ck0001727398-20221031
PROSPECTUS | February 15,
2023
Procure
ETF Trust II
Procure Space ETF (UFO)
Listed
on The Nasdaq Stock Market LLC
NEITHER
THE SEC NOR ANY STATE SECURITIES COMMISSION HAS 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.
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Not
FDIC Insured | May Lose
Value | No Bank
Guarantee |
Procure
ETF Trust II (the “Trust”) is a registered investment company that consists of
separate investment portfolios called “Funds”. This Prospectus relates to the
following Fund:
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Name |
Listing
Exchange |
CUSIP |
Symbol |
Procure
Space ETF |
The
Nasdaq Stock Market LLC |
74280R205 |
UFO |
The
Fund is an exchange-traded fund. This means that shares of the Fund are listed
on a national securities exchange and trade at market prices. The market price
for the Fund’s shares may be different from its net asset value per share (the
“NAV”). The Fund has its own CUSIP number and exchange trading
symbol.
Table
of Contents
Summary
Information
Investment Objective
Procure Space ETF (the “Fund”)
seeks investment results that correspond generally to the performance, before
the Fund’s fees and expenses, of an equity index called the “S-Network Space
Index” (the “Underlying Index”) developed by S-Network Global Indexes (the
“Index Provider”).
Fees and Expenses of the
Fund
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares of the Fund
(“Shares”). You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the tables and example
below.
Shareholder
Fees (fees paid directly from your investment):
No
shareholder fees are levied by the Fund for purchases and sales made on the
Secondary Market.
Annual Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your
investment):
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Management
Fees |
0.75 |
% |
Distribution
and/or Service (12b-1) Fees |
0.00 |
% |
Other
Expenses |
0.06 |
% |
Total
Annual Fund Operating Expenses (1) |
0.81 |
% |
Less
Management Fee Reductions and/or Expense Reimbursements(1) |
(0.06) |
% |
Total
Annual Fund Operating Expenses After Fee Reductions and/or Expense
Reimbursements (1) |
0.75 |
% |
(1)
ProcureAM, LLC (the
“Advisor”) has contractually agreed, until February 29,
2024, to reduce Management Fees and reimburse Other Expenses to
the extent necessary to limit Total Annual Fund Operating Expenses (except
brokerage and other transaction expenses including taxes; extraordinary legal
fees or expenses, such as those for litigation or arbitration; extraordinary
expenses; and distribution fees and expenses paid by the Trust under any
distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act) to an
amount not exceeding 0.75% of the Fund’s average daily net assets. Prior to
February 29, 2024, this agreement may not be modified or terminated without the
approval of the Board of Trustees (the “Board”).
Example
This example is intended to help
you compare the cost of investing in the Fund with the cost of investing in
other funds. This example does not take into account brokerage commissions that
you pay when purchasing or selling Shares of the
Fund.
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 at current
levels. The return of 5% and estimated expenses are for illustration purposes
only and should not be considered indicators of expected Fund expenses or
performance, which may be greater or less than the estimates.
Although your actual costs may be higher
or lower, based on these assumptions your costs would
be:
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One
Year |
Three
Years |
Five
Years |
Ten
Years |
$77 |
$253 |
$444 |
$996 |
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
Example, affect the Fund’s performance. For the fiscal year ended October 31,
2022, the portfolio turnover rate of the Fund was 53%.
Principal Investment
Objective
The Fund invests, under normal
circumstances, at least 80% of its net assets in companies of the Underlying
Index that receive at least 50% of their revenues or profits from space-related
businesses, as described below. This policy is
“non-fundamental,” which means that it may be changed without the majority of
the Fund’s outstanding shares as defined in the Investment Company Act of 1940,
as
amended
(the “1940 Act”). The Fund will provide at least 60 days’ prior written notice
of any changes in such non-fundamental policy.
Principal Investment
Strategy
The
Fund, using a “passive” or “indexing” investment approach, seeks investment
results that correlate to the performance, before the Fund’s fees and expenses,
of the Underlying Index which tracks a portfolio of companies engaged in
space-related businesses, including those companies utilizing satellite
technology. The Fund will provide shareholders with at least 60 days’ written
notice prior to any material change in this Fund’s investment strategy.
The
Board of Trustees (the “Board”) of the Trust may change the Fund’s investment
strategy, index provider or other policies without shareholder approval. Also,
in certain circumstances, it may not be possible or practicable to purchase all
of the component securities that make up the Underlying Index. In those
circumstances, the Fund may purchase a sample of the component securities in the
Underlying Index in proportions expected by the Advisor to deliver the
performance of the Underlying Index. There may also be instances when the
Advisor may choose to overweight another component security in the Underlying
Index or purchase (or sell) securities not in the Underlying Index, which the
Advisor believes are an appropriate substitute for one or more Underlying Index
components in seeking to accurately track the Underlying Index, such as: (i)
regulatory requirements possibly affecting the Fund’s ability to hold a security
in the Underlying Index, or (ii) liquidity concerns possibly affecting the
Fund’s ability to purchase or sell a security in the Underlying Index. In
addition, from time to time, securities are added to or removed from the
Underlying Index. The Fund may sell securities that are represented in the
Underlying Index or purchase securities that are not yet represented in the
Underlying Index in anticipation of their removal from or addition to the
Underlying Index pursuant to scheduled reconstitutions and rebalancing of the
Underlying Index. The Fund will concentrate its investments (i.e., invest 25% or
more of its assets) in securities issued by companies whose principal business
activities are in the same industry or group of industries to the extent the
Underlying Index is so concentrated. As of December 31, 2022, the Index was
concentrated in the securities of companies that utilize satellite technology,
which represent a significant portion of the Underlying Index. The Fund is
“non-diversified” for purposes of the 1940 Act, which means that the Fund may
invest in fewer securities at any one time than a diversified fund.
The
Fund may lend its portfolio securities to brokers, dealers, and other financial
organizations. These loans, if and when made, may not exceed 33 1/3%
of the total asset value of the Fund (including the loan collateral). By lending
its securities, the Fund may increase its income by receiving payments from the
borrower.
The
Underlying Index
The
Fund has licensed as its Underlying Index the S-Network Space Index, an equity
securities index created and developed by S-Network Global Indexes, Inc. (the
“Index Provider”), a developer and publisher of custom and proprietary indexes.
The Index Provider is independent of, and not affiliated with, either the Fund
or the Advisor. The Underlying Index is designed to serve as an equity benchmark
for a globally traded portfolio of companies that are engaged in space-related
business, such as those utilizing satellite technology. The component companies
of the Underlying Index are small-capitalization, medium-capitalization, and
large-capitalization equity securities listed on recognized global stock
exchanges. As of December 31, 2022, the Underlying Index is focused on U.S.
companies, which account for approximately 81% of its index components. The
Underlying Index is a modified capitalization-weighted, free float- and space
revenue percentage-adjusted equity index that is created and maintained
according to a rules-based methodology and a predetermined selection process.
Although
there is no legal definition of “space,” a commonly accepted definition is that
the edge of space begins at the Kármán line, which is 100 kilometers (62 miles)
above the Earth’s surface. This is approximately the point where there is not
enough air to provide lift to a winged vehicle. This definition is supported by
the Fédération Aéronautique Internationale (an international aeronautics and
astronautics standards-setting body), as well as many other
organizations.
The
Index Provider considers a company to be in a “space-related business” if its
product(s) or service(s) either have as their essential purpose — or are
entirely dependent upon — “space-based functions”. Space-based functions include
any kind of function carried out by hardware, software, or humans physically
located in space. The revenue produced by space-related business is referred to
as “space-related revenues.”
Examples
of current space-related businesses (or “Space Industry Segments”) include
satellite-based telecommunications; transmission of television and radio content
via satellite; rocket and satellite manufacturing, deployment, operation, and
maintenance; manufacturing of ground equipment that is used with satellite
systems; space technology and hardware; and space-based imagery and intelligence
services.
In
the case of companies that make products that go into space (such as launch
vehicles), or companies that operate or maintain systems used in space (such as
satellites), the space-related nature of the business is clear. In the case of
companies whose products and services are used wholly on Earth, space must play
an essential role in the business. For example, a company that manufactures GPS
navigation systems as its primary business is wholly dependent upon those
products’ GPS satellite connectivity and therefore is engaged in a space-related
business. By contrast, an automaker that incorporates a GPS navigation system
into its automobiles is not
considered
to be engaged in a space-related business because the GPS system is not
essential to the operation of the automobile and accounts for a negligible part
of the selling price.
In
addition to companies exclusively focused on space, the Underlying Index
includes certain companies whose products and services span both space-related
and other types of businesses. An example of such a company would be a defense
contractor that manufactures systems and hardware involving space but does not
derive a sufficient percentage of its revenues from space to qualify as a
non-diversified space company. Another example would be a company that transmits
television or radio content both via satellite and via terrestrial wired or
wireless services; its space-related revenue is considered to be only that which
is derived from customers who subscribe to content delivery via
satellite.
The
Index Provider believes that in the future, additional companies engaged in
other space-related businesses will emerge. These businesses would include space
colonization/infrastructure; space resource exploration/extraction; space-based
military/defense systems; space tourism, including transportation and
hospitality; and space technologies that enable the space economy.
The
Underlying Index Security Selection and Weighting Process
Each
candidate for inclusion as a component of the Underlying Index must first meet
all of the following eligibility criteria: (a) listing on a national stock
exchange in any geographic region, (b) being engaged in one or more of the Space
Industry Segments, and (c) having a three-month average daily trading volume of
at least USD 1,000,000 on each Underlying Index semi-annual reconstitution
snapshot date, which is the last trading day of the month prior to a
reconstitution date. If a company’s stock has been trading for less than three
calendar months, but more than 22 trading days, the company’s average daily
trading volume for its entire trading history shall be used to calculate
turnover eligibility.
The
Index Provider’s assessment of whether a company is engaged in one or more of
the Space Industry Segments (per the criteria listed above) is based on mention
of space-related business in the company’s annual filings. In addition, a
company’s space-related revenue must constitute either (a) a minimum of 20% of
the company’s total annual revenue, or (b) more than $500 million in annual
revenue. In all cases, space-related revenues are determined through review by
the Index Provider of the company’s regulatory filings and investor-focused
materials, including quarterly earnings announcements and analyst presentations,
as well as other reliable data sources. Space revenues are then divided by the
company’s total revenues to determine its percentage of space-related revenues.
Accordingly, the Underlying Index methodology considers the factual reporting of
revenue statistics rather than more subjective factors to determine
eligibility.
The
screening process discussed above identifies candidate stocks according to their
Global Industry Classification Standard (“GICS”) sub-industry, and then reviews
them to ensure that such companies meet at least one of the following additional
criteria for inclusion as a component of the Underlying Index:
•the
company was a “prime manufacturer” (i.e., the contractor responsible for
managing subcontractors and delivering the product to the customer) for a
satellite in the past five years;
•the
company was a “prime manufacturer” or operator of a launch vehicle in the past
five years;
•the
company currently operates or utilizes satellites;
•the
company manufactures space vehicle components (for satellites, launch vehicles,
or other spacecraft); or
•the
company manufactures ground equipment dependent upon satellite
systems.
The
companies thus chosen for inclusion in the Underlying Index are separated into
two tranches:
The
first tranche (“Non-diversified Tranche”) comprises “non-diversified” companies
that derive at least 50% (but typically 100%) of their total annual revenues
from space-related business. Companies included in the Non-diversified Tranche
are accorded an aggregate weight of 80% of the total Underlying Index weight
(100%).
The
second tranche (“Diversified Tranche”) comprises companies in which
space-related business plays a significant role in the generation of revenues
but produces less than 50% of total annual revenues. Companies included in the
Diversified Tranche are accorded an aggregate weight of 20% of the total
Underlying Index weight (100%).
Each
stock’s weight within its respective tranche is determined by its “Modified
Market Capitalization,” which is a company’s full market capitalization that has
been mathematically modified by one or more factors for the purpose of weighting
in an index. Modified Market Capitalization for companies eligible for inclusion
in the Underlying Index is determined by multiplying a) the company’s full
market capitalization by b) the company’s “Float Factor” by c) the percentage of
total revenues the company derives from space. A company’s Modified Market
Capitalization is a percentage of a company’s total market capitalization
ranging from 0% to 100%.
The
Float Factor is the percentage of the company’s shares outstanding that are
unencumbered from trading freely on the open market. It is determined by
deducting shares that are a) restricted from sale to the public, b) held by a
governmental entity, c) held by company insiders in size that requires reporting
to the SEC or a similar international regulatory body (>5%) and/or d) held by
investors in size
subject
to reporting to the SEC or a similar international regulatory body (>5%) from
the company’s total shares outstanding. The resulting percentage is the
company’s Float Factor.
Next,
the Non-diversified Tranche of the Underlying Index is given 80% of the weight
of the Underlying Index and the Diversified Tranche is given 20% of the weight.
The within-tranche weights for the Non-diversified Tranche are capped at 6%,
with the excess weight redistributed proportionally to the remaining
constituents within the same tranche. The within-tranche company weights for the
Diversified Tranche are capped at 12%, with the excess weight redistributed
proportionally to the remaining constituents within the same tranche. The final
index weight of each component stock will then be the product of its
within-tranche weight and the overall weight assigned to that stock’s tranche
(the tranche weight). Accordingly, the maximum weight of any constituent in the
Non-diversified Tranche will be 4.8% (6% X 80%) and the maximum weight of any
constituent in the Diversified Tranche will be 2.4% (12% X 20%).
Capping
is applied separately to each of the tranches. The following steps are taken to
weight the constituents in the Underlying Index:
Step
1. Multiply each selected company’s full market capitalization by its Float
Factor.
Step
2. Multiply each selected company’s float market capitalization derived in Step
1 by its space-related revenue percentage.
Step
3. The combination of Steps 1 & 2 above results in the company’s Modified
Market Capitalization, which is used to weight the companies included in the
Non-diversified and Diversified tranches. Each tranche is weighted
separately.
Step
4. Capping procedures are then applied to each tranche separately. The capping
procedure is implemented by identifying those companies whose uncapped weights
are in excess of the desired cap weight. The weights of these companies are then
set at the cap weight, and the weight over the cap weight is then redistributed
across the remaining stocks in the exact proportion of the original weights of
those stocks. Capping is applied separately to each of the
tranches.
Step
5. The weights derived in Step 4 are modified by the respective tranche weights
(80% for the non-diversified tranche and 20% for the diversified tranche) to
determine each stock’s final Underlying Index weight.
Although
there is no stated maximum or minimum number of Underlying Index components
required for inclusion in the Underlying Index, the Index Provider intends to
conform to RIC diversification requirements as defined in Sub-Chapter M of the
IRS code and, therefore, will maintain at least 22 component securities in the
Underlying Index, nor will any stock have a weight greater than 25% of the total
Underlying Index, and the combined weight of all stocks with weights greater
than 5% will be less than 50%.
The
Underlying Index is reconstituted semi-annually by the Index Committee of the
Index Provider in accordance with a rules-based process. Companies that are
components of the Underlying Index will be screened periodically, and any
company that no longer meets the eligibility criteria described above will be
removed from the Underlying Index. Also, a candidate list of all identifiable
companies engaged in the Space Industry Segments will be screened and companies
will be added to the Underlying Index if they satisfy the screening criteria.
Finally, the Underlying Index is rebalanced each quarter to reflect changes of
more than 5% in the number of float-adjusted shares.
If
a recent initial public offering (“IPO”) with a float-adjusted market
capitalization greater than 100 million USD as of its launch began trading too
recently for consideration in the most recent reconstitution of the Underlying
Index, it shall become eligible for immediate inclusion upon reaching 22
consecutive trading days and meeting the above criteria for inclusion in the
Index.
As
of December 31, 2022, the Underlying Index contained 38 constituents composed of
small-, medium-, and large-capitalization companies. The inception date of the
Underlying Index (when live calculation of the index values began) was May 7,
2018.
Principal Risks
Investors
should consider the principal risks associated with investing in the Fund, which
are summarized below. The value of an investment in the Fund will fluctuate
and you could lose money by investing in the Fund. The Fund may
not achieve its investment objective. The Fund’s 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. Different
risks may be more significant at different times depending on market conditions
or other factors.
Aerospace
and Defense Companies Risk -
Aerospace and defense companies can be significantly affected by government
aerospace and defense regulation and spending policies because companies
involved in this industry rely to a significant extent on U.S. (and other)
government demand for their products and services. Thus, the financial condition
of, and investor interest in, aerospace and
defense
companies are heavily influenced by governmental defense spending policies which
are typically under pressure from efforts to control the U.S. (and other)
government budgets.
Communication
Services Risk
- Companies in the communications sector may be affected by industry
competition, substantial capital requirements, government regulation,
cyclicality of revenues and earnings, obsolescence of communications products
and services due to technological advancement, a potential decrease in the
discretionary income of targeted individuals and changing consumer tastes and
interests.
Equity
Securities Risk—The
prices of equity securities generally fluctuate in value more than fixed-income
investments, may rise or fall rapidly or unpredictably and may reflect real or
perceived changes in the issuing company’s financial condition and changes in
the overall market or economy. A decline in the value of equity securities held
by the Fund will adversely affect the value of your investment in the Fund.
Common stocks generally represent the riskiest investment in a company and
dividend payments (if declared) to preferred stockholders generally rank junior
to payments due to a company’s debtholders. The Fund may lose a substantial
part, or even all, of its investment in a company’s stock. Certain equity
securities may be difficult or impossible to sell at the time and the price that
the Fund would like. The Fund may have to lower the price of the security, sell
other securities instead or forego an investment opportunity, any of which could
have a negative effect on Fund management or performance.
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. 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.
Foreign
Securities Risk—The
Underlying Index contains equities listed in foreign markets. These securities
markets are subject to various regulations, market trading times and contractual
settlement dates. Market liquidity may also differ from the U.S. equity markets
as many foreign market shares trade over the counter (“OTC”) and prices are not
published to the official exchanges until after the trades are completed. In
addition, where all or a portion of the Fund’s underlying securities trade in a
market that is closed when the market in which the Fund’s shares are listed and
trading in that market is open, there may be changes between the last quote from
its closed foreign market and the value of such security during the Fund’s
domestic trading day. Consequently, this could lead to differences between the
market price of the Fund’s shares and the value of the shares of its underlying
portfolio holdings.
Index
Construction Risk—A
stock included in the Underlying Index may not exhibit the factor trait or
provide specific factor exposure for which it was selected and consequently the
Fund’s holdings may not exhibit returns consistent with that factor
trait.
Index
Risk—Although
the Fund follows a defined index rebalance schedule, the Index Provider could
determine to suspend or delay a rebalance to a market event, during which time
the Fund’s index tracking risk may be heightened and could negatively impact
investors.
Issuer-Specific
Changes Risk—The
value of an individual security or type of security can be more volatile than
the total market and can perform differently from the value of the total market.
The value of securities of smaller issuers can be more volatile than that of
larger issuers.
Large-Capitalization
Securities Risk—The
Fund is subject to the risk that large-capitalization securities may
underperform other segments of the equity market or the total equity market.
Larger, more established companies may be unable to respond quickly to new
competitive challenges such as changes in technology and may not be able to
attain the high growth rate of smaller companies, especially during extended
periods of economic expansion.
Liquidity
Risk—The
Fund’s shares are subject to liquidity risk, which means that, in stressed
market conditions, the market for the Fund’s shares may become less liquid in
response to deteriorating liquidity in the markets for the Fund’s underlying
portfolio holdings. Please also note that this adverse effect on liquidity for
the Fund’s shares in turn could lead to differences between the market price of
the Fund’s shares and the underlying value of those shares. Further, the
Underlying Index’s screening process requires that each component security have
a three month average trading volume minimum of $1,000,000 on the date of the
Underlying Index’s semi-annual reconstitution date, therefore the number of
stocks available to the Underlying Index may be negatively affected during
stressed market conditions.
Market
Price Risk—Shares
are listed for trading on The Nasdaq Stock Market (the “Exchange” or “NASDAQ”)
and are bought and sold in the Secondary Market at market prices. The market
prices of Shares may fluctuate continuously during trading hours, in some cases
materially, in response to changes in the net asset value (“NAV”) and supply and
demand for Shares, among other factors. Although it is expected that the market
price of Shares typically will remain closely correlated to the NAV, the market
price will generally differ from the NAV because of timing reasons, supply and
demand imbalances and other factors. As a result, the trading prices of Shares
may deviate significantly from NAV during certain periods, especially those of
market volatility. The Investment Advisor cannot predict whether Shares will
trade above (premium), below (discount) or at their NAV prices. Thus, an
investor may
pay
more than NAV when buying Shares in the Secondary Market and receive less than
NAV when selling Shares in the Secondary Market.
Additionally,
natural or environmental disasters, widespread disease or other public health
issues, war, acts of terrorism or other events could result in increased
premiums or discounts to the Fund’s NAV.
Natural
Disaster/Epidemic Risk—
Natural or environmental disasters, such as earthquakes, fires, floods,
hurricanes, tsunamis and other severe weather-related phenomena generally, and
widespread disease, including pandemics and epidemics, have been and may be
highly disruptive to economies and markets, adversely impacting individual
companies, sectors, industries, markets, currencies, interest and inflation
rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Given the increasing interdependence among global
economies and markets, conditions in one country, market, or region are
increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have
a significant adverse impact on the value of the Fund’s
investments.
Any
public health emergency, including any emerging or reemergent epidemics
(including, without limitation, outbreaks of coronavirus, influenza virus and
ebola virus), or the threat thereof, could have a significant adverse impact on
the Fund and the securities it holds, and could adversely affect the Fund’s
ability to fulfill its investment objectives. Beginning in late 2019, a novel
and highly contagious form of coronavirus known as SARS-CoV-2 emerged, causing a
disease referred to as COVID-19 or “coronavirus.” In March 2020, the World
Health Organization declared the COVID-19 epidemic a “global pandemic,” meaning
the disease was prevalent and spreading in multiple geographies. Subsequently,
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.
In
addition, the operations of the Fund, the Advisor, the Sub-Advisor, and the
Fund’s other service providers may be significantly impacted, or even
temporarily or permanently halted, as a result of government quarantine
measures, voluntary and precautionary restrictions on travel or meetings and
other factors related to a public health emergency, including its potential
adverse impact on the health of any such entity’s personnel.
Non-Correlation
Risk—The
Fund’s return may not match the return of the Underlying Index. For example, the
Fund incurs operating expenses not applicable to the Underlying Index, and
incurs costs in buying and selling securities, especially when rebalancing the
Fund’s securities holdings to reflect changes in the composition of the
Underlying Index. In addition, the performance of the Fund and the Underlying
Index may vary due to asset valuation differences and differences between the
Fund’s portfolio and the Underlying Index resulting from legal restrictions,
cash flows or operational inefficiencies.
Non-Diversification
Risk—The Fund is classified as “non-diversified.”
This means that the Fund may invest a large percentage of its assets in
securities issued by or representing a small number of issuers. As a result, the
Fund may be more susceptible to the risks associated with these particular
issuers or to a single economic, political or regulatory occurrence affecting
these issuers.
Passive
Management Risk—Unlike
many investment companies, the Fund is not “actively” managed. Therefore, it
would not necessarily sell a security because the security’s issuer was in
financial trouble or defaulted on its obligations under the security, or whose
credit rating was downgraded, unless that security is removed from the
Underlying Index. In addition, the Fund will not otherwise take defensive
positions in declining markets unless such positions are reflected in the
Underlying Index.
Unlike
with an actively managed fund, the Advisor does not use techniques or defensive
strategies designed to lessen the effects of market volatility or to reduce the
impact of periods of market decline. This means that, based on market and
economic conditions, the Fund’s performance could be lower than other types of
funds that may actively shift their portfolio assets to take advantage of market
opportunities or to lessen the impact of a market decline.
Satellite
Companies Concentration Risk—The
Fund is considered to be concentrated in securities of companies that operate or
utilize satellites which are subject to manufacturing delays, launch delays or
failures, and operational and environmental risks (such as signal interference
or space debris) that could limit their ability to utilize the satellites needed
to deliver services to customers. Some companies that operate or utilize
satellites do not carry commercial launch or in-orbit insurance for the full
value of their satellites and could face significant impairment charges if the
satellites experience full or partial failures. Rapid and significant
technological changes in the satellite communications industry or in competing
terrestrial industries may impair a company’s competitive position
and
require significant additional capital expenditures. There are also regulatory
risks associated with the allocation of orbital positions and spectrum under the
International Telecommunication Union (“ITU”) and the regulatory bodies in each
of the countries in which companies provide service. In addition, the ground
facilities used for controlling satellites or relaying data between Earth and
the satellites may be subject to operational and environmental risks (such as
natural disasters) or licensing and regulatory risks. If a company does not
obtain or maintain regulatory authorizations for its satellites and associated
ground facilities, it may not be able to operate its existing satellites or
expand its operations.
Securities
Lending Risk—There
are certain risks associated with securities lending, including the risk that
the borrower may fail to return the securities on a timely basis or even the
loss of rights in the collateral deposited by the borrower, if the borrower
should fail financially. The Fund could also lose money in the event of a
decline in the value of collateral provided for loaned securities or a decline
in the value of any investments made with cash collateral. As a result, the Fund
may lose money.
Small
and Mid-Capitalization Securities Risk—The
Fund may be subject to the risk that small- and mid-capitalization securities
may underperform other segments of the equity market or the equity market as a
whole. Securities of small- and mid-capitalization companies may experience much
more price volatility, greater spreads between their bid and ask prices and
significantly lower trading volumes than securities issued by large, more
established companies. Accordingly, it may be difficult for the Fund to sell
small- and mid-capitalization securities at a desired time or price. Small- and
mid-capitalization companies tend to have inexperienced management as well as
limited product and market diversification and financial resources. Small- and
mid-capitalization companies have more speculative prospects for future growth,
sustained earnings and market share than large companies, and may be more
vulnerable to adverse economic, market or industry developments than large
capitalization companies.
Space
Industry Risk—The
exploration of space by private industry and the utilization of space assets is
a business focused on the future and is witnessing new entrants into the market.
This is a global event with a growing number of corporate participants looking
to meet the future needs of a growing global population. Therefore, investments
in the Fund will be riskier than traditional investments in established industry
sectors and the growth of these companies may be slower and subject to setbacks
as new technology advancements are made to expand into space.
Unidentified
Aerial Phenomena (“UAP”) Risk—A
UAP, formerly known as an “unidentified flying object” or “UFO”, is a flying
object that looks or moves unlike any known aircraft used by the US or any
foreign country. Recently, the US military has acknowledged the existence of
UAPs and confirmed the authenticity of certain videos and images purporting to
show UAPs. Given that currently there is no identification of these observed
phenomena, it is possible that UAPs could create unintentional or deliberate
operational, data security, “cyber” and other interference with the operation of
satellites and other objects in space. Such activities could result in a
significant adverse impact on the Fund’s securities, thereby causing the Fund’s
investment in such portfolio securities to lose value and adversely affecting
the Fund’s ability to fulfill its investment
objectives.
Performance
Information
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 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.ProcureETFs.com.
Calendar Year Total
Return
During the period of time shown
in the bar chart, the Fund’s highest quarterly return
was 22.02% for the quarter ended December 31, 2020
and the lowest quarterly return was
-35.02% for the quarter ended March 31,
2020.
Average
Annual Total Returns
For
the Periods Ended December 31, 2022
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Procure
Space ETF |
1
Year |
|
Since
Inception
(4/10/2019) |
Return Before
Taxes |
-25.94% |
| -5.06% |
Return After Taxes on
Distributions |
-26.51% |
| -5.40% |
Return After Taxes on Distributions and
Sale of Fund Shares |
-15.01% |
| -3.76% |
S&P
500
(reflects no deduction for
fees, expenses, or taxes) |
-18.11% |
| 9.78% |
S-Network
Space Total Return Index
(reflects
no deduction for fees, expenses, or taxes) |
-26.83% |
| -4.77% |
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.
Investment
Advisor
ProcureAM,
LLC (the “Advisor”) is the investment advisor to the Fund.
Sub-Advisor
Penserra
Capital Management LLC serves as the sub-advisor to the Fund.
Portfolio
Managers
The
professionals primarily responsible for the day-to-day management of the Fund
are as follows:
Sub-Advisor:
Dustin
Lewellyn, Ernesto Tong and Anand Desai of the Sub-Advisor have been appointed as
the Fund’s portfolio managers.
Purchase
and Sale of Fund Shares
Individual
Shares of the Fund may only be purchased and sold in Secondary Market
transactions through brokers and may not be purchased or redeemed directly with
the Fund. Shares of the Fund are listed for trading on the NASDAQ and, because
Shares trade at market prices rather than NAV, Shares of the Fund may trade at a
price greater than (premium) or less than (discount) NAV.
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.ProcureETFs.com.
The
Fund will issue and redeem Shares at NAV, only with Authorized Participants, and
only in a large, specified number of Shares called a “Creation Unit” or
multiples thereof with certain large institutional investors. A Creation Unit
consists of 25,000 Shares. Creation Unit transactions are principally conducted
in exchange for the deposit or delivery of specific securities specified by the
Fund and distributed to the Authorized Participants via the NSCC Portfolio
Composition File (“PCF”). Except
when aggregated in Creation Units, the Shares are not redeemable securities of
the Fund.
Tax
Information
The
Fund’s distributions will generally be taxed as ordinary income or capital
gains. Investors should consult their tax advisors about specific
situations.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Advisor or other related companies may pay the
intermediary for the sale of Fund Shares and related services. These payments
may create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your financial intermediary’s website for more
information.
The
Trust is an investment company consisting of a number of separate investment
portfolios (the “Fund”) that are exchange-traded funds (“ETFs”). ETFs are
investment products whose shares are listed on a stock exchange and traded like
equity securities at market prices. ETFs, such as the Fund, allow you to buy or
sell shares that represent the collective performance of a selected group of
securities. ETFs are designed to add the flexibility, ease and liquidity of
stock-trading to the benefits of traditional index fund investing. The
investment objective of the Fund is to correspond generally, before fees and
expenses, to the price and yield performance (before the Fund’s fees and
expenses) of a particular index (the “Underlying Index”) developed by its Index
Provider.
This
Prospectus provides the information you need to make an informed decision about
investing in the Fund. It contains important facts about the Trust as a whole
and the Fund in particular.
ProcureAM,
LLC (the “Advisor”) is the investment advisor to the Fund. Shares of the Fund
are listed for trading on NASDAQ. The market price for a share of the Fund may
be different from the Fund’s most recent NAV.
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PREMIUM/DISCOUNT
INFORMATION |
Information
regarding how often Shares of the Fund trade on the Exchange at a price above
(i.e., at a premium) or below (i.e., at a discount) the NAV of the Fund is
available on the Fund’s website at www.ProcureETFs.com.
Information
regarding the extent and frequency with which market prices of Shares has
tracked the Fund’s NAV for the most recently completed calendar year and the
quarters since that year are available without charge on the Fund’s website at
www.ProcureETFs.com.
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DESCRIPTION
OF THE PRINCIPAL INVESTMENT STRATEGIES OF THE
FUND |
The
Fund employs a “passive management” — or indexing — investment approach designed
to track the performance of its Underlying Index. The Advisor seeks a
correlation over time of 0.95 or better between the Fund’s performance, before
fees and expenses, and the performance of its Underlying Index. A figure of 1.00
would represent perfect correlation.
Generally,
the Fund invests in all of the securities that comprise its Underlying Index in
proportion to their weightings in the Underlying Index; however, under various
circumstances, it may not be possible or practicable to purchase all of the
securities in the Underlying Index in those weightings. In those circumstances,
the Fund may purchase a sample of the securities in the Underlying Index or
utilize various combinations of other available investment techniques in seeking
to correspond generally the performance of the Underlying Index as a
whole.
There
also may be instances in which the Advisor or Sub-Advisor, as applicable, may
choose to (i) overweight a security in the Underlying Index, (ii) purchase
securities not contained in the Underlying Index that the Advisor or Sub-Advisor
believes are appropriate to substitute for certain securities in the Underlying
Index or (iii) utilize various combinations of other available investment
techniques in seeking to track the Underlying Index. The Fund may sell
securities that are represented in the applicable Underlying Index in
anticipation of their removal from the Underlying Index or purchase securities
not represented in such Underlying Index in anticipation of their addition to
such Underlying Index.
Under
normal circumstances, the Fund invests at least 80% of its net assets, plus the
amount of any borrowings for investment purposes, in the securities and other
instruments that make up its Underlying Index (the “Underlying Index
Components”). In determining the Fund’s net assets for the purposes of this 80%
threshold, accounting practices do not include collateral held under the Fund’s
securities lending program, as such collateral does not represent a true asset
of the Fund.
The
Fund may invest up to 20% of its net assets in investments not included in its
Underlying Index, but which the Advisor or Sub-Advisor believes will help the
Fund track its Underlying Index. For example, there may be instances in which
the Advisor or Sub-Advisor may choose to purchase (or sell) securities not in
the Underlying Index which the Advisor or Sub-Advisor believes are appropriate
to substitute for one or more Underlying Index Components in seeking to
correspond generally, before fees and expenses, the performance of the
Underlying Index.
To
the extent that the Fund’s Underlying Index concentrates (i.e., holds 25% or
more of its total assets) in the securities of a particular industry or group of
industries, the Fund will concentrate its investment to approximately the same
extent as its Underlying Index.
As
Fund cash flows permit, the Advisor or Sub-Advisor may use cash flows to adjust
the weights of the Fund’s Underlying investments in an effort to minimize any
differences in weights between the Fund and its respective Underlying
Index.
These
requirements are applied at the time the Fund invests its assets. If, subsequent
to an investment by the Fund, this requirement is no longer met, the Fund’s
future investments will be made in a manner that will bring the Fund into
compliance with this requirement. Each policy is “non-fundamental,” which means
that it may be changed without the vote of a majority of the Fund’s outstanding
shares as defined in the 1940 Act. The Fund has adopted a policy to provide the
Fund’s shareholders with at least 60 days’ prior notice
of
any changes in the Fund’s non-fundamental investment policy with respect to
investments of the type suggested by its name. The Fund may count investments in
underlying funds toward various guideline tests (such as the 80% test required
under Rule 35d-1 under the 1940 Act).
To
the extent the Advisor or Sub-Advisor to the Fund makes investments on behalf of
the Fund that are regulated by the Commodities Futures Trading Commission, it
intends to do so in accordance with Rule 4.5 under the Commodity Exchange Act
(“CEA”). The Advisor has filed a notice of eligibility for exclusion from the
definition of the term “commodity pool operator” in accordance with Rule 4.5 and
is therefore not subject to registration as a commodity pool operator under the
CEA.
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ADDITIONAL
INVESTMENT STRATEGIES |
In
addition to its principal investment strategies, the Fund may also invest in
money market instruments, including short-term debt instruments and repurchase
agreements or other funds which invest exclusively in money market instruments
(subject to applicable limitations under the 1940 Act, or exemptions therefrom),
rather than its Underlying Index Components, when it would be more efficient or
less expensive for the Fund to do so, for liquidity purposes, or to earn
interest. In addition to investing directly in the Underlying Index Components,
the Fund may invest in such Underlying Index Components indirectly through
exchange-traded products. Swaps may be used by the Fund to seek performance that
tracks its Underlying Index and to manage cash flows. The Advisor anticipates
that it may take approximately two business days for additions and deletions to
a Fund’s Underlying Index to be reflected in the portfolio composition of the
Fund.
Each
of the policies described herein, including the investment objective of the
Fund, constitutes a non-fundamental policy that may be changed by the Board of
Trustees of the Trust without shareholder approval. Certain fundamental policies
of the Fund are set forth in the Fund’s Statement of Additional Information (the
“SAI”) under “Investment Restrictions.”
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DESCRIPTION
OF THE PRINCIPAL RISKS OF THE FUND |
The
Issuer and the Underlying Index have a limited operating history; therefore,
investors need to be aware that the investment returns, and the underlying index
methodology may not deliver the expected returns or achieve the intended
results.
An
investment or type of security specifically identified in the Prospectus
generally reflects a principal investment of the Fund. The Fund also may invest
in or use certain other types of investments and investing techniques that are
more fully described in the SAI. An investment or type of security only
identified in the SAI typically is treated as a non-principal investment.
Additional information on the principal risks and certain non-principal risks of
the Fund is described below. Not all the risks are principal risks for the Fund.
The fact that a particular risk is not indicated as a principal risk for the
Fund does not mean that the Fund is prohibited from investing its assets in
securities that give rise to that risk. It simply means that the risk is not a
principal risk for that Fund. Although the Fund will not generally trade for
short-term profits, circumstances (e.g., a rebalancing of the Fund’s Index) may
warrant a sale without regard to the length of time a security was held. A high
turnover rate may increase transaction costs, which decreases the value of
investments and may result in additional taxable gains for Shares held through a
taxable account.
In
addition, investors should note that the Fund reserves the right to cease
operations and liquidate at any time without shareholder approval, or to merge
or reorganize itself without shareholder approval, unless required by applicable
law. The Board has also determined that the Fund’s underlying index is not
fundamental to the Fund and hence may be changed by a majority vote of the Board
of Trustee’s with notice to investors. It may also change its respective
Underlying Index, after giving notice to investors through its website and the
media. If the Advisor believes the Underlying Index no longer represents a
viable investment strategy it may benchmark the Fund to any other index. The
Advisor may change service providers to the Fund as needed. The Advisor may
lower fees to investors without shareholder vote.
Investors
in the Fund should carefully consider the risks of investing in the Fund as set
forth in the Fund’s Summary Information section under “Principal Risks.” Unless
otherwise noted, each risk discussed below is applicable to the
Fund.
Aerospace
and Defense Companies Risk
Aerospace
and defense companies can be significantly affected by government aerospace and
defense regulation and spending policies because companies involved in this
industry rely to a significant extent on U.S. (and other) government demand for
their products and services. Thus, the financial condition of, and investor
interest in, aerospace and defense companies are heavily influenced by
governmental defense spending policies which are typically under pressure from
efforts to control the U.S. (and other) government budgets.
Communication
Services Risk
The
communication services sector consists of both companies in the
telecommunication services industry as well as those in the media and
entertainment industry. Examples of companies in the telecommunication services
industry group include providers of fiber-optic, fixed-line, cellular and
wireless telecommunications networks. Companies in the media and entertainment
industry group
encompass
a variety of services and products including television broadcasting, gaming
products, social media, networking platforms, online classifieds, online review
websites and Internet search engines. The communication services sector of a
country’s economy is often subject to extensive government regulation. The costs
of complying with governmental regulations, delays or failure to receive
required regulatory approvals, or the enactment of new regulatory requirements
may negatively affect the business of communications companies. Companies in the
communication services sector may encounter distressed cash flows due to the
need to commit substantial capital to meet increasing competition, particularly
in developing new products and services using new technology. Communication
services companies are particularly vulnerable to the potential obsolescence of
products and services due to technological advancement and the innovation of
competitors. While all companies may be susceptible to network security
breaches, certain companies in the communication services sector may be
particular targets of hacking and potential theft of proprietary or consumer
information or disruptions in service, which could have a material adverse
effect on their businesses.
Equity
Securities Risk
The
Fund may invest in equity securities, which include common stocks (and may
include other equity securities), and the prices of equity securities generally
fluctuate in value more than other investments. The price of equity securities
may rise or fall rapidly or unpredictably and may reflect real or perceived
changes in the issuing company’s financial condition and changes in the overall
market or economy. Price movements in equity securities may result from factors
or events affecting individual issuers, industries, or the entire market, such
as changes in economic or political conditions. In addition, equity markets tend
to move in cycles that may cause downward price movements over prolonged periods
of time. Common stocks generally represent the riskiest investment in a company
and dividend payments (if declared) to preferred stockholders generally rank
junior to payments due to a company’s debtholders. If the prices of the equity
securities held by the Fund fall, the value of your investment in the Fund will
be adversely affected. The Fund may lose a substantial part, or even all, of its
investment in a company’s stock.
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. 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.
Foreign
Securities Risk
The
Underlying Index contains equities listed in foreign markets. These securities
markets are subject to various regulations, market trading times and contractual
settlement dates. Market liquidity may also differ from the U.S. equity markets
as many foreign market shares trade OTC and prices are not published to the
official exchanges until after the trades are completed. In addition, where all
or a portion of the Fund’s underlying securities trade in a market that is
closed when the market in which the Fund’s shares are listed and trading in that
market is open, there may be changes between the last quote from its closed
foreign market and the value of such security during the Fund’s domestic trading
day. Consequently, this could lead to differences between the market price of
the Fund’s shares and the value of the shares of its underlying portfolio
holdings.
Index
Construction Risk
A
stock included in the Underlying Index may not exhibit the factor trait or
provide specific factor exposure for which it was selected and consequently the
Fund’s holdings may not exhibit returns consistent with that factor
trait.
Index
Risk
Although
the Fund follows a defined index rebalance schedule, the Index Provider could
determine to suspend or delay a rebalance due to a market event, during which
time the Fund’s index tracking risk may be heightened and could negatively
impact investors.
Issuer-Specific
Changes Risk
The
value of an individual security or type of security can be more volatile than
the total market and can perform differently from the value of the total market.
The value of securities of smaller issuers can be more volatile than that of
larger issuers.
Large-Capitalization
Securities Risk
The
Fund is subject to the risk that large-capitalization securities may
underperform other segments of the equity market or the total equity market.
Larger, more established companies may be unable to respond quickly to new
competitive challenges such as changes in technology and may not be able to
attain the high growth rate of smaller companies, especially during extended
periods of economic expansion.
Liquidity
Risk
The
Fund’s shares are subject to liquidity risk, which means that, in stressed
market conditions, the market for the Fund’s shares may become less liquid in
response to deteriorating liquidity in the markets for the Fund’s underlying
portfolio holdings. Please also note that this adverse effect on liquidity for
the Fund’s shares in turn could lead to differences between the market price of
the Fund’s
shares
and the underlying value of those shares. Further, the Underlying Index’s
screening process requires that each component security have a three month
average trading volume minimum of $1,000,000 on the date of the Underlying
Index’s semi-annual reconstitution date, therefore the number of stocks
available to the Underlying Index may be negatively affected during stressed
market conditions.
Market
Price Risk
Shares
are listed for trading on the NASDAQ and are bought and sold in the Secondary
Market at market prices. The market prices of Shares may fluctuate continuously
during trading hours, in some cases materially, in response to changes in the
net asset value (“NAV”) and supply and demand for Shares, among other factors.
Although it is expected that the market price of Shares typically will remain
closely correlated to the NAV, the market price will generally differ from the
NAV because of timing reasons, supply and demand imbalances and other factors.
As a result, the trading prices of Shares may deviate significantly from NAV
during certain periods, especially those of market volatility. The Investment
Advisor cannot predict whether Shares will trade above (premium), below
(discount) or at their NAV prices. Thus, an investor may pay more than NAV when
buying Shares in the Secondary Market and receive less than NAV when selling
Shares in the Secondary Market.
Additionally,
natural or environmental disasters, widespread disease or other public health
issues, war, acts of terrorism or other events could result in increased
premiums or discounts to the Fund’s NAV.
Natural
Disaster/Epidemic Risk
Natural
or environmental disasters, such as earthquakes, fires, floods, hurricanes,
tsunamis and other severe weather-related phenomena generally, and widespread
disease, including pandemics and epidemics, have been and may be highly
disruptive to economies and markets, adversely impacting individual companies,
sectors, industries, markets, currencies, interest and inflation rates, credit
ratings, investor sentiment, and other factors affecting the value of the Fund’s
investments. Given the increasing interdependence among global economies and
markets, conditions in one country, market, or region are increasingly likely to
adversely affect markets, issuers, and/or foreign exchange rates in other
countries, including the U.S. Any such events could have a significant adverse
impact on the value of the Fund’s investments.
Any
public health emergency, including any emerging or reemergent epidemics
(including, without limitation, outbreaks of coronavirus, influenza virus and
ebola virus), or the threat thereof, could have a significant adverse impact on
the Fund and the securities it holds, and could adversely affect the Fund’s
ability to fulfill its investment objectives. Beginning in late 2019, a novel
and highly contagious form of coronavirus known as SARS-CoV-2 emerged, causing a
disease referred to as COVID-19 or “coronavirus.” In March 2020, the World
Health Organization declared the COVID-19 epidemic a “global pandemic,” meaning
the disease was prevalent and spreading in multiple geographies. Subsequently,
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.
In
addition, the operations of the Fund, the Advisor, the Sub-Advisor, and the
Fund’s other service providers may be significantly impacted, or even
temporarily or permanently halted, as a result of government quarantine
measures, voluntary and precautionary restrictions on travel or meetings and
other factors related to a public health emergency, including its potential
adverse impact on the health of any such entity’s personnel.
Non-Correlation
Risk
The
Fund’s return may not match the return of its Underlying Index for many reasons.
For example, the Fund incurs operating expenses not applicable to the Underlying
Index, and incurs costs in buying and selling securities, especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Underlying Index. In addition, the performance of the Fund and its
Underlying Index may vary due to asset valuation differences and differences
between the Fund’s portfolio and the Underlying Index resulting from legal
restrictions, cash flows or operational inefficiencies. An Underlying Index is
not required to apply fair valuation to its constituents, but the Fund may apply
fair valuation to its portfolio securities in certain situations, which may lead
to increased differences between a Fund’s performance and that of its Underlying
Index.
Due
to legal and regulatory rules and limitations, the Fund may not be able to
invest in all the securities included in its Underlying Index. For tax
efficiency purposes, the Fund may sell certain securities to realize losses,
causing its performance to deviate from the Underlying Index.
The
Fund may not be fully invested at times, either because of cash flows into the
Fund or reserves of cash held by the Fund to meet redemptions and expenses. If
the Fund utilizes a sampling approach, or otherwise holds investments other than
those which comprise the Underlying Index, its return may not correlate well
with the return of its Underlying Index, as would be the case if it purchased
all the securities in the Underlying Index with the same weightings as its
Index.
Passive
Management Risk
Unlike
many investment companies, the Fund is not “actively” managed. Therefore, it
would not necessarily sell a security because the security’s issuer was in
financial trouble or defaulted on its obligations under the security, or whose
credit rating was downgraded, unless that security is removed from the
Underlying Index. In addition, the Fund will not otherwise take defensive
positions in declining markets unless such positions are reflected in the
Underlying Index.
Unlike
with an actively managed fund, the Advisor does not use techniques or defensive
strategies designed to lessen the effects of market volatility or to reduce the
impact of periods of market decline. This means that, based on market and
economic conditions, the Fund’s performance could be lower than other types of
funds that may actively shift their portfolio assets to take advantage of market
opportunities or to lessen the impact of a market decline.
Satellite
Companies Concentration Risk
The
Fund is considered to be concentrated in securities of companies that operate or
utilize satellites which are subject to manufacturing delays, launch delays or
failures, and operational and environmental risks (such as signal interference
or space debris) that could limit their ability to utilize the satellites needed
to deliver services to customers. Some companies that operate or utilize
satellites do not carry commercial launch or in-orbit insurance for the full
value of their satellites and could face significant impairment charges if the
satellites experience full or partial failures. Rapid and significant
technological changes in the satellite communications industry or in competing
terrestrial industries may impair a company’s competitive position and require
significant additional capital expenditures. There are also regulatory risks
associated with the allocation of orbital positions and spectrum under the
International Telecommunication Union (“ITU”) and the regulatory bodies in each
of the countries in which companies provide service. In addition, the ground
facilities used for controlling satellites or relaying data between Earth and
the satellites may be subject to operational and environmental risks (such as
natural disasters) or licensing and regulatory risks. If a company does not
obtain or maintain regulatory authorizations for its satellites and associated
ground facilities, it may not be able to operate its existing satellites or
expand its operations.
Securities
Lending Risk
There
are certain risks associated with securities lending, including the risk that
the borrower may fail to return the securities on a timely basis or even the
loss of rights in the collateral deposited by the borrower, if the borrower
should fail financially. As a result, the Fund may lose money. The Fund could
also lose money in the event of a decline in the value of collateral provided
for loaned securities or a decline in the value of any investments made with
cash collateral. These events could also trigger adverse tax consequences for
the Fund.
Small
and Mid-Capitalization Securities Risk
The
Fund may be subject to the risk that small- and mid-capitalization securities
may underperform other segments of the equity market or the equity market as a
whole. Securities of small- and mid-capitalization companies may experience much
more price volatility, greater spreads between their bid and ask prices and
significantly lower trading volumes than securities issued by large, more
established companies. Accordingly, it may be difficult for the Fund to sell
small- and mid-capitalization securities at a desired time or price. Small and
mid-capitalization companies tend to have inexperienced management as well as
limited product and market diversification and financial resources. Small- and
mid-capitalization companies have more speculative prospects for future growth,
sustained earnings and market share than large companies, and may be more
vulnerable to adverse economic, market or industry developments than large
capitalization companies.
Space
Industry Risk
The
exploration of space by private industry and the utilization of space assets is
a business focused on the future and is witnessing new entrants into the market.
This is a global event with a growing number of corporate participants looking
to meet the future needs of a growing global population. Therefore, investments
in the Fund will be riskier than traditional investments in established industry
sectors and the growth of these companies may be slower and subject to setbacks
as new technology advancements are made to expand into space.
UAP
Risk
A
UAP, formerly known as an “unidentified flying object” or “UFO”, is a flying
object that looks or moves unlike any known aircraft used by the US or any
foreign country. Recently, the US military has acknowledged the existence of
UAPs and confirmed the authenticity of certain videos and images purporting to
show UAPs. Given that currently there is no identification of these observed
phenomena, it is possible that UAPs could create unintentional or deliberate
operational, data security, “cyber” and other interference with the operation of
satellites and other objects in space. Such activities could result in a
significant adverse impact on the Fund’s securities, thereby causing the Fund’s
investment in such portfolio securities to lose value and adversely affecting
the Fund’s ability to fulfill its investment objectives.
Asian
Economic Risk
Many
Asian economies have experienced rapid growth and industrialization in recent
years, but there is no assurance that this growth rate will be maintained. Other
Asian economies, however, have experienced high inflation, high unemployment,
currency devaluations and restrictions, and over-extension of credit. Economic
events in any one Asian country may have a significant economic effect on the
entire Asian region, as well as on major trading partners outside Asia. Any
adverse event in the Asian markets may have a significant adverse effect on some
or all of the economies of the countries in which the Fund invests. Many Asian
countries are subject to political risk, including political instability,
corruption and regional conflict with neighboring countries. North Korea and
South Korea each have substantial military capabilities, and historical tensions
between the two countries present the risk of war; in the recent past, these
tensions have escalated. Any outbreak of hostilities between the two countries
could have a severe adverse effect on the entire Asian region. In addition, many
Asian countries are subject to social and labor risks associated with demands
for improved political, economic and social conditions. These risks, among
others, may adversely affect the value of the Fund’s investments.
Asset
Class Risk
The
securities in an Underlying Index or in the Fund’s portfolio may underperform
the returns of other securities or indexes that track other countries, groups of
countries, regions, industries, groups of industries, markets, asset classes or
sectors. Different types of securities, currencies and indexes may experience
cycles of outperformance and underperformance in comparison to the general
financial markets depending upon a number of factors including, among other
things, inflation, interest rates, productivity, global demand for local
products or resources and regulation and governmental controls.
Authorized
Participant Concentration Risk
Only
an Authorized Participant may engage in creation or redemption transactions
directly with the Fund. The Fund has a limited number of institutions that may
act as Authorized Participants on an agency basis (i.e., on behalf of other
market participants). To the extent that those Authorized Participants exit the
business or are unable to proceed with creation and/or redemption orders with
respect to the Fund and no other Authorized Participant is able to step forward
to engage in creation or redemption transactions with the Fund, Fund shares may
be more likely to trade at a premium or discount to NAV and possibly face
trading halts and/or delisting.
Concentration
Risk
The
Fund may be susceptible to an increased risk of loss, including losses due to
adverse events that affect the Fund’s investments 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. The Fund
may be more adversely affected by the underperformance of those securities, may
experience increased price volatility and may be more susceptible to adverse
economic, market, political or regulatory occurrences affecting those securities
than a fund that does not concentrate its investments.
Currency
Risk
Because
the Fund’s NAV is determined on the basis of the U.S. dollar, investors may lose
money if the foreign currencies in which the Fund’s holdings are denominated
depreciate against the U.S. dollar, even if the local currency value of the
Fund’s holdings increases. Generally, when the U.S. dollar rises in value
against a foreign currency, a security denominated in that currency loses value
because the currency is worth fewer U.S. dollars. Conversely, when the U.S.
dollar decreases in value against a foreign currency, a security denominated in
that currency gains value because the currency is worth more U.S. dollars. This
risk means that a strong U.S. dollar will reduce returns for U.S. investors,
while a weak U.S. dollar will increase those returns. The Fund will not hedge
against fluctuations in foreign currencies. The value of the US dollar measured
against a foreign currency is influenced by a variety of factors. These factors
include: interest rates, 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, global
energy prices, political instability and government monetary policies and the
buying or selling of currency by a country’s government.
Cyber
Security Risk
With
the increased use of technologies such as the internet to conduct business, the
Fund, Authorized Participants, service providers and the relevant listing
exchange are susceptible to operational, information security and related
“cyber” risks both directly and through their service providers. Similar types
of cyber security risks are also present for issuers of securities in which the
Fund invests, which could result in material adverse consequences for such
issuers and may cause the Fund’s investment in such portfolio companies to lose
value. Unlike many other types of risks faced by the Fund, these risks typically
are not covered by insurance. In general, cyber incidents can result from
deliberate attacks or unintentional events. Cyber incidents 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
security failures by or breaches of the systems of the Fund’s advisor,
sub-advisor, distributor and other service providers (including, but not limited
to, index providers, fund accountants, custodians, transfer agents and
administrators), market makers, Authorized Participants or the issuers of
securities in which the Fund invests, 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, disclosure of
confidential trading information, impediments to trading, submission of
erroneous trades or erroneous creation or redemption orders, the inability of
the Fund or its service providers to transact business, violations of applicable
privacy and other laws, regulatory fines, penalties, reputational damage,
reimbursement or other compensation costs, or additional compliance costs. In
addition, cyber attacks may render records of the Fund assets and transactions,
shareholder ownership of Fund shares, and other data integral to the functioning
of the Fund inaccessible or inaccurate or incomplete. Substantial costs may be
incurred by the Fund in order to resolve or prevent cyber incidents in the
future. While the Fund has established business continuity plans in the event
of, and risk management systems to prevent, such cyber attacks, there are
inherent limitations in such plans and systems, including the possibility that
certain risks have not been identified and that prevention and remediation
efforts will not be successful. Furthermore, the Fund cannot control the cyber
security plans and systems put in place by service providers to the Fund,
issuers in which the Fund invests, the Index Provider, market makers or
Authorized Participants. The Fund and its shareholders could be negatively
impacted as a result.
Dividend
Paying Security Risk
Securities
that pay high dividends as a group can fall out of favor with the market,
causing such companies to underperform companies that do not pay high dividends.
Also, changes in the dividend policies of the companies in the Underlying Index
and the capital resources available for such companies’ dividend payments may
affect the Fund.
European
Economic Risk
The
European Union (the “EU”) requires compliance by member countries with
restrictions on inflation rates, deficits, interest rates and debt levels, as
well as fiscal and monetary controls, each of which may significantly affect
every country in Europe, including those countries that are not members of the
EU. Changes in imports or exports, changes in governmental or EU regulations on
trade, changes in the exchange rate of the euro (the common currency of certain
EU countries), 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. The European financial markets have historically experienced
volatility and adverse trends due to concerns about economic downturns or rising
government debt levels in several European countries, including, but not limited
to, Austria, Belgium, Cyprus, France, Greece, Ireland, Italy, Portugal, Spain
and Ukraine. These events have adversely affected the exchange rate of the euro
and may continue to significantly affect European countries. Responses to
financial problems by European governments, central banks and others, including
austerity measures and reforms, may not produce the desired results, may result
in social unrest, may limit future growth and economic recovery or may have
other unintended consequences. Further defaults or restructurings by governments
and other entities of their debt could have additional adverse effects on
economies, financial markets and asset valuations around the world. In addition,
one or more countries may abandon the euro and/or withdraw from the EU. 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. During this period and beyond, 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. Secessionist movements, such as the
Catalan movement in Spain, as well as governmental or other responses to such
movements, may also create instability and uncertainty in the region. The
occurrence of terrorist incidents throughout Europe also could impact financial
markets. The impact of these events is not clear but could be significant and
far-reaching and adversely affect the value of the Fund.
Geographic
Risk
Some
of the companies in which the Fund may invest are located in parts of the world
that have historically been prone to natural disasters such as earthquakes,
tornadoes, volcanic eruptions, droughts, floods, hurricanes or tsunamis, and are
economically sensitive
to
environmental events. Any such event may adversely impact the economies of these
geographic areas or business operations of companies in these geographic areas,
causing an adverse impact on the value of the Fund.
Governmental
Slowdown or Shutdown Risk
Governmental
slowdowns or shutdowns can pose various risks for investors because activities
at many governmental agencies will slow down or stop except for “essential
services”. If regulators are unable to work for the duration of the slowdown or
shutdown, government approvals are likely to remain on hold and other functions
will be similarly affected, possibly resulting in slower economic growth. Also,
such governmental inactivity may have an effect on investor sentiment, thereby
increasing volatility or otherwise causing a market reaction. The longer a
slowdown or shutdown continues, the more disruptive it will be to industry in
general, particularly to those segments that are highly regulated, as well as to
the general economy, for example if businesses and consumers curtail or stop
spending.
Index
Risk
The
Fund’s Underlying Index may not be successful in replicating the performance of
its target strategies. The Underlying Index is relatively new and has limited
historical performance data that is not predictive of future
results.
Industry
Concentration Risk
To
the extent that its Underlying Index is concentrated in a particular industry,
the Fund also will be concentrated in that industry. Concentrated Fund
investments will subject the Fund to a greater risk of loss as a result of
adverse economic, business or other developments than if its investments were
diversified across different industry sectors.
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 and
in turn on the Fund.
Industrials
Sector Risk
The
prices of securities of companies in the industrials sector are affected by
supply and demand both for their specific product or service and for industrials
sector products in general, which may be cyclical. The products of manufacturing
companies may face product obsolescence due to rapid technological developments
and frequent new product introduction. Government regulation, world events and
economic conditions may affect the performance of companies in the industrials
sector. Companies in the industrials sector may be at risk for environmental
damage and product liability claims and may be adversely affected by changes or
trends in commodity prices, imposition of import controls, labor relations and
insurance costs. Aerospace and defense companies, a component of the industrials
sector, can be significantly affected by government spending policies because
companies involved in this industry rely, to a significant extent, on government
demand for their products and services. Thus, the financial condition of, and
investor interest in, aerospace and defense companies are heavily influenced by
governmental defense spending policies, which are typically under pressure from
efforts to control government budgets.
New
industrial sectors may open as the growth in space exploration and harvesting
offers traditional industrial companies new and unique opportunities for growth.
The opportunities may not be addressed by current large industrial complexes.
This may cause a significant secular shift which could lead to the decline or
expansion of industrial sector risks.
Information
Technology Sector Risk
Information
technology companies face intense competition, both domestically and
internationally, which may have an adverse effect on their profit margins. Like
other technology companies, information technology companies may have limited
product lines, markets, financial resources or personnel. The products of
information technology companies may face obsolescence due to rapid
technological developments, frequent new product introduction, unpredictable
changes in growth rates and competition for the services of qualified personnel.
Companies in the information technology sector are heavily dependent on patent
and intellectual property rights. The loss or impairment of any of these rights
may adversely affect the profitability of these companies or the Fund’s
performance.
Materials
Sector Risk
Companies
in the materials sector may be adversely affected by commodity price volatility,
exchange rates, import controls, increased competition, depletion of resources,
technical advances, labor relations, over-production, litigation and government
regulations, among other factors. Companies in the materials sector are also at
risk of liability for environmental damage and
product
liability claims. Production of materials may exceed demand as a result of
market imbalances or economic downturns, leading to poor investment
returns.
Telecommunications
Sector Risk
The
telecommunications sector is subject to extensive government regulation. The
costs of complying with governmental regulations, delays or failure to receive
required regulatory approvals or the enactment of new adverse regulatory
requirements may adversely affect the business of the telecommunications
companies. The telecommunications sector can also be significantly affected by
intense competition, including competition with alternative technologies such as
wireless communications, product compatibility, consumer preferences, rapid
obsolescence and research and development of new products. Other risks include
those related to regulatory changes, such as the uncertainties resulting from
such companies’ diversification into new domestic and international businesses,
as well as agreements by any such companies linking future rate increases to
inflation or other factors not directly related to the actual operating profits
of the otherwise.
Utilities
Sector Risk
The
rates that traditional regulated utility companies may charge their customers
generally are subject to review and limitation by governmental regulatory
commissions. Although rate changes of a utility usually fluctuate in approximate
correlation with financing costs due to political and regulatory factors, rate
changes ordinarily occur only following a delay after the changes in financing
costs. This factor will tend to favorably affect a regulated utility company’s
earnings and dividends in times of decreasing costs, but conversely, will tend
to adversely affect earnings and dividends when costs are rising. The value of
regulated utility debt securities (and, to a lesser extent, equity securities)
tends to have an inverse relationship to the movement of interest rates. Certain
utility companies have experienced full or partial deregulation in recent years.
These utility companies are frequently more like industrial companies in that
they are subject to greater competition and have been permitted by regulators to
diversify outside of their original geographic regions and their traditional
lines of business. These opportunities may permit certain utility companies to
earn more than their traditional regulated rates of return. Some companies,
however, may be forced to defend their core business and may be less
profitable.
Among
the risks that may affect utility companies are the following: risks of
increases in fuel and other operating costs; the high cost of borrowing to
finance capital construction during inflationary periods; restrictions on
operations and increased costs and delays associated with compliance with
environmental and nuclear safety regulations; and the difficulties involved in
obtaining natural gas for resale or fuel for generating electricity at
reasonable prices. Other risks include those related to the construction and
operation of nuclear power plants, the effects of energy conservation and the
effects of regulatory changes.
Liquidity
Risk Management Rule Risk
Rule
22e-4 under the 1940 Act (the “Liquidity Rule”) requires open-end funds,
including ETFs such as the Fund, to establish a liquidity risk management
program and enhance disclosures regarding fund liquidity. As required by the
Liquidity Rule, the Fund has implemented a liquidity risk management program,
and the Board, including a majority of the Independent Trustees of the Trust,
has appointed the Advisor as the administrator of the liquidity risk management
program. There are exclusions from certain portions of the liquidity risk
management program requirements for “in-kind” ETFs, as defined in the Liquidity
Rule. To the extent that an investment is deemed to be an illiquid investment or
a less liquid investment, the Fund can expect to be exposed to greater liquidity
risk. The Liquidity Rule and the Fund’s ability to rely on the exclusions for
“in-kind” ETFs may impact the Fund’s performance and/or ability to achieve its
investment objective.
Management
Risk
The
strategy used by the Fund to match the performance of the Underlying Index may
fail to produce the intended results. The skill of the Advisor or Sub-Advisor
will play a significant role in the Fund’s ability to achieve its investment
objectives. The Fund’s ability to achieve its investment objectives depends on
the ability of the Advisor to correctly identify economic trends, especially
with regard to accurately forecasting projected dividend and growth rates and
inflationary and deflationary periods. In addition, the Fund’s ability to
achieve its investment objective depends on the Advisor’s or Sub-Advisor’s
ability to select stocks, particularly in volatile stock markets. The Advisor or
Sub-Advisor could be incorrect in its analysis of industries, companies’
projected dividends and growth rates and the relative attractiveness of value
stocks and other matters. Additionally, if the Advisor uses a “sampling”
approach to managing an Underlying Index, the performance of the Fund may not
correlate with the Underlying Index as well as if the Fund “replicated” the
Underlying Index by buying all of its constituent stocks.
Market
Risk
The
value of, or income generated by, the securities held by the Fund are subject to
the possibility of rapid and unpredictable fluctuation. The value of certain
securities (e.g., equity securities) tends to fluctuate more dramatically over
the shorter term than do the value of other asset classes. These movements may
result from factors affecting individual companies, or from broader influences,
including real or perceived changes in prevailing interest rates, changes in
inflation or expectations about inflation, investor
confidence
or economic, political, social or financial market conditions that may be
temporary or last for extended periods. Different sectors, industries and
security types may react differently to such developments and, when the market
performs well, there is no assurance that the securities held by the Fund will
increase in value along with the broader markets. For example, the value of a
Fund’s investments in securities or other instruments may be particularly
susceptible to changes in commodity prices. As a result, a change in commodity
prices may adversely affect the Fund’s investments. Volatility of financial
markets can expose the Fund to greater market risk, possibly resulting in
reduced liquidity. Moreover, changing economic, political, social or financial
market conditions in one country or geographic region could adversely affect the
market value of the securities held by the Fund in a different country or
geographic region because of the increasingly interconnected global economies
and financial markets. The Advisor potentially will be prevented from executing
investment decisions at an advantageous time or price because of any domestic or
global market disruptions, particularly disruptions causing heightened market
volatility and reduced market liquidity. Changes or disruptions in market
conditions also may lead to increased regulation of the Fund and the instruments
in which the Fund may invest, which may, in turn, affect the Fund’s ability to
pursue its investment objective and the Fund’s performance. In general, the
securities or other instruments represented in the Fund’s Underlying Index or in
which the Fund seeks to invest may be unavailable entirely or in the specific
quantities sought by the Fund. As a result, the Fund may need to obtain the
desired exposure through a less advantageous investment or forgo the investment
at the time. This may adversely affect the Fund and increase the Fund’s
Underlying Index tracking error.
Market
Trading Risk
Absence
of Active Market.
Although shares of the Fund are listed for trading on one or more stock
exchanges, there can be no assurance that an active trading market for such
shares will continue to develop and be maintained by market makers or Authorized
Participants.
Risk
of Secondary Listings.
The Fund’s shares may be listed or traded on U.S. and non-U.S. stock exchanges
other than the U.S. stock exchange where the Fund’s primary listing is
maintained and may otherwise be made available to non-U.S. investors through
funds or structured investment vehicles similar to depositary receipts. There
can be no assurance that the Fund’s shares will continue to trade on any such
stock exchange or in any market or that the Fund’s shares will continue to meet
the requirements for listing or trading on any exchange or in any market. The
Fund’s shares may be less actively traded in certain markets than in others, and
investors are subject to the execution and settlement risks and market standards
of the market where they or their broker direct their trades for execution.
Certain information available to investors who trade Fund shares on a U.S. stock
exchange during regular U.S. market hours may not be available to investors who
trade in other markets, which may result in Secondary Market prices in such
markets being less efficient.
Secondary
Market Trading Risk.
Shares of the Fund may trade in the Secondary Market at times when the Fund does
not accept orders to purchase or redeem shares. At such times, shares may trade
in the Secondary Market with more significant premiums or discounts than might
be experienced at times when the Fund accepts purchase and redemption
orders.
Secondary
Market trading in Fund shares may be halted by a stock exchange because of
market conditions or for other reasons. In addition, trading in Fund shares on a
stock exchange or in any market may be subject to trading halts caused by
extraordinary market volatility pursuant to “circuit breaker” rules on the stock
exchange or market.
Shares
of the Fund, similar to shares of other issuers listed on a stock exchange, may
be sold short and are therefore subject to the risk of increased volatility and
price decreases associated with being sold short.
Shares
of the Fund May Trade at Prices Other Than NAV.
Shares of the Fund trade on stock exchanges at prices at, above or below the
Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each
business day and fluctuates with changes in the market value of the Fund’s
holdings. The trading price of the Fund’s shares fluctuates continuously
throughout trading hours based on both market supply of and demand for Fund
shares and the underlying value of the Fund’s portfolio holdings or NAV. As a
result, the trading prices of the Fund’s shares may deviate significantly from
NAV during periods of market volatility. ANY
OF THESE FACTORS, AMONG OTHERS, MAY LEAD TO THE FUND’S SHARES TRADING AT A
PREMIUM OR DISCOUNT TO NAV.
However, because shares can be created and redeemed in Creation Units at NAV,
the Advisor believes that large discounts or premiums to the NAV of the Fund are
not likely to be sustained over the long term (unlike shares of many closed-end
funds, which frequently trade at appreciable discounts from, and sometimes at
premiums to, their NAVs). While the creation/redemption feature is designed to
make it more likely that the Fund’s shares normally will trade on stock
exchanges at prices close to the Fund’s next calculated NAV, exchange prices are
not expected to correlate exactly with the Fund’s NAV due to timing reasons,
supply and demand imbalances and other factors. In addition, disruptions to
creations and redemptions, including disruptions at market makers, Authorized
Participants, or other market participants, and during periods of significant
market volatility, may result in trading prices for shares of the Fund that
differ significantly from its NAV. Authorized Participants may be less willing
to create or redeem Fund shares if there is a lack of an active market for such
shares or its underlying investments, which may contribute to the Fund’s shares
trading at a premium or discount to NAV.
Costs
of Buying or Selling Fund Shares.
Buying or selling Fund shares on an exchange involves two types of costs that
apply to all securities transactions. When buying or selling shares of the Fund
through a broker, you will likely incur a brokerage commission and other
charges. In addition, you may incur the cost of the “spread”; that is, the
difference between what investors are willing to pay for Fund shares (the “bid”
price) and the price at which they are willing to sell Fund shares (the “ask”
price). The spread, which varies over time for shares of the Fund based on
trading volume and market liquidity, is generally narrower if the Fund has more
trading volume and market liquidity and wider if the Fund has less trading
volume and market liquidity. In addition, increased market volatility may cause
wider spreads. There may also be regulatory and other charges that are incurred
as a result of trading activity. Because of the costs inherent in buying or
selling Fund shares, frequent trading may detract significantly from investment
results and an investment in Fund shares may not be advisable for investors who
anticipate regularly making small investments through a brokerage
account.
Mid-Capitalization
Securities Risk
The
Fund may be subject to the risk that mid-capitalization securities may
underperform other segments of the equity market or the equity market.
Securities of mid-capitalization companies may experience much more price
volatility, greater spreads between their bid and ask prices and significantly
lower trading volumes than securities issued by large, more established
companies. Accordingly, it may be difficult for the Fund to sell
mid-capitalization securities at a desired time or price. Mid-capitalization
companies tend to have inexperienced management as well as limited product and
market diversification and financial resources. Mid-capitalization companies
have more speculative prospects for future growth, sustained earnings and market
share than large companies, and may be more vulnerable to adverse economic,
market or industry developments than large capitalization
companies.
National
Closed Market Trading Risk
To
the extent that the underlying securities held by the Fund trade on foreign
exchanges that may be closed when the securities exchange on which the Fund’s
shares trade is open, there are likely to be deviations between the current
price of an underlying security and the last quoted price for the underlying
security (i.e., the Fund’s quote from the closed foreign market). These
deviations could result in premiums or discounts to the Fund’s NAV that may be
greater than those experienced by other ETFs.
Non-Diversification
Risk
The
Fund is considered non-diversified because it may invest a large portion of its
assets in a small number of issuers. As a result, the Fund is more susceptible
to risks associated with those issuers and the Fund may experience greater
losses and volatility than a more diversified portfolio.
Portfolio
Turnover Risk
The
Fund may engage in active and frequent trading of its portfolio securities to
reflect the periodic rebalancing of the Underlying Index. A portfolio turnover
rate of 200%, for example, is equivalent to the Fund buying and selling all its
securities two times during the year. A high portfolio turnover rate (such as
100% or more) could result in high brokerage costs and may result in higher
taxes when Shares are held in a taxable account.
Regulatory
and Legal Risk
U.S.
and non-U.S. governmental agencies and other regulators may implement additional
regulations and legislators may pass new laws that affect the investments held
by the Fund, the strategies used by the Fund or the level of regulation applying
to the Fund. These may impact the investment strategies, performance, costs and
operations of the Fund.
Risk
of Investing in the United States
The
Fund may have significant exposure to U.S. issuers. A decrease in imports or
exports, changes in trade regulations and/or an economic recession in the U.S.
may have a material adverse effect on the U.S. economy and the securities listed
on U.S. exchanges. Proposed and adopted policy and legislative changes in the
U.S. are changing many aspects of financial and other regulation and may have a
significant effect on the U.S. markets generally, as well as on the value of
certain securities. In addition, a continued rise in the U.S. public debt level
or U.S. austerity measures may adversely affect U.S. economic growth and the
securities to which the Fund has exposure. The U.S. has developed increasingly
strained relations with a number of foreign countries, including traditional
allies, such as certain European countries, and historical adversaries, such as
North Korea, Iran, China and Russia. If these relations were to worsen, it could
adversely affect U.S. issuers as well as non-U.S. issuers that rely on the U.S.
for trade. The U.S. has also experienced increased internal unrest and discord.
If this trend were to continue, it may have an adverse impact on the U.S.
economy and the issuers in which the Fund invests.
Risks
Relating to Calculation of NAV
The
Fund relies on various sources to calculate its NAV. Therefore, the Fund is
subject to certain operational risks associated with reliance on third party
service providers and data sources. NAV calculation may be impacted by
operational risks arising from factors
such
as failures in systems and technology. Such failures may result in delays in the
calculation of the Fund’s NAV and/or the inability to calculate NAV over
extended time periods. The Fund may be unable to recover any losses associated
with such failures.
Tariff
Disputes or Trade Wars Risk
Significant
tariff disputes between trading partners can cause affected countries to
retaliate, resulting in “trade wars” which can cause negative effects on the
economies of such countries, as well as the global economy. For example, a trade
war could cause increased costs for goods imported to the trading partners, thus
limiting customer demand for these products and reducing the volume and scope of
trading. In addition, disruption in trading markets may result to depressed
capital and business investment, curtailed spending, as well as volatile or
otherwise negatively impacted financial markets. These effects
can be amplified as business confidence drops and investment decisions are
delayed. Also, imposition of new or higher tariffs can result in the adoption of
tariffs by other countries, thus widening the negative effects on the global
economy.
Tracking
Error Risk
The
Fund’s performance may not match its Underlying Index during any period of time.
Although the Fund attempts to track the performance of its Underlying Index, the
Fund may not be able to duplicate its exact composition or return for any number
of reasons, including but not limited to risk that the strategies used by the
Advisor to match the performance of the Underlying Index may fail to produce the
intended results, liquidity risk and new fund risk, as well as the incurring of
Fund expenses, which the Underlying Index does not incur. For example, the Fund
may not be able to invest in certain securities included in its Underlying Index
due to restrictions or limitations imposed, by or a lack of liquidity in,
certain countries in which such securities trade, or may be delayed in
purchasing or selling securities included in the Underlying Index. To the extent
the Fund intends to engage in a significant portion in cash transactions for the
creation and redemption of Shares, such practice may affect the Fund’s ability
to match the return of its Underlying Index.
Trading
Issues Risk
Trading
in Shares on the Exchange may be halted due to market conditions or for reasons
that, in the view of the Exchange, make trading in Shares inadvisable. There can
be no assurance that an active trading market will develop or be maintained. In
addition, trading in Shares on the Exchange is subject to trading halts caused
by extraordinary market volatility pursuant to the Exchange “circuit breaker”
rules. If a trading halt or unanticipated early closing of the Exchange occurs,
a shareholder may be unable to purchase or sell Shares when desired. There can
be no assurance that the requirements of the Exchange necessary to maintain the
listing of the Fund will continue to be met or will remain unchanged or that
Shares will trade with any volume, or at all, in any Secondary Market. As with
other exchange traded securities, Shares may be sold short and may experience
increased volatility and price decreases associated with such trading
activity.
Trading
Price Risk
It
is expected that the shares of the Fund (in each case, “Shares”) will be listed
for trading on the Exchange and will be bought and sold in the Secondary Market
at market prices. Although it is generally expected that the market price of the
Shares of the Fund will approximate the respective Fund’s NAV, there may be
times when the market price and the NAV vary significantly. Thus, you may pay
more than NAV when you buy Shares in the Secondary Market, and you may receive
less than NAV when you sell those Shares in the Secondary Market. Similar to
shares of other issuers listed on a stock exchange, Shares may be sold short and
are therefore subject to the risk of increased volatility and price decreases
associated with being sold short.
The
market price of Shares during the trading day, like the price of any
exchange-traded security, includes a “bid/ask” spread charged by the exchange
specialist, market makers or other participants that trade the Shares. In times
of severe market disruption, the bid/ask spread can increase significantly. At
those times, Shares are most likely to be traded at a discount to NAV, and the
discount is likely to be greatest when the price of Shares is falling fastest,
which may be the time that you most want to sell your Shares. The Advisor
believes that, under normal market conditions, large market price discounts or
premiums to NAV will not be sustained because of arbitrage opportunities,
particularly through creations and redemptions by Authorized Participants
dealing directly with the Fund. While the creation/redemption feature is
designed to make it more likely that the Fund’s Shares normally will trade on
the Exchange at prices close to its next calculated NAV, exchange prices are not
expected to correlate exactly with the Fund’s NAV due to timing reasons, supply
and demand imbalances and other factors. In addition, disruptions to creations
and redemptions, including disruptions at market makers, Authorized
Participants, or other market participants, and during periods of significant
market volatility, may result in trading prices for shares of the Fund that
differ significantly from its NAV. Authorized Participants may be less willing
to create or redeem Fund shares if there is a lack of an active market for such
shares or its underlying investments, which may contribute to the Fund’s shares
trading at a premium or discount to NAV.
Valuation
Risk
The
price the Fund could receive upon sale of a security or other asset may differ
from the Fund’s valuation of the security or other asset and from the value used
by the Underlying Index, particularly for securities or other assets that trade
in low volume or volatile markets or that are valued using a fair value
methodology as a result of trade suspensions or for other reasons. Because
non-U.S.
exchanges
may be open on days when the Fund does not price its shares, the value of the
securities or other assets in the Fund’s portfolio may change on days or during
time periods when shareholders will not be able to purchase or sell the Fund’s
shares. In addition, for purposes of calculating the Fund’s NAV, the value of
assets denominated in non-U.S. currencies is converted into U.S. dollars using
prevailing market rates on the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference between the prices
used to calculate the Fund’s NAV and the prices used by the Underlying Index,
which, in turn, could result in a difference between the Fund’s performance and
the performance of the Underlying Index. Authorized Participants who purchase or
redeem Fund shares on days when the Fund is holding fair-valued securities may
receive fewer or more shares, or lower or higher redemption proceeds, than they
would have received had the Fund not fair-valued securities or used a different
valuation methodology. The Fund’s ability to value investments may be impacted
by technological issues or errors by pricing services or other third-party
service providers.
In
addition to the Principal Risks described above, the Fund may also be exposed to
the following Risks.
Absence
of Prior Active Market
Although
Shares are approved for listing and have been trading on the Exchange, there can
be no assurance that an active trading market will continue to develop and be
maintained for the Shares. There can be no assurance that the Fund will grow to
or maintain an economically viable size, in which case the Fund may experience
greater tracking error to its Underlying Index than it otherwise would at higher
asset levels, or the Fund may ultimately liquidate.
Fluctuation
of Net Asset Value
The
NAV of the Fund’s Shares will generally fluctuate with changes in the market
value of the Fund’s holdings. The market prices of the Shares will generally
fluctuate in accordance with changes in NAV as well as the relative supply of
and demand for the Shares on the Exchange. The Advisor cannot predict whether
the Shares will trade below, at or above their NAV. Price differences may be
due, in large part, to the fact that supply and demand forces at work in the
secondary trading market for the Shares will be closely related to, but not
identical to, the same forces influencing the prices of the securities of the
Fund’s Underlying Index trading individually or in the aggregate at any point in
time. If an investor purchases Shares at a time when the market price is at a
premium to the NAV of the Shares or sells at a time when the market price is at
a discount to the NAV of the Shares, then the investor may sustain losses.
However, given that the Shares can be purchased and redeemed in Creation Units
(unlike shares of closed-end funds, which frequently trade at appreciable
discounts from, and sometimes at premiums to, their NAV), the Advisor believes
that large discounts or premiums to the NAV of the Shares should not be
sustained.
Shares
are not Individually Redeemable
Shares
may be redeemed by the Fund only in large blocks known as “Creation Units” which
are expected to be worth in excess of one million dollars each. The Trust may
not redeem Shares in fractional Creation Units. Only certain large institutions
that enter into agreements with the Distributor are authorized to transact in
Creation Units with the Fund. These entities are referred to as “Authorized
Participants.” All other persons or entities transacting in Shares must do so in
the Secondary Market.
Tax
Risks
To
qualify for the favorable U.S. federal income tax treatment accorded to
regulated investment companies, the Fund must, among other things, derive in
each taxable year at least 90% of its gross income from certain prescribed
sources. If for any taxable year, the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
for that year would be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions would be
taxable to shareholders as dividend income to the extent of the Fund’s current
and accumulated earnings and profits.
Furthermore,
the tax treatment of derivatives is unclear for purposes of determining the
Fund’s tax status. In addition, the Fund’s transactions in derivatives may
result in the Fund realizing more short-term capital gains and ordinary income
that are subject to higher ordinary income tax rates than if it did not engage
in such transactions.
Please
refer to the SAI for a more complete discussion of the risks of investing in
Shares.
The
method by which Creation Units are purchased and traded may raise certain issues
under applicable securities laws. Because new Creation Units are issued and sold
by the Fund on an ongoing basis, at any point a “distribution,” as such term is
used in the Securities Act, may occur. Broker-dealers and other persons are
cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in a
manner which could render them statutory underwriters and subject them to the
prospectus delivery and liability provisions of the Securities Act. For example,
a broker-dealer firm or its client may be deemed a statutory underwriter if it
takes Creation Units after placing an order with the Distributor, breaks them
down
into
individual Shares, and sells such Shares directly to customers, or if it chooses
to couple the creation of a supply of new Shares with an active selling effort
involving solicitation of Secondary Market demand for Shares. A determination of
whether one is an underwriter for purposes of the Securities Act must take into
account all the facts and circumstances pertaining to the activities of the
broker-dealer or its client in the particular case, and the examples mentioned
above should not be considered a complete description of all the activities that
could lead to categorization as an underwriter.
Broker-dealer
firms should also note that dealers who are not “underwriters” but are effecting
transactions in Shares, whether or not participating in the distribution of
Shares, are generally required to deliver a prospectus. This is because the
prospectus delivery exemption in Section 4(a)(3) of the Securities Act is not
available with respect to such transactions as a result of Section 24(d) of the
1940 Act. As a result, broker dealer-firms should note that dealers who are not
underwriters but are participating in a distribution (as contrasted with
ordinary Secondary Market transactions) and thus dealing with Shares that are
part of an over-allotment within the meaning of Section 4(a)(3)(a) of the
Securities Act would be unable to take advantage of the prospectus delivery
exemption provided by Section 4(a)(3) of the Securities Act. Firms that incur a
prospectus delivery obligation with respect to Shares of the Fund are reminded
that under Rule 153 of the Securities Act, a prospectus delivery obligation
under Section 5(b)(2) of the Securities Act owed to an exchange member in
connection with a sale on the Exchange is satisfied by the fact that such Fund’s
prospectus is available at the Exchange upon request. The prospectus delivery
mechanism provided in Rule 153 is only available with respect to transactions on
an exchange.
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CREATION
AND REDEMPTION OF CREATION UNITS |
The
Fund issues and redeems Shares only in bundles of a specified number of Shares.
These bundles are known as “Creation Units.” For the Fund, a Creation Unit is
comprised of 25,000 Shares. The number of Shares in a Creation Unit will not
change, except in the event of a share split, reverse split or similar
revaluation. The Fund cannot issue fractional Creation Units. To purchase or
redeem a Creation Unit, you must be an Authorized Participant, or you must do so
through a broker, dealer, bank or other entity that is an Authorized
Participant. An Authorized Participant is a member or participant of a clearing
agency registered with the SEC, which has a written agreement with the Fund or
one of its service providers that allows the Authorized Participant to place
orders for the purchase and redemption of Creation Units. It is expected that
only large institutional investors will purchase and redeem Shares directly from
the Fund in the form of Creation Units. In turn, it is expected that
institutional investors who purchase Creation Units will break up their Creation
Units and offer and sell individual Shares in the Secondary Market.
Retail
investors may acquire Shares in the Secondary Market (not from the Fund) through
a broker or dealer. Shares are listed on the Exchange and are publicly traded.
For information about acquiring Shares in the Secondary Market, please contact
your broker or dealer. If you want to sell Shares in the Secondary Market, you
must do so through your broker or dealer.
When
you buy or sell Shares in the Secondary Market, your broker or dealer may charge
you a commission, market premium or discount or other transaction charge, and
you may pay some or all of the spread between the bid and the offered price for
each purchase or sale transaction. Unless imposed by your broker or dealer,
there is no minimum dollar amount you must invest and no minimum number of
Shares you must buy in the Secondary Market. In addition, because transactions
in the Secondary Market occur at market prices, you may pay more than NAV when
you buy Shares and receive less than NAV when you sell those
Shares.
The
creation and redemption processes discussed above are summarized, and such
summary only applies to shareholders who purchase or redeem Creation Units (they
do not relate to shareholders who purchase or sell Shares in the Secondary
Market). Authorized Participants should refer to their Participant Agreements
for the precise instructions that must be followed in order to create or redeem
Creation Units.
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BUYING
AND SELLING SHARES IN THE SECONDARY
MARKET |
Most
investors will buy and sell Shares of the Fund in Secondary Market transactions
through brokers. Shares of the Fund will be listed for trading on the Secondary
Market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly-traded shares. There is no minimum investment. Although
Shares are generally purchased and sold in “round lots” of 100 Shares, brokerage
firms typically permit investors to purchase or sell Shares in smaller “odd
lots” at no per-Share price differential. When buying or selling Shares through
a broker, you will incur customary brokerage commissions and charges, and you
may pay some or all of the spread between the bid and the offered price in the
Secondary Market on each leg of a round trip (purchase and sale)
transaction.
Share
prices are reported in dollars and cents per Share. For information about buying
and selling Shares in the Secondary Market, please contact your broker or
dealer.
Book
Entry
Shares
of the Fund are held in book-entry form and no stock certificates are issued.
Depository Trust Company (“DTC”), through its nominee Cede & Co., 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.
Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
Shares, you are not entitled to receive physical delivery of stock certificates
or to have Shares registered in your name, and you are not considered a
registered owner of Shares. Therefore, to exercise any right as an owner of
Shares, you must rely upon the procedures of DTC and its
participants.
These
procedures are the same as those that apply to any securities that you hold in
book-entry or “street name” form for any publicly-traded company. Specifically,
in the case of a shareholder meeting of the Fund, DTC assigns applicable Cede
& Co. voting rights to its participants that have Shares credited to their
accounts on the record date, issues an omnibus proxy and forwards the omnibus
proxy to the Fund. The omnibus proxy transfers the voting authority from Cede
& Co. to the DTC participant. This gives the DTC participant through whom
you own Shares (namely, your broker, dealer, bank, trust company or other
nominee) authority to vote the shares, and, in turn, the DTC participant is
obligated to follow the voting instructions you provide.
Board
of Trustees
The
Board of Trustees of the Trust is responsible for the general supervision and
overseeing the management and business affairs of the Fund. The Board of
Trustees appoints officers who are responsible for the day-to-day operations and
oversee operations of the Fund by its officers. The Board of Trustees also
reviews management of the Fund’s assets by the investment advisor and
sub-advisor. Information about the Board of Trustees and executive officers of
the Fund is contained in the SAI.
Investment
Advisor
The
Advisor is registered as an investment advisor with the SEC. The Advisor’s
principal office is located at 16 Firebush Road, Levittown, Pennsylvania
19056.
The
Advisor has overall responsibility for the general management and administration
of the Trust. The Advisor provides an investment program for the Fund. The
Advisor has arranged for custody, fund administration, transfer agency and all
other non-distribution related services necessary for the Fund to
operate.
As
compensation for its services and its assumption of certain expenses, the Fund
pays the Advisor a management fee equal to a percentage of the Fund’s average
daily net assets that is calculated daily and paid monthly, as
follows:
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Fund
Name |
Management
Fee |
Procure
Space ETF |
0.75% |
The
Advisor serves as advisor to the Fund pursuant to an Investment Advisory
Agreement (the “Advisory Agreement”). The Advisor is a SEC-registered investment
advisor and advises the Fund and other ETFs. The Sub-Advisor serves as
sub-advisor to the Fund pursuant to a Sub-Advisory Agreement. The basis for the
Trustees’ approval of the Advisory Agreement and the Sub-Advisory Agreement is
available in the Trust’s Annual
Report
to shareholders for the year ended October 31, 2022.
Under
the Advisory Agreement, the Advisor has agreed to pay all expenses of the Trust
(except brokerage and other transaction expenses including taxes; extraordinary
legal fees or expenses, such as those for litigation or arbitration;
compensation and expenses of the Independent Trustees, counsel to the
Independent Trustees, and the Trust’s chief compliance officer; extraordinary
expenses; distribution fees and expenses paid by the Trust under any
distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act and the
advisory fee payable to the Advisor under the Advisory Agreement). The Advisor
has contractually agreed to waive its expenses and reimburse the Fund to the
extent necessary to ensure that Total Annual Fund Operating Expenses do not
exceed 0.75% until February 29, 2024.
The
Advisor and its affiliates deal, trade and invest for their own accounts in the
types of securities in which the Fund also may invest. The Advisor does not use
inside information in making investment decisions on behalf of the
Fund.
Portfolio
Management
Sub-Advisor
Pursuant
to an investment sub-advisory agreement (“Sub-Advisory Agreement”), Penserra
Capital Management LLC, a New York limited liability company with a Principal
Office located at 4 Orinda Way, 100-A, Orinda, California 94563 (“Penserra” or
the “Sub-
Advisor”),
is responsible for the day-to-day management of the Fund. The Sub-Advisor
provides investment advisory services to other exchange-traded funds. The
Sub-Advisor is responsible for, among other things, trading portfolio securities
on behalf of the Fund, including selecting broker-dealers to execute purchase
and sale transactions as instructed by the Advisor or in connection with any
rebalancing or reconstitution of the Index, subject to the supervision of the
Advisor and the Board. Under the Sub-Advisory Agreement, the Advisor pays the
Sub-Advisor a fee for its services, which fee is calculated daily and paid
monthly, at an annual rate of the Fund’s average daily net assets of 0.05%,
subject to a minimum annual fee of $40,000.
The
Sub-Advisor has been registered as an investment advisor since
2014.
The
Sub-Advisor is responsible for managing the investment portfolio of the Fund and
will direct the purchase and sale of the Fund’s investment securities. The
Sub-Advisor utilizes a team of investment professionals acting together to
manage the assets of the Fund. The team meets regularly to review portfolio
holdings and to discuss purchase and sale activity. The team adjusts holdings in
the portfolio as they deem appropriate in the pursuit of the Fund’s investment
objective.
PORTFOLIO
MANAGERS.
The
Fund’s day-to-day activities are managed by a team of portfolio managers from
Penserra Capital Management, LLC, the Sub-Advisor.
Dustin
Lewellyn, Ernesto Tong, and Anand Desai are the Fund’s portfolio managers and
are jointly responsible for the day-to-day management of the Fund. The portfolio
managers are responsible for various functions related to portfolio management,
including, but not limited to, investing cash inflows, implementing investment
strategy, researching and reviewing investment strategy, and overseeing members
of their portfolio management team with more limited
responsibilities.
Mr.
Lewellyn has been Chief Investment Officer with Penserra since 2012. He was
President and Founder of Golden Gate Investment Consulting LLC from 2011 through
2015. Prior to that, Mr. Lewellyn was a managing director at Charles Schwab
Investment Management, Inc. (“CSIM”), which he joined in 2009, and head of
portfolio management for Schwab ETFs. Prior to joining CSIM, he worked for two
years as director of ETF product management and development at a major financial
institution focused on asset and wealth management. Prior to that, he was a
portfolio manager for institutional clients at a financial services firm for
three years. In addition, he held roles in portfolio operations and portfolio
management at a large asset management firm for more than 6 years.
Mr.
Tong has been a Managing Director with Penserra since 2015. Prior to that, Mr.
Tong spent seven years as vice president at Blackrock, where he was a portfolio
manager for a number of the iShares ETFs, and prior to that, he spent two years
in the firm’s index research group.
Mr.
Desai has been a Senior Vice President with Penserra since 2020. Mr. Desai has
served in various roles at Penserra since joining the team in 2015. Prior to
that, Mr. Desai was a portfolio fund accountant at State Street for five
years.
For
more information about the portfolio managers’ compensation, other accounts
managed by the portfolio managers and the portfolio managers’ ownership of
shares in the Fund, see the SAI.
Index
Provider to the Procure Space ETF
S-Network
Global Indexes, Inc. (“S-Network Global Indexes”) located at 267 Fifth Avenue,
Suite 508, New York, New York 10016, developed and sponsors the Underlying Index
for the Procure Space ETF. The Fund is not sponsored, endorsed, sold or promoted
by S-Network Global Indexes.
S-NETWORK
GLOBAL INDEXES DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
S-NETWORK GLOBAL INDEX(ES) OR ANY DATA INCLUDED THEREIN AND S-NETWORK GLOBAL
INDEXES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS
THEREIN. S-NETWORK GLOBAL INDEXES MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT(S), OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S-NETWORK GLOBAL INDEX(ES) OR ANY DATA
INCLUDED THEREIN. S-NETWORK GLOBAL INDEXES MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S-NETWORK GLOBAL INDEX(ES)
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL S-NETWORK GLOBAL INDEXES HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
Fund
Administrator, Custodian, and Transfer Agent for the Procure Space
ETF
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services
(“Fund Services”), located at 615 East Michigan Street, Milwaukee, Wisconsin
53202, serves as the Fund’s Administrator and Transfer Agent. U.S. Bank,
National Association, serves as the custodian to the Fund (the “Custodian”). The
Custodian and Fund Services are affiliates.
Distributor
Quasar
Distributors LLC (“Quasar” or “Distributor”) serves as the Distributor of
Creation Units for the Fund on an agency basis. The Distributor does not
maintain a Secondary Market in Shares. ProcureAM, LLC has entered into a
Services Agreement with Quasar to distribute the Fund.
Compliance
Services
Cipperman
Compliance Services (“CCS”), located at 480 East Swedesford Road, Suite 220,
Wayne, Pennsylvania 19087, manages the compliance program of the Trust and the
Fund. Stacey Gillespie of CCS serves as the Trust’s Chief Compliance Officer
(the “CCO”) and performs the functions of the CCO as described in Rule 38a-1
under the 1940 Act. The CCO shall have primary responsibility for administering
the Trust’s compliance policies and procedures adopted pursuant to Rule 38a-1
(the “Compliance Program”) and reviewing the Compliance Program, in the manner
specified in Rule 38a-1, at least annually or as may be required by Rule 38a-1,
as may be amended from time to time. The CCO reports directly to the Board of
Trustees regarding the Compliance Program.
Calculation
Agent
S-Network
Global Indexes is the calculation agent and real-time calculation is provided by
Thomson Reuters. Closing index values and weights are provided to data vendors
between 6PM and 7PM Eastern Standard Time, Monday through Friday, except on
official New York Stock Exchange holidays. The Underlying Index values are
distributed at 15-second intervals throughout the days on which the Underlying
Index is calculated.
Independent
Registered Public Accounting Firm
Cohen
& Company Ltd., located at 1350 Euclid Avenue, Suite 800, Cleveland,
Ohio 44115, serves as the independent registered public accounting firm for the
Trust.
Legal
Counsel
K&L
Gates LLP, located at 599 Lexington Avenue, New York, New York 10022, serves as
counsel to the Trust and the Fund.
The
Trust’s Board of Trustees has not adopted policies and procedures with respect
to frequent purchases and redemptions of Fund Shares by Fund shareholders
(“market timing”). In determining not to adopt market timing policies and
procedures, the Board noted that the Fund is expected to be attractive to active
institutional and retail investors interested in buying and selling Fund Shares
on a short-term basis. In addition, the Board considered that, unlike
traditional mutual funds, the Fund’s Shares can only be purchased and redeemed
directly from the Fund in Creation Units by Authorized Participants, and that
the vast majority of trading in the Fund’s Shares occurs on the Secondary
Market. Because Secondary Market trades do not involve the Fund directly, it is
unlikely those trades would cause many of the harmful effects of market timing,
including dilution, disruption of portfolio management, increases in the Fund’s
trading costs and the realization of capital gains. With respect to trades
directly with the Fund, to the extent effected in-kind (namely, for securities),
those trades do not cause any of the harmful effects that may result from
frequent cash trades. To the extent trades are effected in whole or in part in
cash, the Board noted that those trades could result in dilution to the Fund and
increased transaction costs (the Fund may impose higher transaction fees to
offset these increased costs), which could negatively impact the Fund’s ability
to achieve its investment objective. However, the Board noted that direct
trading on a short-term basis by Authorized Participants is critical to ensuring
that the Fund’s Shares trade at or close to NAV. Given this structure, the Board
determined that it is not necessary to adopt market timing policies and
procedures. The Fund reserves the right to reject any purchase order at any time
and reserves the right to impose restrictions on disruptive or excessive trading
in Creation Units.
The
Board of Trustees has instructed the officers of the Trust to review reports of
purchases and redemptions of Creation Units on a regular basis to determine if
there is any unusual trading in the Fund. The officers of the Trust will report
to the Board any such unusual trading in Creation Units that is disruptive to
the Fund. In such event, the Board may reconsider its decision not to adopt
market timing policies and procedures.
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DISTRIBUTION
AND SERVICE PLAN |
The
Board of Trustees of the Trust has adopted a Distribution and Service Plan
pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1
plan, the Fund is authorized to pay an amount up to 0.25% of its average daily
net assets each year to finance activities primarily intended to result in the
sale of Creation Units of the Fund or the provision of investor services. No
Rule
12b-1
fees are currently paid by the Fund and there are no plans to impose these fees.
However, in the event Rule 12b-1 fees are charged in the future, they will be
paid out of the Fund’s assets, and over time these fees will increase the cost
of your investment and they may cost you more than certain other types of sales
charges.
The
Advisor and its affiliates may, out of their own resources, pay amounts
(“Payments”) to third parties for distribution or marketing services on behalf
of the Fund. The making of these payments could create a conflict of interest
for a financial intermediary receiving such payments. The Advisor may make
Payments for such third parties to organize or participate in activities that
are designed to make registered representatives, other professionals and
individual investors more knowledgeable about ETFs, including ETFs advised by
the Advisor, or for other activities, such as participation in marketing
activities and presentations, educational training programs, conferences, the
development of technology platforms and reporting systems (“Education Costs”).
The Advisor also may make Payments to third parties to help defray costs
typically covered by a trading commission, such as certain printing, publishing
and mailing costs or materials relating to the marketing of services related to
exchange-traded products (such as commission-free trading platforms) or
exchange-traded products in general (“Administrative Costs”). As of the
date of this Prospectus, the Advisor has not entered into arrangements whereby
it would make Payments.
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DETERMINATION
OF NET ASSET VALUE (NAV) |
The
NAV of the Shares for the Fund is equal to the Fund’s total assets minus the
Fund’s total liabilities divided by the total number of Shares outstanding.
Interest and investment income on the Trust’s assets accrue daily and are
included in the Fund’s total assets. Expenses and fees (including investment
advisory, management, administration and distribution fees, if any) accrue daily
and are included in the Fund’s total liabilities. The NAV that is published is
rounded to the nearest cent; however, for purposes of determining the price of
Creation Units, the NAV is calculated to five decimal places. The NAV is
calculated by the Administrator and Custodian and determined each Business Day
as of the close of regular trading on the New York Stock Exchange (“NYSE”)
(ordinarily 4:00 p.m. New York time).
In
calculating NAV, the Fund’s investments are valued using market quotations when
available. Equity securities are generally valued at the closing price of the
security on the security’s primary exchange. The primary exchanges for the
Fund’s foreign equity securities may close for trading at various times prior to
close of regular trading on the NYSE, and the value of such securities used in
computing the Fund’s NAV are generally determined as of such times. The Fund’s
foreign securities may trade on weekends or other days when Fund Shares do not
trade. Consequently, the value of portfolio securities of the Fund may change on
days when Shares of the Fund cannot be purchased or sold. With respect to any
portion of the Fund’s assets invested in one or more underlying mutual funds,
the Fund’s NAV is calculated based upon the NAVs of those underlying mutual
funds.
When
market quotations are not readily available or are deemed unreliable or not
representative of an investment’s fair value, investments are valued using fair
value pricing as determined in good faith by the Valuation Designee, subject to
the Board’s general oversight. The Board has designated the Advisor as the
Valuation Designee. Investments that may be valued using fair value pricing
include, but are not limited to: (1) securities that are not actively traded,
including “restricted” securities and securities received in private placements
for which there is no public market; (2) securities of an issuer that becomes
bankrupt or enters into a restructuring; and (3) securities whose trading has
been halted or suspended; and (4) foreign securities traded on exchanges that
close before the Fund’s NAV is calculated.
The
frequency with which the Fund’s investments are valued using fair value pricing
is primarily a function of the types of securities and other assets in which the
Fund invests pursuant to its investment objective, strategies and limitations.
If the Fund invests in other open-end management investment companies registered
under the 1940 Act, they may rely on the net asset values of those companies to
value the shares they hold of them. Those companies may also use fair value
pricing under some circumstances.
Valuing
the Fund’s investments using fair value pricing results in using prices for
those investments that may differ from current market valuations. In addition,
with respect to securities that are primarily listed on foreign exchanges, the
value of a Fund’s portfolio securities may change on days when you will not be
able to purchase or sell your Shares. Accordingly, fair value pricing could
result in a difference between the prices used to calculate NAV and the prices
used to determine the Fund’s Indicative Intra-Day Value (“IIV”), which could
result in the market prices for Shares deviating from NAV.
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INDICATIVE
INTRA-DAY VALUE |
The
approximate value of the Fund’s investments on a per-Share basis, the Indicative
Intra-Day Value, or IIV, is disseminated by ICE Data Indices LLC every 15
seconds during hours of trading of the Fund. The IIV should not be viewed as a
“real-time” update of NAV because the IIV may not be calculated in the same
manner as NAV, which is computed once per day.
An
independent third-party calculator calculates the IIV for the Fund during hours
of trading of the Fund by dividing the “Estimated Fund Value” as of the time of
the calculation by the total number of outstanding Shares of that Fund.
“Estimated Fund Value” is the sum of the estimated amount of cash held in the
Fund’s portfolio, the estimated amount of accrued interest owed to the Fund and
the estimated value of the securities held in the Fund’s portfolio, minus the
estimated amount of the Fund’s liabilities. The IIV will be calculated based on
the same portfolio holdings disclosed on the Trust’s website.
The
Fund may provide the independent third-party calculator with information to
assist in the calculation of the IIV, but the Fund is not involved in the actual
calculation of the IIV and is not responsible for the calculation or
dissemination of the IIV. The Fund makes no warranty as to the accuracy of the
IIV.
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DIVIDENDS,
DISTRIBUTIONS AND TAXES |
Net
Investment Income and Capital Gains
As
a Fund shareholder, you are entitled to your share of the Fund’s distributions
of net investment income and net realized capital gains on its investments. The
Fund pays out substantially all of its net earnings to their shareholders as
“distributions”, at least annually.
The
Fund typically earns income dividends from stocks and interest from debt
securities. These amounts, net of expenses, typically are passed along to Fund
shareholders as dividends from net investment income. The Fund realizes capital
gains or losses whenever it sells securities. Net capital gains typically are
passed along to shareholders as “capital gain distributions.” Net investment
income and net capital gains typically are distributed to shareholders at least
annually. Dividends may be declared and paid more frequently to improve index
tracking or to comply with the distribution requirements of the U.S. Internal
Revenue Code of 1986, as amended (the “Code”). In addition, the Fund may decide
to distribute at least annually amounts representing the full dividend yield net
of expenses on the underlying investment securities, as if the Fund owned the
underlying investment securities for the entire dividend period, in which case
some portion of each distribution may result in a return of capital. You will be
notified regarding the portion of a distribution that represents a return of
capital.
Distributions
in cash may be reinvested automatically in additional Shares of the Fund only if
the broker through which you purchased Shares makes such option available.
Distributions which are reinvested nevertheless will be subject to U.S. federal
income tax to the same extent as if such distributions had not been
reinvested.
U.S.
Federal Income Taxation
The
following is a summary of certain U.S. federal income tax considerations
applicable to an investment in Shares of the Fund. The summary is based on the
Code, U.S. Treasury Department regulations promulgated thereunder, and judicial
and administrative interpretations thereof, all as in effect on the date of this
Prospectus and all of which are subject to change, possibly with retroactive
effect. In addition, this summary assumes that a Fund shareholder holds Shares
as capital assets within the meaning of the Code and does not hold Shares in
connection with a trade or business. This summary does not address all potential
U.S. federal income tax considerations possibly applicable to an investment in
Shares of the Fund, and does not address the consequences to Fund shareholders
subject to special tax rules, including, but not limited to, partnerships and
the partners therein, tax-exempt shareholders, regulated investment companies
(“RICs”), real estate investment trusts (“REITs”), real estate mortgage
investment conduits (“REMICs”), those who hold Shares through an IRA, 401(k)
plan or other tax-advantaged account, and, except to the extent discussed below,
“non-U.S. shareholders” (as defined below). This discussion does not discuss any
aspect of U.S. state, local, estate, and gift, or non-U.S. tax law. Furthermore,
this discussion is not intended or written to be legal or tax advice to any
shareholder in the Fund or other person and is not intended or written to be
used or relied on, and cannot be used or relied on, by any such person for the
purpose of avoiding any U.S. federal tax penalties that may be imposed on such
person. Prospective Fund shareholders are urged to consult their own tax
advisors with respect to the specific U.S. federal, state and local, and
non-U.S., tax consequences of investing in Shares, based on their particular
circumstances.
The
Fund has not requested and will not request an advance ruling from the U.S.
Internal Revenue Service (the “IRS”) as to the U.S. federal income tax matters
described below. The IRS could adopt positions contrary to those discussed below
and such positions could be sustained. Prospective investors should consult
their own tax advisors with regard to the U.S. federal tax consequences of the
purchase, ownership and disposition of Shares, as well as the tax consequences
arising under the laws of any state, locality, non-U.S. country or other taxing
jurisdiction. The following information supplements, and should be read in
conjunction with, the section in the SAI entitled “U.S. Federal Income
Taxation.”
Tax
Treatment of the Fund
The
Fund intends to qualify and elect to be treated as a separate RIC under the
Code. To qualify and remain eligible for the special tax treatment accorded to
RICs, the Fund must meet certain annual income and quarterly asset
diversification requirements and must distribute annually at least the sum of
(i) 90% of its “investment company taxable income” (which includes dividends,
interest and net short-term capital gains) and (ii) 90% of certain net
tax-exempt income, if any.
As
a RIC, the Fund generally will not be required to pay corporate-level U.S.
federal income taxes on any ordinary income or capital gains that it distributes
to its shareholders. If the Fund fails to qualify as a RIC for any year (subject
to certain curative measures allowed by the Code), the Fund will be subject to
regular corporate-level U.S. federal income tax in that year on all of its
taxable income, regardless of whether the Fund makes any distributions to its
shareholders. In addition, in such case, distributions will be taxable to the
Fund’s shareholders generally as ordinary dividends to the extent of the Fund’s
current and accumulated earnings and profits. The remainder of this discussion
assumes that the Fund will qualify for the special tax treatment accorded to
RICs.
The
Fund generally will be subject to a 4% excise tax on certain undistributed
income if the Fund does not distribute to its shareholders in each calendar year
an amount at least equal to the sum of 98% of its ordinary income for the
calendar year (taking into account certain deferrals and elections), 98.2% of
its capital gain net income (adjusted for certain ordinary losses) for the
twelve months ended October 31 of such year (or later if the Fund is permitted
to elect and so elects), plus 100% of any undistributed amounts from prior
years. For these purposes, the Fund will be treated as having distributed any
amount on which it has been subject to U.S. corporate income tax for the taxable
year ending within the calendar year. The Fund intends to make distributions
necessary to avoid this 4% excise tax, although there can be no assurance that
it will be able to do so.
The
Fund may be required to recognize taxable income in advance of receiving the
related cash payment. For example, if the Fund invests in original issue
discount obligations (such as zero coupon debt instruments or debt instruments
with payment-in-kind interest), the Fund will be required to include in income
each year a portion of the original issue discount that accrues over the term of
the obligation, even if the related cash payment is not received by the Fund
until a later year. Under the “wash sale” rules, the Fund may not be able to
deduct currently a loss on a disposition of a portfolio security. As a result,
the Fund may be required to make an annual income distribution greater than the
total cash actually received during the year. Such distribution may be made from
the existing cash assets of the Fund or cash generated from selling portfolio
securities. The Fund may realize gains or losses from such sales, in which event
its shareholders may receive a larger capital gain distribution than they would
in the absence of such transactions.
Tax
Treatment of Fund Shareholders
Taxation
of U.S. Shareholders
The
following is a summary of certain U.S. federal income tax consequences of the
purchase, ownership and disposition of Fund Shares applicable to “U.S.
shareholders.” For purposes of this discussion, a “U.S. shareholder” is a
beneficial owner of Fund Shares who, for U.S. federal income tax purposes, is
(i) an individual who is a citizen or resident of the United States; (ii) a
corporation (or an entity treated as a corporation for U.S. federal income tax
purposes) created or organized in the United States or under the laws of the
United States, or of any state thereof, or the District of Columbia; (iii) an
estate, the income of which is includable in gross income for U.S. federal
income tax purposes regardless of its source; or (iv) a trust, if (1) a U.S.
court is able to exercise primary supervision over the administration of such
trust and one or more U.S. persons have the authority to control all substantial
decisions of the trust, or (2) the trust has a valid election in place to be
treated as a U.S. person.
Fund
Distributions.
In general, Fund distributions are subject to U.S. federal income tax when paid,
regardless of whether they consist of cash or property, and regardless of
whether they are re-invested in Shares. However, any Fund distribution declared
in October, November or December of any calendar year and payable to
shareholders of record on a specified date during such month will be deemed to
have been received by each Fund shareholder on December 31 of such calendar
year, if such dividend is actually paid during January of the following calendar
year.
Distributions
of the Fund’s net investment income and net short-term capital gains in excess
of net long-term capital losses (collectively referred to as “ordinary income
dividends”) are taxable as ordinary income to the extent of the Fund’s current
and accumulated earnings and profits (subject to an exception for distributions
of “qualified dividend income,” as discussed below). To the extent designated as
capital gain dividends by the Fund, distributions of the Fund’s net long-term
capital gains in excess of net short-term capital losses (“net capital gain”)
are taxable at long-term capital gain tax rates to the extent of the Fund’s
current and accumulated earnings and profits, regardless of the Fund
shareholder’s holding period in the Fund’s Shares. Distributions of “qualified
dividend income” (defined below) are, to the extent of a Fund’s current and
accumulated earnings and profits, taxed to certain non-corporate Fund
shareholders at the rates generally applicable to long-term capital gain,
provided that the Fund shareholder meets certain holding period and other
requirements with respect to the distributing Fund’s Shares and the distributing
Fund meets certain holding period and other requirements with respect to its
dividend-paying stocks. For this purpose, “qualified dividend income” generally
means income from dividends received by the Fund from U.S. corporations and
qualified non-U.S. corporations. Substitute payments received on Fund Shares
that are lent out will be ineligible for being reported as qualified dividend
income.
If a Fund pays a dividend that would be “qualified” dividend income for
individuals with respect to U.S. corporate dividends received by the Fund,
corporate shareholders may be entitled to a dividends received
deduction.
The
Fund intends to distribute its net capital gain at least annually. However, by
providing written notice to its shareholders no later than 60 days after its
year-end, the Fund may elect to retain some or all of its net capital gain and
designate the retained amount as a “deemed distribution.” In that event, the
Fund pays U.S. federal income tax on the retained net capital gain, and each
Fund shareholder recognizes a proportionate share of the Fund’s undistributed
net capital gain. In addition, each Fund shareholder can claim a tax credit or
refund for the shareholder’s proportionate share of the Fund’s U.S. federal
income taxes paid on the undistributed net capital gain and increase the
shareholder’s tax basis in the Shares by an amount equal to the shareholder’s
proportionate share of the Fund’s undistributed net capital gain, reduced by the
amount of the shareholder’s tax credit or refund.
Distributions
in excess of the Fund’s current and accumulated earnings and profits will, as to
each shareholder, be treated as a tax-free return of capital to the extent of
the shareholder’s tax basis in its Shares of the Fund, and generally as capital
gain thereafter. Any such distribution will reduce the shareholder’s tax basis
in the Shares, and thus will increase the shareholder’s capital gain, or
decrease the capital loss, recognized upon a sale or exchange of
Shares.
In
addition, individuals with adjusted gross incomes above certain threshold
amounts (and certain trusts and estates) generally are subject to a 3.8%
Medicare tax on “net investment income” in addition to otherwise applicable U.S.
federal income tax. “Net investment income” generally will include dividends
(including capital gain dividends) received from the Fund and net gains from the
redemption or other disposition of Shares. Please consult your tax advisor
regarding this tax.
If
the Fund is a “qualified fund of funds” (i.e., a RIC at least 50% of the value
of the total assets of which, at the close of each quarter of the taxable year,
is represented by interests in other RICs) or more than 50% of the Fund’s total
assets at the end of a taxable year consist of non-U.S. stock or securities, the
Fund may elect to “pass through” to its shareholders certain non-U.S. income
taxes paid by the Fund. This means that each shareholder will be required to (i)
include in gross income, even though not actually received, the shareholder’s
pro rata share of the Fund’s non-U.S. income taxes, and (ii) either take a
corresponding deduction (in calculating U.S. federal taxable income) or credit
(in calculating U.S. federal income tax), subject to certain
limitations.
Investors
considering buying Shares just prior to a distribution should be aware that,
although the price of the Shares purchased at such time may reflect the
forthcoming distribution, such distribution nevertheless may be taxable (as
opposed to a non-taxable return of capital).
Sales
or Exchanges of Shares.
Any capital gain or loss realized upon a sale or exchange of Shares generally
(including an exchange of Shares of the Fund for Shares of another Fund) is
treated as a long-term gain or loss if the Shares have been held for more than
one year. Any capital gain or loss realized upon a sale or exchange of Shares
held for one year or less generally is treated as a short-term gain or loss,
except that any capital loss on the sale or exchange of Shares held for six
months or less is treated as long-term capital loss to the extent that capital
gain dividends were paid (or deemed to be paid) with respect to the
Shares.
Creation
Unit Issues and Redemptions.
On an issue of Shares of the Fund as part of a Creation Unit where the creation
is conducted in-kind, an Authorized Participant generally recognizes capital
gain or loss equal to the difference between (i) the fair market value (at
issue) of the issued Shares (plus any cash received by the Authorized
Participant as part of the issue) and (ii) the Authorized Participant’s
aggregate basis in the exchanged securities (plus any cash paid by the
Authorized Participant as part of the issue). On a redemption of Shares as part
of a Creation Unit where the redemption is conducted in-kind, an Authorized
Participant generally recognizes capital gain or loss equal to the difference
between (i) the fair market value (at redemption) of the securities received
(plus any cash received by the Authorized Participant as part of the redemption)
and (ii) the Authorized Participant’s basis in the redeemed Shares (plus any
cash paid by the Authorized Participant as part of the redemption). However, the
IRS may assert, under the “wash sale” rules or on the basis that there has been
no significant change in the Authorized Participant’s economic position, that
any loss on creation or redemption of Creation Units cannot be deducted
currently.
In
general, any capital gain or loss recognized upon the issue or redemption of
Shares (as components of a Creation Unit) is treated either as long-term capital
gain or loss, if the deposited securities (in the case of an issue) or the
Shares (in the case of a redemption) have been held for more than one year, or
otherwise as short-term capital gain or loss. However, any capital loss on a
redemption of Shares held for six months or less is treated as long-term capital
loss to the extent that capital gain dividends were paid (or deemed to be paid)
with respect to such Shares.
Back-Up
Withholding
The
Fund (or a financial intermediary such as a broker through which a shareholder
holds Shares in a Fund) may be required to report certain information on a Fund
shareholder to the IRS and withhold U.S. federal income tax (“backup
withholding”) at a current rate of 24% from taxable distributions and redemption
or sale proceeds payable to the Fund shareholder if (i) the Fund shareholder
fails to provide the Fund or such intermediary with a correct taxpayer
identification number or make required certifications, or if the IRS notifies
the Fund or such intermediary that the Fund shareholder is otherwise subject to
backup withholding, and (ii) the Fund shareholder is not otherwise exempt from
backup withholding. Non-U.S. shareholders can qualify for exemption from backup
withholding
by submitting a properly completed IRS Form W-8BEN or W-8BEN-E. Backup
withholding is not an additional tax and any amount withheld may be credited
against a Fund shareholder’s U.S. federal income tax liability.
Taxation
of Non-U.S. Shareholders
The
following is a summary of certain U.S. federal income tax consequences of the
purchase, ownership and disposition of Shares applicable to “non-U.S.
shareholders.” For purposes of this discussion, a “non-U.S. shareholder” is a
beneficial owner of Fund Shares that is not a U.S. shareholder (as defined
above) and is not an entity or arrangement treated as a partnership for U.S.
federal income tax purposes. The following discussion is based on current law
and is for general information only. It addresses only selected, and not all,
aspects of U.S. federal income taxation applicable to non-U.S.
shareholders.
With
respect to non-U.S. shareholders of the Fund, the Fund’s ordinary income
dividends generally will be subject to U.S. federal withholding tax at a rate of
30% (or at a lower rate established under an applicable tax treaty), subject to
certain exceptions for “interest-related dividends” and “short-term capital gain
dividends” discussed below. The Fund will not pay any additional amounts to
shareholders in respect of any amounts withheld. U.S. federal withholding tax
generally will not apply to any gain realized by a non-U.S. shareholder in
respect of a Fund’s net capital gain. Special rules (not discussed herein) apply
with respect to dividends of the Fund that are attributable to gain from the
sale or exchange of “U.S. real property interests.”
In
general, all “interest-related dividends” and “short-term capital gain
dividends” (each defined below) will not be subject to U.S. federal withholding
tax, provided that, among other requirements, the non-U.S. shareholder furnished
the Fund with a completed IRS Form W-8BEN or W-8BEN-E, as applicable, (or
acceptable substitute documentation) establishing the non-U.S. shareholder’s
non-U.S. status and the Fund does not have actual knowledge or reason to know
that the non-U.S. shareholder would be subject to such withholding tax if the
non-U.S. shareholder were to receive the related amounts directly rather than as
dividends from the Fund. “Interest-related dividends” generally means dividends
designated by the Fund as attributable to the Fund’s U.S.-source interest
income, other than certain contingent interest and interest from obligations of
a corporation or partnership in which the Fund is at least a 10% shareholder,
reduced by expenses that are allocable to such income. “Short-term capital gain
dividends” generally means dividends designated by the Fund as attributable to
the excess of the Fund’s net short-term capital gain over its net long-term
capital loss. Depending on its circumstances, the Fund may treat such dividends,
in whole or in part, as ineligible for these exemptions from
withholding.
In
general, subject to certain exceptions, non-U.S. shareholders will not be
subject to U.S. federal income or withholding tax in respect of a sale or other
disposition of Shares of the Fund.
To
claim a credit or refund for any Fund-level taxes on any undistributed net
capital gain (as discussed above) or any taxes collected through back-up
withholding (discussed below), a non-U.S. shareholder must obtain a U.S.
taxpayer identification number and file a U.S. federal income tax return even if
the non-U.S. shareholder would not otherwise be required to do so.
Foreign
Account Tax Compliance Act
The
U.S. Foreign Account Tax Compliance Act (“FATCA”) generally imposes a 30%
withholding tax on “withholdable payments” (defined below) made to (i) a
“foreign financial institution” (“FFI”), unless the FFI enters into an agreement
with the IRS to provide information regarding certain of its direct and indirect
U.S. account holders and satisfy certain due diligence and other specified
requirements, and (ii) a “non-financial foreign entity” (“NFFE”) unless such
NFFE provides certain information about its direct and indirect “substantial
U.S. owners” to the withholding agent or certifies that it has no such U.S.
owners. The beneficial owner of a “withholdable payment” may be eligible for a
refund or credit of the withheld tax. The U.S. government also has entered into
intergovernmental agreements with other jurisdictions to provide an alternative,
and generally easier, approach for FFIs to comply with FATCA. If the shareholder
is a tax resident in a jurisdiction that has entered into an intergovernmental
agreement with the U.S. government, the shareholder will be required to provide
information about the shareholder’s classification and compliance with the
intergovernmental agreement.
“Withholdable
payments” generally include, among other items, U.S.-source interest and
dividends. Proposed regulations (effective while pending) eliminate the
application of the withholding tax to gross proceeds from the sale or
disposition of property of a type that can produce U.S.-source interest or
dividends that was originally scheduled to take effect in 2019.
The
Fund or shareholder’s broker may be required to impose a 30% withholding tax on
withholdable payments to a shareholder if the shareholder fails to provide the
Fund or broker with the information, certifications or documentation required
under FATCA, including information, certification or documentation necessary for
the Fund or broker to determine if the shareholder is a non-U.S. shareholder or
a U.S. shareholder and, if it is a non-U.S. shareholder, if the non-U.S.
shareholder has “substantial U.S. owners” and/or is in compliance with (or meets
an exception from) FATCA requirements. The Fund will not pay any additional
amounts to shareholders in respect of any amounts withheld. The Fund or broker
may disclose any shareholder information, certifications or documentation to the
IRS or other parties as necessary to comply with FATCA.
The
requirements of, and exceptions from, FATCA are complex. All prospective
shareholders are urged to consult their own tax advisors regarding the potential
application of FATCA with respect to their own situation.
For
a more detailed tax discussion regarding an investment in the Fund, please see
the section of the SAI entitled “U.S. Federal Income Taxation.
The
Trust, the Advisor, and the Sub-Advisor each have adopted a code of ethics under
Rule 17j-1 of the 1940 Act that is designed to prevent affiliated persons of the
Trust, the Advisor, and the Sub-Advisor from engaging in deceptive, manipulative
or fraudulent activities in connection with securities held or to be acquired by
the Fund (which may also be held by persons subject to a code). The Distributor
relies on the principal underwriter’s exception under Rule 17j-1(c)(3),
specifically where the Distributor is not affiliated with the Trust, the
Advisor, or the Sub-Advisor, and no officer, director, or general partner of the
Distributor serves as an officer, director, or general partner of the Trust, the
Advisor, or the Sub-Advisor.
There
can be no assurance that the codes will be effective in preventing such
activities. The codes permit personnel subject to them to invest in securities,
including securities that may be held or purchased by the Fund, subject to
certain conditions. The codes are on file with the SEC and are available to the
public.
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FUND
WEBSITE AND DISCLOSURE OF PORTFOLIO
HOLDINGS |
The
Advisor maintains a website for the Fund at www.ProcureETFs.com.
The website for the Fund contains the following information, on a per-Share
basis, for the Fund: (1) the prior Business Day’s NAV; (2) the reported
mid-point of the bid-ask spread at the time of NAV calculation (the “Bid-Ask
Price”); (3) a calculation of the premium or discount of the Bid-Ask Price
against such NAV; and (4) data in chart format displaying the frequency
distribution of discounts and premiums of the Bid-Ask Price against the NAV,
within appropriate ranges, for each of the four previous calendar quarters (or
for the life of the Fund if, shorter). In addition, on each Business Day, before
the commencement of trading in Shares on the Exchange, the Fund will disclose on
its website (www.ProcureETFs.com)
the identities and quantities of the portfolio securities and other assets held
by the Fund that will form the basis for the calculation of NAV at the end of
the Business Day.
It
is the policy of the Fund to mail only one copy of the prospectus, annual
report, semi-annual report and proxy statements to all shareholders who share
the same mailing address and share the same last name. You are deemed to consent
to this policy unless you specifically revoke this policy and request that
separate copies of such documents be mailed to you. In such case, you will begin
to receive your own copies within 30 days after our receipt of the revocation.
You may request that separate copies of these disclosure documents be mailed to
you by writing to us at: Procure ETF Trust II, c/o ProcureAM, LLC, 16 Firebush
Road, Levittown, Pennsylvania 19056.
Investors
who hold their shares through an intermediary are subject to the intermediary
policies. Contact your financial intermediary for any questions you may
have.
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INDEX
PROVIDER AND DISCLAIMERS |
The
Fund is not sponsored, endorsed, sold or promoted by S-Network Global Indexes
Inc. The Index Provider makes 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 or the ability
of the Fund to achieve their objectives. The Index Provider has no obligation or
liability in connection with the administration, marketing or trading of the
Fund.
For
purposes of the 1940 Act, the Fund is a registered investment company, and the
acquisition of Shares by other registered investment companies and companies
relying on exemption from registration as investment companies under Section
3(c)(1) or 3(c)(7) of the 1940 Act is subject to the restrictions of Section
12(d)(1) of the 1940 Act, except as permitted by an exemptive order that permits
registered investment companies to invest in the Fund beyond those
limitations.
The
following financial highlights table shows the Fund’s financial performance
information for the periods of the Fund’s operations. The total return in
the table represents the rate that you would have earned or lost on an
investment in the Fund (assuming you reinvested all distributions). This
information has been audited by Cohen & Company, Ltd., the independent
registered public accounting firm of the Fund, whose report, along with the
Fund’s financial statements, is included in the
Fund’s 2022 Annual
Report
to Shareholders, which is available upon request.
Procure
Space ETF
Financial
Highlights
For
a capital share outstanding throughout the year/period
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Year
Ended October 31, 2022 |
|
Year
Ended October 31, 2021 |
|
Year
Ended October 31, 2020 |
|
Period
Ended October 31, 20191 |
Net
Asset Value, Beginning of Year/Period |
$ |
30.05 |
|
| $ |
20.85 |
|
| $ |
25.93 |
|
| $ |
25.00 |
| |
Income
from Investment Operations: |
|
|
|
|
|
| |
|
Net
investment income 2 |
0.64 |
|
| 0.25 |
|
| 0.16 |
|
| 0.04 |
| |
Net
realized and unrealized gain (loss) on investments |
(9.57) |
|
| 9.25 |
|
| (5.06) |
|
| 0.94 |
|
6 |
Total
from investment operations |
(8.93) |
|
| 9.50 |
|
| (4.90) |
|
| 0.98 |
| |
Less
Distributions: |
|
|
|
|
|
| |
|
Distributions
from net investment income |
(0.61) |
|
| (0.28) |
|
| (0.15) |
|
| (0.03) |
| |
Distributions
from return of capital |
— |
|
| (0.02) |
|
| (0.03) |
|
| (0.02) |
| |
Total
distributions |
(0.61) |
|
| (0.30) |
|
| (0.18) |
|
| (0.05) |
| |
Capital
Share Transactions: |
|
|
|
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|
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| |
Net
asset value, end of year/period |
20.51 |
|
| 30.05 |
|
| 20.85 |
|
| 25.93 |
| |
Total
Return |
-29.94 |
% |
| 45.69 |
% |
| -18.93 |
% |
|
3.91 |
% |
3 |
|
|
|
|
|
|
|
| |
Ratios/Supplemental
Data: |
|
|
|
|
|
| |
|
Net
assets at end of year/period (000’s) |
$ |
61,028 |
|
| $ |
115,710 |
|
| $ |
28,675 |
|
| $ |
12,315 |
| |
Ratio
of expenses to Average Net Assets: |
|
|
|
|
|
| |
|
Before
waivers and reimbursements of expenses |
0.81 |
% |
| 0.81 |
% |
| 1.12 |
% |
| 1.71 |
% |
4 |
After
waivers and reimbursements of expenses |
0.75 |
% |
| 0.75 |
% |
| 0.75 |
% |
| 0.75 |
% |
4 |
Net
Investment Income to Average Net Assets |
2.69 |
% |
| 0.85 |
% |
| 0.72 |
% |
| 0.28 |
% |
4 |
Portfolio
Turnover Rate5 |
53 |
% |
| 52 |
% |
| 44 |
% |
| 17 |
% |
3 |
1 Commencement
of operations on April 10, 2019.
2 Calculated
based on average shares outstanding during the year/period.
3 Not
annualized.
4 Annualized.
5 Excludes
the impact of in-kind transactions.
6 Net
realized and unrealized gains (loss) per share in this caption are balancing
amounts necessary to reconcile the change in net asset value per share for the
period, and may not reconcile with the aggregate gains and losses in the
Statement of Operations due to share transactions the period.
Procure
ETF Trust II is committed to respecting the privacy of personal information you
entrust to us in the course of doing business with us.
The
Trust may collect non-public personal information from various sources. The
Trust uses such information provided by you or your representative to process
transactions, to respond to inquiries from you, to deliver reports, products,
and services, and to fulfill legal and regulatory requirements.
We
do not disclose any non-public personal information about our customers to
anyone unless permitted by law or approved by the customer. We may share this
information within the Trust’s family of companies in the course of providing
services and products to best meet your investing needs. We may share
information with certain third parties who are not affiliated with the Trust to
perform marketing services, to process or service a transaction at your request
or as permitted by law. For example, sharing information with companies that
maintain or service customer accounts for the Trust is essential. We may also
share information with companies that perform administrative or marketing
services for the Trust, including research firms. When we enter into such a
relationship, we restrict the companies’ use of our customers’ information and
prohibit them from sharing it or using it for any purposes other than those for
which they were hired.
We
maintain physical, electronic, and procedural safeguards to protect your
personal information. Within the Trust, we restrict access to personal
information to those employees who require access to that information in order
to provide products or services to our customers, such as handling inquiries.
Our employment policies restrict the use of customer information and require
that it be held in strict confidence.
We
will adhere to the policies and practices described in this notice for both
current and former customers of the Trust.
|
|
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| |
Trust |
Procure
ETF Trust II, a registered open-end investment company |
Fund |
The
investment portfolio of the Trust |
Shares |
Shares
of the Fund offered to investors |
Advisor |
ProcureAM,
LLC |
Custodian |
U.S.
Bank, National Association, the custodian of the Fund’s
assets |
Distributor |
Quasar
Distributors, LLC, the distributor of the Fund |
AP
or Authorized Participant |
Certain
large institutional investors such as brokers, dealers, banks or other
entities that have entered into authorized participant agreements with the
Distributor |
Primary
Market |
NASDAQ,
the primary market on which Shares are listed for trading. |
IIV |
The
Indicative Intra-Day Value, an appropriate per-Share value based on the
Fund’s portfolio |
1940
Act |
Investment
Company Act of 1940, as amended |
NAV |
Net
asset value |
SAI |
Statement
of Additional Information |
SEC |
Securities
and Exchange Commission |
Secondary
Market |
A
national securities exchange, national securities association or
over-the-counter trading system where Shares may trade from time to
time |
Securities
Act |
Securities
Act of 1933, as amended |
Sub-Advisor |
Penserra
Capital Management LLC |
Procure
ETF Trust II
Mailing
Address
c/o
ProcureAM, LLC
16
Firebush Road
Levittown,
Pennsylvania 19056
www.ProcureETFs.com
PROSPECTUS | February
15, 2023
PROCURE
ETF TRUST II
FOR
MORE INFORMATION
If
you would like more information about the Trust, the Fund and the Shares, the
following documents are available free upon request, when they become
available:
Annual/Semi-annual
Report
Additional
information about the Fund’s investments is available in the Fund’s annual and
semi-annual reports to shareholders. In the Fund’s annual
report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund’s performance during the last fiscal
year.
Statement
of Additional Information
Additional
information about the Fund and its policies is also available in the Fund’s SAI.
The SAI is incorporated by reference into this Prospectus (and is legally
considered part of this Prospectus).
The
Fund’s annual
and semi-annual
reports and the SAI are available free upon request by calling 1-866-690-3837.
You can also access and download the annual and semi-annual reports and the SAI
at the Fund’s website: www.ProcureETFs.com.
To
obtain other information and for shareholder inquiries:
|
|
|
|
| |
By
telephone: |
1-866-690-3837 |
By
mail: |
Procure
ETF Trust II c/o ProcureAM, LLC 16 Firebush Road, Levittown PA
19056 |
On
the Internet: |
SEC
Edgar database: http://www.sec.gov |
You
may review and obtain copies of Fund documents (including the SAI) after paying
a duplicating fee, by electronic request to: [email protected].
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this Prospectus and you should
not rely on any other information. Read and keep the Prospectus for future
reference.
Dealers
effecting transactions in the Fund’s Shares, whether or not participating in
this distribution, may be generally required to deliver a Prospectus. This is in
addition to any obligation dealers have to deliver a Prospectus when acting as
underwriters.
The
Trust’s investment company registration number is 811-23323.