risks.”
Cybersecurity
Risk.
With the increased use of technologies such as the Internet to conduct business,
the Fund is susceptible to operational, information security, and related risks.
Cyber incidents affecting the Fund or its service providers may cause
disruptions and impact business operations, potentially resulting in financial
losses, interference with the Fund’s ability to calculate its NAV, impediments
to trading, the inability of shareholders to transact business, violations of
applicable privacy and other laws, regulatory fines, penalties, reputational
damage, reimbursement or other compensation costs, or additional compliance
costs.
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, acts of terrorism, spread of
infectious diseases or other public health issues, recessions, or other events
could have a significant negative impact on the Fund and its
investments.
ETF
Risk. The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
◦Trading. Although
Shares are listed for trading on Cboe BZX Exchange, 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.
Other
Investment Companies Risk. The
Fund will incur higher and duplicative expenses when it invests in ETFs and
other investment companies. By investing in another investment company, the Fund
becomes a shareholder of that investment company and bears its proportionate
share of the fees and expenses of the other investment company. There is also
the risk
that
the Fund may suffer losses due to the investment practices of the underlying
funds as the Fund will be subject to substantially the same risks as those
associated with the direct ownership of securities held by such investment
companies. ETFs may be less liquid than other investments, and thus their share
values more volatile than the values of the investments they hold. Investments
in ETFs are also subject to the “ETF Risks” described above.
Models
and Data Risk. The
composition of the Index is heavily dependent on proprietary quantitative models
as well as information and data supplied by third parties (“Models and
Data”).
When
Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon may lead to securities being included in or excluded from the
Index that would have been excluded or included had the Models and Data been
correct and complete. If the composition of the Index reflects such errors, the
Fund’s portfolio can be expected to reflect the errors, too.
Passive
Investment Risk.
The Fund invests in the securities included in, or representative of, the Index
regardless of their investment merit. The Fund does not attempt to outperform
the Index or take defensive positions in declining markets. As a result, the
Fund’s performance may be adversely affected by a general decline in the market
segments relating to the Index.
Recent
Market Events Risk.
U.S. and international markets have experienced significant periods of
volatility in recent years and months due to a number of economic, political and
global macro factors including the impact of COVID-19 as a global pandemic,
which has resulted in a public health crisis, disruptions to business operations
and supply chains, stress on the global healthcare system, growth concerns in
the U.S. and overseas, staffing shortages and the inability to meet consumer
demand, and widespread concern and uncertainty. The global recovery from
COVID-19 is proceeding at slower than expected rates due to the emergence of
variant strains and may last for an extended period of time. Continuing
uncertainties regarding interest rates, political events, rising government debt
in the U.S. and trade tensions also contribute to market
volatility.
Sector
Risk.
To the extent the Fund invests more heavily in particular sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those sectors.
◦Consumer
Discretionary Sector Risk.
The Fund may invest significantly in companies in the consumer discretionary
sector, and therefore the performance of the Fund could be negatively impacted
by events affecting this sector. The success of consumer product manufacturers
and retailers is tied closely to the performance of domestic and international
economies, interest rates, exchange rates, competition, consumer confidence,
changes in demographics and consumer preferences. Companies in the consumer
discretionary sector depend heavily on disposable household income and consumer
spending, and may be strongly affected by social trends and marketing campaigns.
These companies may be subject to severe competition, which may have an adverse
impact on their profitability. As of September 30, 2021, 28.5% of the Fund’s net
assets were invested in the consumer discretionary sector.
◦Consumer
Staples Sector Risk.
The Fund may invest significantly in companies in the consumer staples sector,
and therefore the performance of the Fund could be negatively impacted by events
affecting this sector. Companies in the consumer staples sector, including those
in the food and beverage industries, may be affected by general economic
conditions, commodity production and pricing, consumer confidence and spending,
consumer preferences, interest rates, product cycles, marketing campaigns,
competition, and government regulations.
◦Information
Technology Sector Risk. The
Fund may invest significantly in companies in the information technology sector,
and therefore the performance of the Fund could be be negatively impacted by
events affecting this sector. Market
or economic factors impacting information technology companies and companies
that rely heavily on technological advances could have a significant effect on
the value of the Fund’s investments. The value of stocks of information
technology companies and companies that rely heavily on technology is
particularly vulnerable to rapid changes in technology product cycles, rapid
product obsolescence, government regulation and competition, both domestically
and internationally, including competition from foreign competitors with lower
production costs. Stocks of information technology companies and companies that
rely heavily on technology, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall market. Information
technology companies are heavily dependent on patent and intellectual property
rights, the loss or impairment of which may adversely affect profitability.
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
Prior
to the commencement of the Fund’s operations as a series of the Trust on May 24,
2021, the Fund operated as the American Customer Satisfaction ETF (the
“Predecessor Fund”), a series of the ETF Series Solutions, an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the “1940 Act”), that had the same investment objective and strategies
as the Fund since the Predecessor Fund’s inception. The Fund assumed the NAV and
performance history of the Predecessor Fund. Performance
shown in the bar chart and table for periods prior to May 24, 2021 is that of
the Predecessor Fund and is not the performance of the Fund.
The Predecessor Fund was reorganized into the Fund at the inception of the Fund.
The following
performance information provides some indication of the risks of investing in
the Fund by showing two aspects of the Fund: volatility and
performance. The bar chart and table reflect changes in the
Fund’s performance from year to year over the one-year, five-year and since
inception periods and show how the Fund’s average annual total returns compare
to those of a relevant market index and the Index. The Fund’s past performance is
not necessarily an indication of how the Fund will perform in the
future. Updated performance information is also available on the
Fund’s website at www.acsietf.com.
Calendar Year Total Returns
During the period of time shown
in the bar chart, the Fund’s highest quarterly return
was 20.34% for the quarter ended June 30, 2020, and
the lowest quarterly return was
-21.62% for the quarter ended March 31,
2020.
Average Annual Total Returns
For the Periods Ended December 31,
2021
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American
Customer Satisfaction ETF |
1
Year |
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5
Years |
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Since
Inception
(10/31/2016)
(1) |
Return Before
Taxes |
23.36% |
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15.80% |
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17.01% |
Return After Taxes on
Distributions |
23.27% |
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15.49% |
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16.70% |
Return After Taxes on Distributions and
Sale of Fund Shares |
13.90% |
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12.68% |
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13.74% |
American
Customer Satisfaction Investable Index
(reflects no deduction for
fees, expenses, or taxes) |
24.18% |
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16.66% |
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17.86% |
Standard
& Poor’s 500 (S&P 500 Index)
(reflects
no deduction for fees, expenses, or taxes) |
28.71% |
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18.47% |
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19.11% |
(1)
The Predecessor Fund
commenced operations on October 31, 2016.
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts.
Management
Investment
Adviser
Toroso
Investments, LLC serves as investment adviser to the Fund.
Portfolio
Managers
Michael
Venuto, Chief Investment Officer for the Adviser, is primarily responsible for
the day-to-day management of the Fund’s portfolio and has been a portfolio
manager of the Fund since its inception in May 2021.
Charles
A. Ragauss, CFA, Portfolio Manager for the Adviser, is primarily responsible for
the day-to-day management of the Fund’s portfolio and has been a portfolio
manager of the Fund since its inception in May 2021 and was a portfolio manager
of the Predecessor Fund since its inception in October 2016.
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities (the “Deposit Securities”) and/or a designated amount of U.S.
cash.
Shares
are listed on a national securities exchange, such as the Exchange, and
individual Shares may only be bought and sold in the secondary market through
brokers at market prices, rather than NAV. Because Shares trade at market prices
rather than NAV, Shares may trade at a price greater than NAV (premium) or less
than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. This difference in bid and ask
prices is often referred to as the “bid-ask spread.”
Information
regarding the Fund’s NAV, market price, how often Shares traded on the Exchange
at a premium or discount, and bid-ask spreads can be found on the Fund’s website
at www.acsietf.com.
Tax
Information
Fund
distributions are generally taxable to shareholders as ordinary income,
qualified dividend income, or capital gains (or a combination), unless an
investment is in an IRA or other tax-advantaged account. Distributions on
investments made through tax-deferred arrangements may be taxed later upon
withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training, or other initiatives
related to the sale or promotion of Shares. These payments may create a conflict
of interest by influencing the Intermediary and your salesperson to recommend
the Fund over another investment. Any such arrangements do not result in
increased Fund expenses. Ask your salesperson or visit the Intermediary’s
website for more information.
ADDITIONAL
INFORMATION ABOUT THE FUND
Investment
Objective.
An
investment objective is fundamental if it cannot be changed without the consent
of the holders of a majority of the outstanding Shares. The Fund’s investment
objective has not been adopted as a fundamental investment policy and therefore
may be changed without the consent of the Fund’s shareholders upon approval by
the Board and written notice to shareholders.
Additional
Information About the Index.
The American Customer Satisfaction Investable Index (the “Index”) is calculated
by Solactive AG (“Solactive”), which is not affiliated with the ACSI ETF, the
Adviser, the Fund’s distributor, or any of their respective affiliates. The
index calculation agent provides information to the ACSI ETF about the
constituents of the Index and does not provide investment advice with respect to
the desirability of investing in, purchasing, or selling
securities.
In
the event a company’s ACSI Score has dropped by more than 10 points as reported
in the Customer Satisfaction Data at any time other than at a time such report
would be used for a normal Index rebalance, the Index will undergo a special
interim rebalance. The special interim rebalance will result in the immediate
reduction in the applicable company’s weighting in the Index to the lowest
weighting of any company in the applicable sector. The resulting unallocated
portion of the Index will be reallocated to the company with the highest
weighting in the applicable sector (or equally to multiple companies if multiple
companies are tied for the highest weighting).
The
following information is in addition to, and should be read along with, the
description of the Fund’s principal investment strategies in the section titled
“Fund Summary—Principal Investment Strategy” above.
Additional
Information About the Customer Satisfaction Data. The
Customer Satisfaction Data is the leading national cross-industry measure of
customer satisfaction in the United States. This strategic economic indicator is
based on customer evaluations of the quality of goods and services purchased in
the United States and produced by domestic and foreign firms with substantial
U.S. market shares. The Customer Satisfaction Data measures the quality of
economic output as a complement to traditional measures of the quantity of
economic output. The Customer Satisfaction Data is reported as an overall score
and is not a portfolio of investable securities. For example, the Customer
Satisfaction Data score for the third quarter of 2021 was 73.7 out of
100.
Publication
of the Customer Satisfaction Data was started in the United States in 1994 by
researchers at the University of Michigan, in conjunction with the American
Society for Quality in Milwaukee, Wisconsin, and CFI Group in Ann Arbor,
Michigan. The Customer Satisfaction Data was developed to provide information on
satisfaction with the quality of products and services available to consumers.
Before publication of the Customer Satisfaction Data, no national measure of
quality from the perspective of the user was available.
The
Customer Satisfaction Data model was derived from a model originally implemented
in 1989 in Sweden called the Swedish Customer Satisfaction Barometer (SCSB).
Claes Fornell, founder and Chair of American Customer Satisfaction Index, LLC,
developed the model and methodology for both the Swedish and American versions.
The Customer Satisfaction Data was first published in October 1994, with updates
released each quarter. Starting in May 2010, Customer Satisfaction Data became
available to the public on a more frequent basis, with results released multiple
times per year. This change allows stakeholders to focus more in-depth on
different segments of the economy over the entire calendar year. The national
Customer Satisfaction Data score continues to be updated on a rolling basis, no
less frequently than quarterly, factoring in data from 10 economic sectors and
46 industries.
The
Fund’s Investment Strategy.
Under normal circumstances, at least 80% of the Fund’s net assets, plus
borrowings for investment purposes, will be invested in investments that are
tied economically to the United States. Such policy has been adopted as a
non-fundamental investment policy and may be changed without shareholder
approval upon Board approval and 60 days’ written notice to shareholders.
To
the extent the Index concentrates (i.e., holds more than 25% of its total
assets) in the securities of a particular industry or group of related
industries, the Fund will concentrate its investments to approximately the same
extent as the Index.
Manager
of Managers Structure
Although
the Fund is not currently sub-advised, the Fund and the Adviser have received
exemptive relief from the SEC permitting the Adviser (subject to certain
conditions and the approval of the Board) to change or select unaffiliated
sub-advisers without obtaining shareholder approval. The relief also permits the
Adviser to materially amend the terms of agreements with an unaffiliated
sub-adviser (including an increase in the fee paid by the Adviser to the
unaffiliated sub-adviser (and not paid by the Fund)) or to continue the
employment of an unaffiliated sub-adviser after an event that would otherwise
cause the automatic termination of services with Board approval, but without
shareholder approval. Shareholders
will
be notified of any unaffiliated sub-adviser changes. The Adviser has the
ultimate responsibility, subject to oversight by the Board, to oversee a
sub-adviser and recommend their hiring, termination and replacement.
Additional
Information About the Fund’s Principal Risks. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which 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 NAV per share, trading
price, yield, total return and/or ability to meet its investment objective. The
following risks could affect the value of your performance in the
Fund:
Cybersecurity
Risk.
With the increased use of technologies such as the Internet to conduct business,
the Fund is susceptible to operational, information security, and related risks.
In general, cyber incidents can result from deliberate attacks or unintentional
events. Cyber attacks include, but are not limited to, gaining unauthorized
access to digital systems (e.g., through “hacking” or malicious software coding)
for purposes of misappropriating assets or sensitive information, corrupting
data, or causing operational disruption. Cyber attacks may also be carried out
in a manner that does not require gaining unauthorized access, such as causing
denial-of-service attacks on websites (i.e., efforts to make network services
unavailable to intended users). Cyber incidents affecting the Fund or its
service providers have the ability to cause disruptions and impact business
operations, potentially resulting in financial losses, interference with the
Fund’s ability to calculate its NAV, impediments to trading, the inability of
shareholders to transact business, violations of applicable privacy and other
laws, regulatory fines, penalties, reputational damage, reimbursement or other
compensation costs, or additional compliance costs. Similar adverse consequences
could result from cyber incidents affecting issuers of securities in which the
Fund invests, counterparties with which the Fund engages in transactions,
governmental and other regulatory authorities, exchange and other financial
market operators, banks, brokers, dealers, insurance companies and other
financial institutions (including financial intermediaries and service providers
for shareholders) and other parties. In addition, substantial costs may be
incurred in order to prevent any cyber incidents in the future. While the Fund’s
service providers have established business continuity plans in the event of,
and risk management systems to prevent, such cyber incidents, there are inherent
limitations in such plans and systems including the possibility that certain
risks have not been identified. Furthermore, the Fund cannot control the cyber
security plans and systems put in place by their service providers or any other
third parties whose operations may affect the Fund or its shareholders. As a
result, the Fund and its shareholders could be negatively impacted.
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; and global or regional political, economic, public
health, and banking crises. As the Fund holds common stock, or common stock
equivalents, of any given issuer, it is exposed to greater risk than if it 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.
ETF
Risks. The
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.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid-ask spread.” The bid-ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, a relatively small investor base
in the Fund, asset swings in the Fund, and/or increased market volatility may
cause increased bid-ask spreads. Due to the costs of buying or selling Shares,
including bid-ask
spreads,
frequent trading of Shares may significantly reduce investment results and an
investment in Shares may not be advisable for investors who anticipate regularly
making small investments.
◦Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility, periods of
steep market declines, and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant.
◦Trading.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500®
Index during a single day reaches certain thresholds (e.g., 7%, 13%, and 20%).
Additional rules applicable to the Exchange may halt trading in Shares when
extraordinary volatility causes sudden, significant swings in the market price
of Shares. There can be no assurance that Shares will trade with any volume, or
at all, on any stock exchange. In stressed market conditions, the liquidity of
Shares may begin to mirror the liquidity of the Fund’s underlying portfolio
holdings, which can be significantly less liquid than Shares.
Models
and Data Risk The
Index relies heavily on proprietary quantitative Models and Data. Because the
Index is composed based on such Models and Data, when such Models and Data prove
to be incorrect or incomplete, the Index and the Fund may not perform as
expected.
Other
Investment Companies Risks. The
Fund will incur higher and duplicative expenses when it invests in ETFs and
other investment companies. By investing in another investment company, the Fund
becomes a shareholder of that investment company and bears its proportionate
share of the fees and expenses of the other investment company. There is also
the risk that the Fund may suffer losses due to the investment practices of the
underlying funds as the Fund will be subject to substantially the same risks as
those associated with the direct ownership of securities held by such investment
companies. The Fund may be subject to statutory limits with respect to the
amount it can invest in other ETFs, which may adversely affect the Fund’s
ability to achieve its investment objective. ETFs may be less liquid than other
investments, and thus their share values more volatile than the values of the
investments they hold. Investments in ETFs are also subject to the “ETF Risks”
described above.
Passive
Investment Risk.
The Fund invests in the securities included in, or representative of, its Index
regardless of their investment merit. The Fund does not attempt to outperform
its Index or take defensive positions in declining markets. As a result, the
Fund’s performance may be adversely affected by a general decline in the market
segments relating to its Index. The returns from the types of securities in
which the Fund invests may underperform returns from the various general
securities markets or different asset classes. This may cause the 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.
Recent
Market Events Risk.
U.S. and international markets have experienced significant periods of
volatility in recent years and months due to a number of economic, political and
global macro factors including the impact of COVID-19 as a global pandemic and
related public health crisis, growth concerns in the U.S. and overseas,
uncertainties regarding interest rates, trade tensions, and the threat of
tariffs imposed by the U.S. and other countries. In particular, the global
spread of COVID-19 has resulted in disruptions to business operations and supply
chains, stress on the global healthcare system, growth concerns in the U.S. and
overseas, staffing shortages and the inability to meet consumer demand, and
widespread concern and uncertainty. The global recovery from COVID-19 is
proceeding at slower than expected rates due to the emergence of variant strains
and may last for an extended period of time. Health crises and related
political, social and economic disruptions caused by the spread of COVID-19 may
also exacerbate other pre-existing political, social and economic risks in
certain countries. These developments, as well as other events, could result in
further market volatility and negatively affect financial asset prices, the
liquidity of certain securities and the normal operations of securities
exchanges and other markets, despite government efforts to address market
disruptions. As a result, the risk environment remains elevated. The Adviser and
the Sub-Adviser will monitor developments and seek to manage the Fund in a
manner consistent with achieving the Fund’s investment objective, but there can
be no assurance that they will be successful in doing so.
Sector
Risk. The
Fund’s investing approach may result in an emphasis on certain sectors or
sub-sectors of the market at any given time. To the extent the Fund invests more
heavily in one sector or sub-sector of the market, it thereby presents a more
concentrated risk and its performance will be especially sensitive to
developments that significantly affect those sectors or sub-sectors. In
addition, the value of Shares may change at different rates compared to the
value of shares of a fund with investments in a more diversified mix of sectors
and industries. An individual sector or sub-sector of the market may have
above-average performance during particular periods, but may also move up and
down more than the broader market. The several industries that constitute a
sector may all react in the same way to economic, political or regulatory
events. The Fund’s performance could also be affected if the sectors or
sub-sectors do not perform as expected. Alternatively, the lack of exposure to
one or more sectors or sub-sectors may adversely affect performance.
◦Consumer
Discretionary Sector Risk.
The success of consumer product manufacturers and retailers is tied closely to
the performance of domestic and international economies, interest rates,
exchange rates, competition, consumer confidence, changes in demographics and
consumer preferences. Companies in the consumer discretionary sector depend
heavily on disposable household income and consumer spending, and may be
strongly affected by social trends and marketing campaigns. These companies may
be subject to severe competition, which may have an adverse impact on their
profitability. As of September 30, 2021, 28.5% of the Fund’s net assets were
invested in the consumer discretionary sector.
◦Consumer
Staples Sector Risk. Companies
in the consumer staples sector, including those in the food and beverage
industries, may be affected by general economic conditions, commodity production
and pricing, consumer confidence and spending, consumer preferences, interest
rates, product cycles, marketing campaigns, competition, and government
regulations.
◦Information
Technology Sector Risk.
Market
or economic factors impacting information technology companies and companies
that rely heavily on technological advances could have a significant effect on
the value of the Fund’s investments. The value of stocks of information
technology companies and companies that rely heavily on technology is
particularly vulnerable to rapid changes in technology product cycles, rapid
product obsolescence, government regulation and competition, both domestically
and internationally, including competition from foreign competitors with lower
production costs. Stocks of information technology companies and companies that
rely heavily on technology, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall market. Information
technology companies are heavily dependent on patent and intellectual property
rights, the loss or impairment of which may adversely affect profitability.
Additionally, companies in the technology sector may face dramatic and often
unpredictable changes in growth rates and competition for the services of
qualified personnel.
Tracking
Error Risk.
As with all index funds, the performance of the Fund and the Index may vary
somewhat for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index. The 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.
PORTFOLIO
HOLDINGS INFORMATION
Information
about the Fund’s daily portfolio holdings is available at www.acsietf.com. A
description of the Fund’s policies and procedures with respect to the disclosure
of the Fund’s portfolio holdings is available in the Fund’s Statement of
Additional Information (the “SAI”).
MANAGEMENT
Investment
Adviser
Toroso
Investments, LLC, located at 898 N. Broadway, Suite 2, Massapequa, New York
11758, is an SEC-registered investment adviser and a Delaware limited liability
company. Toroso was founded in and has been managing investment companies since
March 2012. Toroso is dedicated to understanding, researching and managing
assets within the expanding ETF universe. As of December 31, 2021, Toroso had
assets under management of approximately $8.2 billion and served as the
investment adviser or sub-adviser for 47 registered funds.
Toroso
serves as investment adviser to the Fund, and has overall responsibility for the
general management and administration of the Fund pursuant to an investment
advisory agreement with the Trust, on behalf of the Fund (the “Advisory
Agreement”). The Adviser is responsible for determining the securities purchased
and sold by the Fund. The Adviser also arranges for sub-advisory, transfer
agency, custody, fund administration, and all other related services necessary
for the Fund to operate.
For
the services it provides to the Fund, the Fund pays the Adviser a unified
management fee, which is calculated daily and paid monthly, at an annual rate of
0.65% of the Fund’s average daily net assets. For the period of May 24, 2021
(when the Fund became a series of the Trust) through September 30, 2021 the
Adviser received an aggregate fee of 0.65% of average net assets. For the period
of October 1, 2020 through May 23, 2021 (when the Fund was a series of ETF
Series Solutions) CSat received an aggregate fee of 0.65% of average net
assets.
Under
the Advisory Agreement, in exchange for a single unitary management fee from the
Fund, the Adviser has agreed to pay all expenses incurred by the Fund except for
interest charges on any borrowings, dividends and other expenses on securities
sold short, taxes, brokerage commissions, and other expenses incurred in placing
orders for the purchase and sale of securities and other investment instruments,
acquired fund fees and expenses, accrued deferred tax liability, extraordinary
expenses, distribution fees, and expenses paid by the Fund under any
distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act, and the
unified management fee payable to the Adviser (collectively, the “Excluded
Expenses”).
A
discussion regarding the basis for the Board’s approval of the Fund’s Advisory
Agreement is available in the Fund’s annual report to shareholders for the
reporting period ended September 30, 2021.
Portfolio
Managers
The
following individuals (each, a “Portfolio Manager”) have served as portfolio
managers of the Fund since its inception in 2021 and Mr. Ragauss served as a
portfolio manager of the Predecessor Fund. Messrs. Venuto and Ragauss are
jointly and primarily responsible for the day-to-day management of the
Fund.
Michael
Venuto, Chief Investment Officer for the Adviser
Mr.
Venuto is a co-founder and has been the Chief Investment Officer of the Adviser
since 2012. Mr. Venuto is an ETF industry veteran with over a decade of
experience in the design and implementation of ETF-based investment strategies.
Previously, he was Head of Investments at Global X Funds where he provided
portfolio optimization services to institutional clients. Before that, he was
Senior Vice President at Horizon Kinetics where his responsibilities included
new business development, investment strategy and client and strategic
initiatives.
Charles
A. Ragauss, CFA, Portfolio Manager for the Adviser
Mr.
Ragauss serves as Portfolio Manager of the Adviser, having joined the Adviser in
September 2020. Mr. Ragauss previously served as Chief Operating Officer and in
other roles at CSat from April 2016 to September 2020. Previously, Mr. Ragauss
was Assistant Vice President at Huntington National Bank (“Huntington”), where
he was Product Manager for the Huntington Funds and Huntington Strategy Shares
ETFs, a combined fund complex of almost $4 billion in assets under management.
At Huntington, he led ETF development bringing to market some of the first
actively managed ETFs. Mr. Ragauss joined Huntington in 2010. Mr. Ragauss
attended Grand Valley State University where he received his Bachelor of
Business Administration in Finance and International Business, as well as a
minor in French. He is a member of both the National and West Michigan CFA
societies and holds the CFA designation.
CFA®
is a registered trademark owned by the CFA Institute.
The
Fund’s SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts that a Portfolio Manager manages, and the
Portfolio Managers’ ownership of Shares.
The
Adviser has entered into an agreement with CSat, under which CSat assumes the
obligation of the Adviser to pay all expenses of the Fund, except Excluded
Expenses (such expenses of the Fund, except Excluded Expenses, the “Unitary
Expenses”). Although CSat has agreed to be responsible for the Unitary Expenses,
the Adviser retains the ultimate obligation to the Fund to pay such expenses.
CSat will also provide marketing support for the Fund, including hosting the
Fund’s website and preparing marketing materials related to the Fund. For these
services and payments, CSat is entitled to a fee, to be paid by the Adviser,
based on the total management fee earned by the Adviser under the Advisory
Agreement less the Unitary Expenses. CSat does not make investment decisions,
provide investment advice, or otherwise act in the capacity of an investment
adviser to the Fund.
HOW
TO BUY AND SELL SHARES
The
Fund issues and redeems Shares only in Creation Units at the NAV per share next
determined after receipt of an order from an AP. Only APs may acquire Shares
directly from the Fund, and only APs may tender their Shares for redemption
directly to the Fund, at NAV. APs must be a member or participant of a clearing
agency registered with the SEC and must execute a Participant Agreement that has
been agreed to by the Distributor (defined below), and that has been accepted by
the
Fund’s
transfer agent, with respect to purchases and redemptions of Creation Units.
Once created, Shares trade in the secondary market in quantities less than a
Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Individual Shares are listed for trading on the secondary market on the Exchange
and can be bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares, and receive less than NAV when you sell those Shares.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book-entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with the NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, the Board has also
determined that frequent purchases and redemptions for cash may increase
tracking error and portfolio transaction costs and may lead to the realization
of capital gains. To minimize these potential consequences of frequent purchases
and redemptions, the Fund employs fair value pricing and may impose transaction
fees on purchases and redemptions of Creation Units to cover the custodial and
other costs incurred by the Fund in effecting trades. In addition, the Fund and
the Adviser reserve the right to reject any purchase order at any
time.
Determination
of Net Asset Value
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern Time, each day
the NYSE is open for business. The NAV for the Fund is calculated by dividing
the Fund’s net assets by its Shares outstanding.
In
calculating its NAV, the Fund generally values its assets on the basis of market
quotations, last sale prices, or estimates of value furnished by a pricing
service or brokers who make markets in such instruments. If such information is
not available for a security held by the Fund or is determined to be unreliable,
the security will be valued at fair value estimates under guidelines established
by the Board (as described below).
Fair
Value Pricing
The
Board has adopted procedures and methodologies to fair value Fund securities
whose market prices are not “readily available” or are deemed to be unreliable.
For example, such circumstances may arise when: (i) a security has been delisted
or has had its trading halted or suspended; (ii) a security’s primary pricing
source is unable or unwilling to provide a price; (iii) a security’s primary
trading market is closed during regular market hours; or (iv) a security’s value
is materially affected by events occurring after the close of the security’s
primary trading market. Generally, when fair valuing a security, the Fund will
take into account all reasonably available information that may be relevant to a
particular valuation including, but not limited to, fundamental analytical data
regarding the issuer, information relating to the issuer’s business, recent
trades or offers of the security, general and/or specific market conditions, and
the specific facts giving rise to the need to fair value the security. Fair
value determinations are made in good faith and in accordance with the fair
value methodologies included in the Board-adopted valuation procedures. Due to
the subjective and variable nature of fair value pricing, there can be no
assurance that the Adviser will be able to obtain the fair value assigned to the
security upon the sale of such security.
Investments
by Other Registered Investment Companies in the Fund
Section 12(d)(1)
of the 1940 Act restricts investments by registered investment companies in the
securities of other investment companies, including Shares. Registered
investment companies are permitted to invest in the Fund beyond the limits set
forth in Section 12(d)(1), subject to certain terms and conditions set forth in
an SEC exemptive order issued to the Trust or rule under the 1940 Act, including
that such investment companies enter into an agreement with the
Fund.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Fund. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Fund is available through certain broker-dealers. If
you are interested in enrolling in householding and receiving a single copy of
prospectuses and other shareholder documents, please contact your broker-dealer.
If you are currently enrolled in householding and wish to change your
householding status, please contact your broker-dealer.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
The
Fund intends to pay out dividends and interest income, if any, annually, and
distribute any net realized capital gains to its shareholders at least annually.
The Fund will declare and pay income and capital gain distributions, if any, in
cash. Distributions in cash may be reinvested automatically in additional whole
Shares only if the broker through whom you purchased Shares makes such option
available. Your broker is responsible for distributing the income and capital
gain distributions to you.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax advisor
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Fund intends to qualify each year for treatment as a regulated investment
company (a “RIC”) under the Internal Revenue Code of 1986, as amended. If it
meets certain minimum distribution requirements, a RIC is not subject to tax at
the fund-level on income and gains from investments that are timely distributed
to shareholders. However, the Fund’s failure to qualify as a RIC or to meet
minimum distribution requirements would result (if certain relief provisions
were not available) in fund-level taxation and, consequently, a reduction in
income available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when the Fund makes distributions, when you sell your Shares listed
on the Exchange, and when you purchase or redeem Creation Units (institutional
investors only).
The
tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax
Act”) made significant changes to the U.S. federal income tax rules for taxation
of individuals and corporations, generally effective for taxable years beginning
after December 31, 2017. Many of the changes applicable to individuals are
temporary and would apply only to taxable years before January 1, 2026. There
were only minor changes with respect to the specific rules only applicable to
RICs, such as the Fund. The Tax Act, however, also made numerous other changes
to the tax rules that may affect shareholders and the Fund. Subsequent
legislation has modified certain changes to the U.S. federal income tax rules
made by the Tax Act which may, in addition, affect shareholders and the Fund.
You are urged to consult with your own tax advisor regarding how this
legislation affects your investment in the Fund.
Taxes
on Distributions
For
federal income tax purposes, distributions of net investment income are
generally taxable to shareholders as ordinary income or qualified dividend
income. Taxes on distributions of net capital gains (if any) are determined by
how long the Fund owned the investments that generated them, rather than how
long a shareholder has owned their Shares. Sales of assets held by the Fund for
more than one year generally result in long-term capital gains and losses, and
sales of assets held by the Fund for one year or less generally result in
short-term capital gains and losses. Distributions of the Fund’s net capital
gain (the excess of net long-term capital gains over net short-term capital
losses) that are reported by the Fund as capital gain dividends (“Capital Gain
Dividends”) will be taxable as long-term capital gains to shareholders.
Distributions of short-term capital gain will generally be taxable to
shareholders as ordinary income. Dividends and distributions are generally
taxable to you whether you receive them in cash or reinvest them in additional
Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided certain holding period and other requirements are met. “Qualified
dividend income” generally is income derived from dividends paid by U.S.
corporations or certain foreign corporations that are either incorporated in a
U.S. possession or eligible for tax benefits under certain U.S. income tax
treaties. In addition, dividends that the Fund receives in respect of stock of
certain foreign corporations may be qualified dividend income if that stock is
readily tradable on an established U.S. securities market. Corporate
shareholders may be entitled to a dividends-received deduction for the portion
of dividends they receive from the Fund that are attributable to dividends
received by the Fund from U.S. corporations, subject to certain limitations.
Shortly
after the close of each calendar year, you will be informed of the character of
any distributions received from the Fund.
In
addition to the federal income tax, certain individuals, trusts, and estates may
be subject to a Net Investment Income (“NII”) tax of 3.8%. The NII tax is
imposed on the lesser of: (i) a taxpayer’s investment income, net of deductions
properly allocable to such income; or (ii) the amount by which such taxpayer’s
modified adjusted gross income exceeds certain thresholds ($250,000 for married
individuals filing jointly, $200,000 for unmarried individuals and $125,000 for
married individuals filing separately). The Fund’s distributions are
includable in a shareholder’s investment income for purposes of this NII
tax. In addition, any capital gain realized by a shareholder upon a sale or
redemption of Fund shares is includable in such shareholder’s investment income
for purposes of this NII tax.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable to you even if they are paid from income or gains earned by the Fund
before your investment (and thus were included in the Shares’ NAV when you
purchased your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable to you even
though it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. The Fund may, under certain circumstances,
report all or a portion of a dividend as an “interest-related dividend” or a
“short-term capital gain dividend,” which would generally be exempt from this
30% U.S. withholding tax, provided certain other requirements are
met.
Under
the Foreign Account Tax Compliance Act (“FATCA”), the Fund may be required to
withhold a generally nonrefundable 30% tax on (i) distributions of investment
company taxable income and (ii) distributions of net capital gain and the gross
proceeds of a sale or redemption of Fund shares paid to (A) certain “foreign
financial institutions” unless such foreign financial institution agrees to
verify, monitor, and report to the Internal Revenue Service (“IRS”) the identity
of certain of its account-holders, among other items (or unless such entity is
otherwise deemed compliant under the terms of an intergovernmental agreement
between the United States and the foreign financial institution’s country of
residence), and (B) certain “non-financial foreign entities” unless such entity
certifies to the Fund that it does not have any substantial U.S. owners or
provides the name, address, and taxpayer identification number of each
substantial U.S. owner, among other items. In December 2018, the IRS and
Treasury Department released proposed Treasury Regulations that would eliminate
FATCA withholding on Fund distributions of net capital gain and the gross
proceeds from a sale or redemption of Fund shares. Although taxpayers are
entitled to rely on these proposed Treasury Regulations until final Treasury
Regulations are issued, these proposed Treasury Regulations have not been
finalized, may not be finalized in their proposed form, and are potentially
subject to change. This FATCA withholding tax could also affect the Fund’s
return on its investments in foreign securities or affect a shareholder’s return
if the shareholder holds its Fund shares through a foreign intermediary. You are
urged to consult your tax adviser regarding the application of this FATCA
withholding tax to your investment in the Fund and the potential certification,
compliance, due diligence, reporting, and withholding obligations to which you
may become subject in order to avoid this withholding tax.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale or redemption proceeds paid to
any shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that they are not subject to such withholding.
Taxes
When Shares are Sold on the Exchange
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less.
However,
any capital loss on a sale of Shares held for six months or less is treated as
long-term capital loss to the extent of Capital Gain Dividends paid with respect
to such Shares. Any loss realized on a sale will be disallowed to the extent
Shares are acquired, including through reinvestment of dividends, within a
61-day period beginning 30 days before and ending 30 days after the sale of
substantially identical Shares.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The IRS may
assert, however, that a loss that is realized upon an exchange of securities for
Creation Units may not be currently deducted under the rules governing “wash
sales” (for an AP who does not mark-to-market their holdings) or on the basis
that there has been no significant change in economic position. Persons
exchanging securities should consult their own tax advisor with respect to
whether wash sale rules apply and when a loss might be deductible.
Any
capital gain or loss realized upon redemption of Creation Units is generally
treated as long-term capital gain or loss if Shares comprising the Creation
Units have been held for more than one year and as a short-term capital gain or
loss if such Shares have been held for one year or less.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to foreign, state, and local tax on
Fund distributions and sales of Shares. Consult your personal tax advisor about
the potential tax consequences of an investment in Shares
under
all applicable tax laws. For more information, please see the section entitled
“Federal Income Taxes” in the SAI.
DISTRIBUTION
Foreside
Fund Services, LLC (the “Distributor”), the Fund’s distributor, is a
broker-dealer registered with the SEC. The Distributor distributes Creation
Units for the Fund on an agency basis and does not maintain a secondary market
in Shares. The Distributor has no role in determining the policies of the Fund
or the securities that are purchased or sold by the Fund. The Distributor’s
principal address is Three Canal Plaza, Suite 100, Portland, Maine
04101.
The
Board has adopted a Distribution (Rule 12b-1) Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year to pay
distribution fees for the sale and distribution of its Shares.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the future,
because the fees are paid out of Fund assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
certain other types of sales charges.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often Shares traded on the Exchange at a price above (i.e., at a
premium) or below (i.e., at a discount) the NAV of the Fund can be found on the
Fund’s website at www.acsietf.com.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of, the timing,
prices, or quantities of Shares to be issued, nor in the determination or
calculation of the equation by which Shares are redeemable. The Exchange has no
obligation or liability to owners of Shares in connection with the
administration, marketing, or trading of Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
CSat
owns the Index and the Index methodology and is a licensor of the Index to the
Adviser and Solactive, the Fund’s index calculation agent. The Adviser has
contracted with Solactive to maintain and calculate the Index used by the Fund.
Solactive shall have no liability for any errors or omissions in calculating the
Index. The Adviser and ACSI ETF 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 ACSI ETF
particularly or the ability of Index to track the performance of its constituent
securities.
The
Adviser and the Fund make no representation or warranty, express or implied, to
the owners of Shares or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly.
FINANCIAL
HIGHLIGHTS
The
financial highlights table is intended to help you understand the Fund’s
financial performance for the 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 table represent the rate that an investor
would have earned or lost on an investment in the Fund (assuming reinvestment of
all dividends and distributions). Information shown prior to May 24, 2021, is
that of the Predecessor Fund. On May 24, 2021, pursuant to a reorganization, the
Fund acquired all of the assets and assumed all of the liabilities of the
Predecessor Fund. Upon completion of the reorganization, the Fund’s shares
assumed the performance, financial, and other historical information of those of
the Predecessor Fund. This information has been audited by the Fund’s
Independent Registered Public Accounting Firm, Cohen & Company, Ltd., whose
report, along with the Fund’s financial statements, is incorporated into this
Prospectus by reference to the Fund’s
annual
report
to shareholders,
which is available upon request.
For
a capital share outstanding throughout the year/period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
Year
Ended |
|
Year
Ended |
|
Period
Ended |
|
|
September
30, 2021 |
|
September
30, 2020 |
|
September
30, 2019 |
|
September
30, 2018 |
|
September
30, 2017(1) |
|
Net
asset value, beginning of year/period |
$ |
37.40 |
|
|
$ |
34.12 |
|
|
$ |
34.03 |
|
|
$ |
29.18 |
|
|
$ |
25.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Investment Operations: |
|
|
|
|
|
|
|
|
|
Net
investment income (loss)(2) |
0.20 |
|
|
0.47 |
|
|
0.52 |
|
|
0.45 |
|
|
0.40 |
|
|
Net
realized and unrealized gain (loss) on investments |
11.69 |
|
|
3.39 |
|
|
0.03 |
|
(8) |
4.77 |
|
|
3.83 |
|
|
Total
from investment operations |
11.89 |
|
|
3.86 |
|
|
0.55 |
|
|
5.22 |
|
|
4.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
Distributions: |
|
|
|
|
|
|
|
|
|
|
From
Net investment income |
(0.35) |
|
|
(0.58) |
|
|
(0.46) |
|
|
(0.37) |
|
|
(0.05) |
|
|
Total
distributions |
(0.35) |
|
|
(0.58) |
|
|
(0.46) |
|
|
(0.37) |
|
|
(0.05) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Share Transactions: |
|
|
|
|
|
|
|
|
|
Transaction
fees |
— |
|
|
— |
|
|
— |
|
|
0.00 |
|
(7) |
— |
|
|
Net
asset value, end of year/period |
$ |
48.94 |
|
|
$ |
37.40 |
|
|
$ |
34.12 |
|
|
$ |
34.03 |
|
|
$ |
29.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
return(4) |
31.91 |
% |
|
11.44 |
% |
|
1.86 |
% |
|
18.02 |
% |
|
16.92 |
% |
(3) |
|
|
|
|
|
|
|
|
|
|
|
Ratios
/ Supplemental Data: |
|
|
|
|
|
|
|
|
|
Net
assets at end of year/period (millions) |
$ |
78.3 |
|
|
$ |
58.9 |
|
|
$ |
58.0 |
|
|
$ |
57.8 |
|
|
$ |
40.8 |
|
|
Portfolio
turnover rate(6) |
50 |
% |
|
67 |
% |
|
36 |
% |
|
72 |
% |
|
38 |
% |
(3) |
Ratio
of expenses to average net assets |
0.65 |
% |
|
0.65 |
% |
|
0.65 |
% |
|
0.65 |
% |
|
0.65 |
% |
(5) |
Ratio
of net investment income (loss) to average net assets |
0.42 |
% |
|
1.37 |
% |
|
1.59 |
% |
|
1.41 |
% |
|
1.56 |
% |
(5) |
(1)The
Fund commenced operations on October 31, 2016. The information presented is from
October 31, 2016 to September 30, 2017.
(2)Calculated
based on average shares outstanding method.
(3)Not
annualized.
(4)The
total return is based on the Fund’s net asset value.
(5)Annualized
(6)Excludes
the impact of in-kind transactions.
(7)Represents
less than $0.005.
(8)Net
realized and unrealized gain (loss) per share in the caption are balancing
amounts necessary to reconcile the change in the net asset value per share for
the period.
American
Customer Satisfaction ETF
|
|
|
|
|
|
|
|
|
|
|
|
Adviser |
Toroso
Investments, LLC
898
N. Broadway, Suite 2
Massapequa,
New York 11758 |
Administrator |
Tidal
ETF Services LLC
898
N. Broadway, Suite 2
Massapequa,
New York 11758 |
Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
342
N. Water St., Suite 830
Milwaukee,
Wisconsin 53202 |
Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Dr.
Milwaukee,
Wisconsin 53212 |
Legal
Counsel |
Godfrey
& Kahn, S.C.
833
East Michigan Street, Suite 1800
Milwaukee,
Wisconsin 53202 |
Sub-Administrator,
Fund Accountant, and Transfer Agent |
U.S.
Bancorp Fund Services, LLC,
doing
business as U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
|
Investors
may find more information about the Fund in the following documents:
Statement
of Additional Information: The
Fund’s SAI provides additional details about the investments of the Fund and
certain other additional information. A current SAI dated January 28, 2022, as
supplemented from time to time, is on file with the SEC and is herein
incorporated by reference into this Prospectus. It is legally considered a part
of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments is available in the Fund’s annual and
semi-annual reports to shareholders. In the annual report you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund’s performance during its last fiscal year.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at American Customer
Satisfaction ETF, c/o U.S. Bank Global Fund Services, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701 or calling 1-800-617-0004.
Shareholder
reports, the Fund’s current Prospectus and SAI and other information about the
Fund are available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Fund’s Internet website at www.acsietf.com; or
(SEC
Investment Company Act File No.
811-23377)