Mairs
& Power Minnesota Municipal Bond ETF
(MINN)
Listed
on Cboe BZX Exchange, Inc.
Prospectus
April
30, 2022
THE
U.S. SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) HAS NOT APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Mairs
& Power Minnesota Municipal Bond ETF
A
Series of Trust for Professional Managers (the “Trust”)
TABLE
OF CONTENTS
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Summary
Section
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Fund
Details |
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Investment
Objective |
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Principal
Investment Strategies |
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Principal
Risks |
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Portfolio
Holdings Information |
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Management
and Organization of the Fund |
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Investment
Adviser |
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Portfolio
Managers |
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Other
Service Providers |
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Shareholder
Information |
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How
to Buy and Sell Shares |
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Book
Entry |
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Frequent
Purchases and Redemptions of Shares |
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Determination
of Net Asset Value |
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Fair
Value Pricing |
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Dividends,
Distributions and Taxes |
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Dividends
and Distributions |
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Taxes
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Taxes
on Distributions |
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Taxes
When Shares are Sold on the Exchange |
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Taxes
on Purchases and Redemptions of Creation Units |
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Tax
Considerations |
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Distribution
Plan |
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Premium/Discount
Information |
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Additional
Notices |
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Derivative
Actions |
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Financial
Highlights |
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Summary
Section
Investment
Objective
The
investment objective of the Mairs & Power Minnesota Municipal Bond ETF (the
“Fund”) is to seek current income that is exempt from federal and Minnesota
state income tax consistent with the preservation of capital.
Fees
and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold and sell
shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and examples
below.
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Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
0.39% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.39% |
Expense
Example
This
Example is intended to help you compare the cost of investing in the Fund with
the cost of investing in other funds. The Example assumes that you invest
$10,000 in the Fund for the time periods indicated and then hold or redeem all
of your Shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The Example does not take into account brokerage commissions
that you may pay on your purchases and sales of Shares. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
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One
Year |
Three
Years |
Five
Years |
Ten
Years |
$40 |
$125 |
$219 |
$493 |
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These costs, which are not reflected in Total Annual
Fund Operating Expenses or in the example, affect the Fund’s performance. During
the most recent fiscal period (March 11, 2021 (commencement of operations) to
December 31, 2021), the Fund’s portfolio turnover rate was 2.54% of the average
value of its portfolio.
Principal
Investment Strategies
Under
normal market conditions, the Fund seeks to achieve its investment objective by
investing at least 80% of its net assets (including borrowings for investment
purposes) in municipal debt securities that pay interest that is exempt from
regular federal income tax and Minnesota state income tax (collectively,
“Municipal Securities”). Generally, these Municipal Securities are issued by or
on behalf of the State of Minnesota and its political subdivisions, agencies,
authorities and instrumentalities, and by other qualified issuers located in
Minnesota. The Fund may invest up to 20% of its net assets in debt securities
that pay interest subject to taxation, including the federal alternative minimum
tax (“AMT”).
The
Fund can invest in all types of Municipal Securities, including municipal lease
obligations (and certificates of participation in such obligations), insured
municipal bonds, municipal general obligation bonds, municipal
revenue
bonds, municipal notes, municipal cash equivalents, private activity bonds, and
pre-refunded and escrowed to maturity bonds. In addition, Municipal Securities
include securities issued by custodial receipt trusts, which are investment
vehicles the underlying assets of which are municipal bonds. Municipal
Securities also include instruments evidencing direct ownership of interest
payments or principal payments, or both, on municipal securities, such as tender
option bonds and participation interests in all or part of specific holdings of
municipal obligations, provided that the applicable issuer receives assurances
from legal counsel that the interest payable on the securities is exempt from
federal income tax. The Fund may invest in Municipal Securities of any duration
and any maturity and does not seek to maintain a particular dollar-weighted
average maturity. The Fund may purchase and sell securities on a when-issued,
delayed delivery or forward commitment basis. The Fund may invest in other
investment companies, including exchange-traded funds (“ETFs”), to obtain
exposure to certain Municipal Securities, or for liquidity or other reasons. The
Fund may invest in zero coupon bonds, which are issued at substantial discounts
from their value at maturity and pay no cash income to their holders until they
mature. The Fund also may invest in Municipal Securities whose interest payments
vary inversely with changes in short-term tax-exempt interest rate (“inverse
floaters”). Inverse floaters are derivative securities that provide leveraged
exposure to underlying municipal bonds. The Fund’s investment in inverse
floaters are designed to increase the Fund’s income and return through this
leveraged exposure. These investments are speculative, however, and also create
the possibility that income and returns will be diminished. The Fund may invest
in inverse floaters with any degree of leverage (measured by comparing the
outstanding principal amount of related short-term floating rate securities to
the par value of the underlying municipal bond). However, the Fund may only
expose up to 10% of its total assets to the effects of leverage from its
investments in inverse floaters. The Fund’s investments in inverse floaters are
included and will be valued on a marked-to-market basis for purposes of the 80%
policy described above.
Under
normal market conditions, the Fund will invest at least 75% of its net assets in
securities that are, at the time of investment, rated investment grade
(i.e.,
rated Baa3/BBB- or above) by at least one nationally recognized statistical
rating organization (“NRSRO”), but may invest up to 25% of its net assets at the
time of investment in non-investment-grade securities, which are not in default
(i.e.,
rated within B3/B- to Ba1/BB+, sometimes called “junk bonds”), as well as
unrated securities. The Fund is not permitted to invest in securities that are
rated below B3/B- or equivalent NRSRO ratings, or securities deemed either in
default or near default by the Fund’s investment adviser, Mairs & Power,
Inc. (the “Adviser”). The Fund will consider pre-refunded or escrowed-to
maturity bonds using U.S. Treasury securities or U.S. government agency
securities, regardless of rating, to be investment grade
securities.
The
Fund is classified as “non-diversified” under the Investment Company Act of 1940
(the “1940 Act”). Since the Fund is non-diversified, it may invest a greater
percentage of its assets in a particular investment or issuer than a diversified
fund.
The
Fund does not seek to replicate any index and is actively managed. The Adviser
employs primarily a buy and hold strategy seeking income rather than capital
returns.
The
Adviser conducts fundamental analysis on the issue prior to purchasing debt
securities.
The
Adviser may choose to sell securities for a variety of reasons, such as
deteriorating credit or to secure gains, limit losses, extend or shorten
duration, or redeploy assets into more promising opportunities.
Principal
Risks of Investing in the Fund
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with those of other funds. As with any investment, there is a
risk that you could lose all or a portion of your investment in the Fund. Some
or all of these risks may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and/or ability to meet its investment
objective. Losing all or a portion of your investment is a risk of investing in
the Fund. The following additional risks could affect the value of your
investment. You should understand these risks before
investing.
For more information about the risks of investing in the Fund, see the section
in the Fund’s Prospectus titled “Fund Details — Principal Risks.” The principal
risks of investing in the Fund are:
•Active
Management Risk. Active
management by the Adviser in selecting and maintaining a portfolio of securities
that will achieve the Fund’s investment objective could cause the Fund to
underperform compared to other funds having similar investment
objectives.
•AMT
Risk. Certain
bonds owned by the Fund may generate income that is subject to the federal AMT.
The interest on these “private activity” bonds could become subject to the
federal AMT if you are a taxpayer that meets the AMT criteria. If you are
subject to the federal AMT, you will be required to add any income attributable
to these bonds (as reported by the Fund annually) to other so-called “tax
preference items” to determine possible liability for the federal AMT.
•Below
Investment Grade Bonds Risk.
The Fund’s investments in below investment grade bonds are subject to a greater
risk of loss of income and principal than higher grade debt securities. The
Fund’s investments in below investment grade bonds also subject the Fund to
greater levels of interest rate, credit and liquidity risk than funds that do
not invest in such securities. Issuers of below investment grade bonds are often
highly leveraged and are more vulnerable to changes in the economy. These
securities are considered predominately speculative with respect to the issuer’s
continuing ability to make principal and interest payments. These below
investment grade securities are also known as “high yield” or “junk”
bonds.
•Call
Risk.
During periods of falling interest rates, an issuer of a callable bond held by
the Fund may “call” or repay the security before its stated maturity, and the
Fund may have to reinvest the proceeds at lower interest rates, resulting in a
decline in the Fund’s income.
•Capital
Gains Tax-Related Risk.
Two ways in which Fund shareholders can recognize taxable income from their
investment in Fund shares are: (1) if you sell your Shares at a price that is
higher than the price when you bought them, as adjusted, you will have a taxable
capital gain; on the other hand, if you sell your Shares at a price that is
lower than the price when you bought them, you will have a capital loss; and (2)
in the event the Fund sells more securities at prices higher than the prices
when they were bought by the Fund, as adjusted, the Fund may pass through the
profit it makes from these transactions by making a taxable capital gain
distribution.
•Credit
Risk.
Debt issuers and other counterparties may not honor their obligations or may
have their debt downgraded by ratings agencies. Credit risk is the risk that an
issuer or other obligated party of a municipal bond may default or fail to pay
interest and principal payments when due, and the related risk that the value of
a municipal bond may decline because of concerns about the issuer’s ability or
willingness to make such payments. The Fund’s investments in inverse floaters
will increase the Fund’s credit risk.
•Cybersecurity
Risk. With
the increased use of technologies such as the Internet to conduct business, the
Fund is susceptible to operational, information security, and related risks.
Cyber incidents affecting the Fund or its service providers may cause
disruptions and impact business operations, potentially resulting in financial
losses, interference with the Fund’s ability to calculate its NAV, impediments
to trading, the inability of shareholders to transact business, violations of
applicable privacy and other laws, regulatory fines, penalties, reputational
damage, reimbursement or other compensation costs, or additional compliance
costs.
•ETF
Risk.
The Fund is an ETF and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
The Fund has a limited number of financial institutions that may act as
Authorized Participants (“APs”). In addition, there may be a limited number of
market makers and/or liquidity providers in the marketplace. To the extent
either of the following events occur, Shares may trade at a material discount to
NAV and possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Cash
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. The Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to realize a capital
gain that it might not have realized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used. To the extent that the transaction fees
charged for redemptions of creation units is insufficient to cover the Fund’s
transaction costs of selling portfolio securities, the Fund’s performance could
be negatively impacted.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. As a result, investors in the Fund may pay significantly more or
receive significantly less for Shares than the Fund’s NAV. Although it is
expected that the market price of Shares will approximate the Fund’s NAV, there
may be times when the market price of Shares is more than the NAV intra-day
(premium) or less than the NAV intra-day (discount) due to supply and demand of
Shares or during periods of market volatility. This risk is heightened in times
of market volatility, periods of steep market declines, and periods when there
is limited trading activity for Shares in the secondary market, in which case
such premiums or discounts may be significant.
◦Trading.
Although Shares are listed for trading on the Cboe BZX Exchange, Inc. (the
“Exchange”) and may be traded on U.S. exchanges other than the Exchange, there
can be no assurance that Shares will trade with any volume, or at all, on any
stock exchange. In stressed market conditions, the liquidity of Shares may begin
to mirror the liquidity of the Fund’s underlying portfolio holdings, which can
be significantly less liquid than Shares. This could lead to the Fund’s shares
trading at a price that is higher or lower than the Fund’s NAV.
•Extension
Risk.
During periods of rising interest rates, certain debt obligations will be paid
off substantially more slowly than originally anticipated and the value of those
securities may fall sharply, resulting in a decline in the Fund’s income and
potentially in the value of the Fund’s investments.
•Interest
Rate Risk.
An increase in interest rates may cause the value of fixed-income securities
held by the Fund to decline. The Fund may be subject to a greater risk of rising
interest rates due to the current period of historically low rates and the
effect of potential government fiscal policy initiatives and resulting market
reaction to those initiatives.
•Inverse
Floating Rate Obligations Risk. The
price of inverse floating rate obligations (“inverse floaters”) is expected to
decline when interest rates rise, and generally will decline further than the
price of a bond with a
similar
maturity. The price of inverse floaters is typically more volatile than the
price of bonds with similar maturities. These risks can be particularly high if
leverage is used in the formula that determines the interest payable by the
inverse floater, which may make the Fund’s returns more volatile and increase
the risk of loss. Additionally, these securities may lose some or all of their
principal and, in some cases, the Fund could lose money in excess of its
investment.
•Large
Shareholder Risk. Certain
account holders may from time to time own or control a significant percentage of
Shares. The Fund is subject to the risk that a redemption by large shareholders
of all or a portion of their Shares or a purchase of Shares in large amounts
and/or on a frequent basis will adversely affect the Fund’s performance if it is
forced to sell portfolio securities or invest cash when the Adviser would not
otherwise choose to do so.
•Liquidity
Risk. Certain
debt obligations may be difficult or impossible to sell at the time and price
that the Adviser would like to sell. The Adviser may have to lower the price,
sell other debt obligations or forego an investment opportunity, any of which
may have a negative effect on the management or performance of the
Fund.
•Market
Risk.
The trading prices of equity securities and other instruments fluctuate in
response to a variety of factors. The Fund’s NAV and market price may fluctuate
significantly in response to these and other factors. As a result, an investor
could lose money over short or long periods of time.
•Minnesota
Municipal Securities Risk.
Because the Fund invests substantially in Minnesota municipal instruments, it is
more exposed to the impact of negative political, economic and legislative
factors within Minnesota than a fund that invests more widely.
•Minnesota
State Specific Risk.
The Fund substantially invests in municipal securities issued by the state of
Minnesota and its political subdivisions. The state relies heavily on a
progressive individual income tax and a retail sales tax for revenue, which
results in a fiscal system that is sensitive to economic conditions.
•Municipal
Bond Market Risk. The
Fund may be adversely affected due to factors such as the limited amount of
public information available regarding the municipal bonds held by the Fund as
compared to that for corporate equities or bonds, legislative changes and local
and business developments, general conditions of the municipal bond market, the
size of the particular offering, the rating of the issue, and the maturity of
the obligation.
•Municipal
Securities Risk.
Municipal securities can be significantly affected by political or economic
changes, including changes made in the law after issuance of the securities, as
well as uncertainties in the municipal market related to taxation, legislative
changes or the rights of municipal security holders, including in connection
with an issuer insolvency. Municipal securities backed by current or anticipated
revenues from a specific project or specific assets can be negatively affected
by the inability to collect revenues from the project or the
assets.
•New
Fund Risk. The
Fund is a management investment company with limited operating history. As a
result, prospective investors have a limited track record on which to base their
investment decision. There is also a risk that the Fund will not grow to or
maintain an economically viable size, in which case it could ultimately
liquidate without shareholder approval. The timing of such liquidation may not
be favorable and could have negative tax consequences for shareholders. From
time to time, an Authorized Participant, a third-party investor, the Adviser or
an affiliate of the Adviser, may invest in the Fund and hold its investment for
a specific period of time in order to facilitate commencement of the Fund’s
operations or for the Fund to
achieve
size or scale. There can be no assurance that any such entity would not redeem
its investment or that the size of the Fund would be maintained at such levels,
which could negatively impact the Fund. The Fund’s distributor does not maintain
a secondary market in the Shares.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may invest a greater percentage of its
assets in the securities of a single issuer or a smaller number of issuers than
if it were a diversified fund. As a result, a decline in the value of an
investment in a single issuer could cause the Fund’s overall value to decline to
a greater degree than if the Fund held a more diversified
portfolio.
•Other
Investment Companies Risk. You
will indirectly bear fees and expenses charged by the underlying funds in
addition to the Fund’s direct fees and expenses. As a result, your cost of
investing in the Fund will generally be higher than the cost of investing
directly in the underlying fund shares.
•Rating
Agencies Risks. Ratings
are not an absolute standard of quality. Ratings are general indicators that
reflect only the view of the originating rating agencies from which an
explanation of the significance of such ratings may be obtained. There is no
assurance that a particular rating will continue for any given period of time or
that any such rating will not be revised downward or withdrawn entirely. Such
changes may negatively affect the liquidity or market price of the securities in
which the Fund invests.
•Recent
Market Events Risk.
U.S. and international markets have experienced significant periods of
volatility in recent years and months due to a number of economic, political and
global macro factors including the impact of COVID-19 as a global pandemic,
which has resulted in a public health crisis, disruptions to business operations
and supply chains, stress on the global healthcare system, growth concerns in
the U.S. and overseas, staffing shortages and the inability to meet consumer
demand, and widespread concern and uncertainty. The global recovery from
COVID-19 is proceeding at slower than expected rates due to the emergence of
variant strains and may last for an extended period of time. Continuing
uncertainties regarding interest rates, rising inflation, political events,
rising government debt in the U.S. and trade tensions also contribute to market
volatility. As a result of continuing political tensions and armed conflicts,
including the war between Ukraine and Russia, the U.S. and the European Union
imposed sanctions on certain Russian individuals and companies, including
certain financial institutions, and have limited certain exports and imports to
and from Russia. The war has contributed to recent market volatility and may
continue to do so.
•Tax
Risk.
Municipal obligations may decrease in value during times when federal income tax
rates are falling. The Fund’s investments are affected by changes in federal
income tax rates applicable to, or the continuing federal tax-exempt status of,
interest income on municipal obligations. Any proposed or actual changes in such
rates or exempt status, therefore, can significantly affect the liquidity,
marketability and supply and demand for municipal obligations, which would in
turn affect the Fund’s ability to acquire and dispose of municipal obligations
at desirable yield and price levels.
•Unrated
Securities Risks. Unrated
securities may be less liquid than comparable rated securities and involve the
risk that the Adviser may not accurately evaluate the security’s comparative
credit rating.
•Valuation
Risk.
The prices provided by the Fund’s pricing services or independent dealers or the
fair value determinations made by the Fund’s valuation committee may be
different from the prices used by other investment companies or from the prices
at which debt obligations are actually bought and sold. The prices of certain
debt obligations provided by pricing services may be subject to frequent and
significant change, and will vary depending on the information that is
available.
•Zero
Coupon Bond Risk. Zero
coupon bonds do not pay interest on a current basis and may be highly volatile
as interest rates rise or fall. Although zero coupon bonds generate income for
accounting purposes, they do
not
produce cash flow, and thus the Fund could be forced to liquidate securities at
an inopportune time in order to generate cash to distribute to shareholders as
required by tax laws.
Performance
When
the Fund has been in operation for a full calendar year, performance information
will be shown in the Prospectus and will give some indication of the risks of
investing in the Fund by comparing the Fund’s performance with a broad measure
of market performance. Updated performance information will be available on the
Fund’s website at www.mairsandpower.com.
Management
The
Adviser
The
Fund employs Mairs & Power, Inc. to manage the Fund’s investment portfolio.
The Fund’s portfolio managers are as follows:
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Name/Primary
Title with the Fund |
Primary
Title with the Adviser |
Tenure
with the Fund |
Tenure
with the Adviser* |
Brent
S. Miller, Lead Portfolio Manager |
Fixed
Income Assistant Portfolio Manager |
Lead
Portfolio Manager since 2021 |
Since
2019 |
Robert
W. Thompson, Co-Manager |
Director
of Fixed Income |
Co-Manager
since 2021 |
Since
2016 |
*
Tenure with the Adviser is the year each individual
started employment with the Adviser and may not align with primary title with
the Adviser.
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities closely approximating the holdings of the Fund (the “Deposit
Securities”) and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be purchased and sold
in the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. This difference in bid and
asked prices is often referred to as the “bid-ask spread”.
Recent
information about the Fund, including its NAV, market price, premiums and
discounts, and bid-ask spreads, can also be found on the Fund’s website at
www.mairsandpower.com.
Tax
Information
The
Fund intends to make distributions that are exempt from federal and Minnesota
state income tax, in the form of exempt-interest dividends. However, some of the
Fund’s distributions, other than exempt-interest dividends may be taxed as
ordinary income or capital gains (or a combination). All or a portion of these
distributions, however, may be subject to the federal alternative minimum tax
and state and local taxes.
The
Fund intends to comply with certain state tax requirements so that dividends it
pays that are attributable to interest on Minnesota municipal securities will be
excluded from the Minnesota taxable net income of individuals, estates and
trusts. To meet these requirements, at least 95% of the exempt-interest
dividends paid by the Fund must be derived from interest income on Minnesota
municipal securities. A portion of the Fund’s dividends may be subject to the
Minnesota alternative minimum tax. Exempt-interest dividends are not excluded
from taxable income for purposes of the Minnesota franchise tax imposed on
corporations and financial institutions.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (a “Financial Intermediary”), the Adviser or its affiliates may
pay Financial Intermediaries for certain activities related to the Fund,
including participation in activities that are designed to make Financial
Intermediaries more knowledgeable about exchange traded products, including the
Fund, or for other activities, such as marketing, educational training or other
initiatives related to the sale or promotion of Shares. These payments may
create a conflict of interest by influencing the Financial Intermediary and your
salesperson to recommend the Fund over another investment. Any such arrangements
do not result in increased Fund expenses. Ask your salesperson or visit the
Financial Intermediary’s website for more information.
Fund
Details
Investment
Objective
The
Fund seeks current income that is exempt from federal and Minnesota state income
tax consistent with the preservation of capital. The Fund’s investment objective
is non-fundamental and may be changed without shareholder approval.
Principal
Investment Strategies
The
Fund has adopted a policy to invest, under normal circumstances, at least 80% of
its net assets (including borrowings for investment purposes) in municipal debt
securities that pay interest that is exempt from regular federal income tax and
Minnesota state income tax. Pursuant to Rule 35d-1 under the 1940 Act, such
policy has been adopted as a fundamental investment policy and may not be
changed without shareholder approval.
The
Fund does not seek to replicate any index and is actively managed. The Adviser
employs primarily a buy and hold strategy seeking income rather than capital
returns. The Adviser conducts fundamental analysis on the issue prior to
purchasing debt securities. The Adviser looks for stable credit trends and
monitors credit quality over the life of the security. The Adviser may choose to
sell securities for a variety of reasons, such as deteriorating credit or to
secure gains, limit losses, extend or shorten duration, or redeploy assets into
more promising opportunities. Although the Adviser will search for investments
across a large number of Municipal Securities that finance different types of
projects, from time to time, based on economic conditions, the Fund may have
significant positions in Municipal Securities that finance similar types of
projects. When evaluating investment opportunities, the Adviser also considers
whether environmental, social, and/or corporate governance (ESG) factors are
likely to have a material impact on a credit’s long-term success (though ESG
considerations are not necessarily determinative with respect to any particular
investment decision and the Adviser does not apply exclusionary screens). The
Adviser reviews ESG data sourced from third party data analytics platforms. In
evaluating ESG data, the Adviser tends to focus on companies with high scores in
notable material issues such as business ethics, carbon product and services,
and product governance, among others. The Adviser looks for ESG outliers and
utilizes the score as another data point when reviewing companies.
The
principal risks of investing in the Fund are described in the “Fund Summary”
above, and in “Principal Risks,” below. This section provides additional
information about some of the investments and related risks described under the
“Fund Summary” above. It also describes additional risks faced by the Fund and
investment techniques that may be used by the Fund from time to time. Many of
the investment techniques described in this section are discretionary, which
means that the Adviser can decide whether to use them or not. This Prospectus
does not attempt to disclose all of the various types of instruments and
investment techniques that may be used by the Fund. As with any fund, investors
in the Fund rely on the professional investment judgment and skill of the
Adviser and the individual portfolio managers. Please see the Statement of
Additional Information (“SAI”) for more information about the instruments and
investment techniques described in this section and about other instruments and
techniques that may be used by the Fund.
Under
normal market conditions, the Fund seeks to achieve its investment objective by
investing at least 80% of its net assets (including borrowings for investment
purposes) in Municipal Securities. Generally, these Municipal Securities are
issued by or on behalf of the State of Minnesota and its political subdivisions,
agencies, authorities and instrumentalities, and by other qualified issuers
located in Minnesota. The Fund may invest up to 20% of its net assets in debt
securities that pay interest subject to taxation, including the federal
AMT.
The
Fund can invest in all types of Municipal Securities, including but not limited
to municipal lease obligations (and certificates of participation in such
obligations), insured municipal bonds, municipal general obligation bonds,
municipal revenue bonds, municipal notes, municipal cash equivalents, private
activity bonds, pre-
refunded
and escrowed to maturity bonds, securities issued by custodial receipt trusts,
which are investment vehicles the underlying assets of which are municipal
bonds, and instruments evidencing direct ownership of interest payments or
principal payments, or both, on municipal securities, such as tender option
bonds and participation interests in all or part of specific holdings of
municipal obligations, provided that the applicable issuer receives assurances
from legal counsel that the interest payable on the securities is exempt from
federal income tax.
Municipal
Securities.
Municipal securities generally are understood to include debt obligations of
state and local governments, agencies and authorities. Municipal securities,
which may be issued in various forms, including bonds and notes, are issued to
obtain funds for various public purposes. Municipal bonds are debt obligations
issued by states, municipalities and other political subdivisions, agencies,
authorities and instrumentalities of states and multi-state agencies or
authorities (collectively, “municipalities”).
Municipal
bonds include securities from a variety of sectors, each of which has unique
risks. They include, but are not limited to, general obligation bonds, limited
obligation bonds, and revenue bonds (including industrial development bonds
issued pursuant to federal tax law). General obligation bonds are obligations
involving the credit of an issuer possessing taxing power and are payable from
such issuer’s general revenues and not from any particular source. Limited
obligation bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source. Revenue bonds are issued for
either project or enterprise financings in which the bond issuer pledges to the
bondholders the revenues generated by the operating projects financed from the
proceeds of the bond issuance. Revenue bonds involve the credit risk of the
underlying project or enterprise (or its corporate user) rather than the credit
risk of the issuing municipality. Under the Internal Revenue Code of 1986, as
amended (the “Code”), certain limited obligation bonds are considered “private
activity bonds” and interest paid on such bonds is treated as an item of tax
preference for purposes of calculating federal AMT liability. Tax-exempt private
activity bonds and industrial development bonds generally are also classified as
revenue bonds and thus are not payable from the issuer’s general revenues. The
credit and quality of private activity bonds and industrial development bonds
are usually related to the credit of the corporate user of the facilities.
Payment of interest on and repayment of principal of such bonds are the
responsibility of the corporate user (and/or any guarantor).
Some
municipal bonds feature credit enhancements, such as lines of credit, letters of
credit, municipal bond insurance, and standby bond purchase agreements
(“SBPAs”). SBPAs include lines of credit that are issued by a third party,
usually a bank, to enhance liquidity and ensure repayment of principal and any
accrued interest if the underlying municipal bond should default. Municipal bond
insurance, which is usually purchased by the bond issuer from a private,
non-governmental insurance company, provides an unconditional and irrevocable
assurance that the insured bond’s principal and interest will be paid when due.
Insurance does not guarantee the price of the bond or the share price of the
Fund.
Municipal
bonds also include tender option bonds, which are municipal derivatives created
by dividing the income stream provided by an underlying municipal bond to create
two securities issued by a special-purpose trust, one short-term and one
long-term. The interest rate on the short-term component is periodically reset.
The short-term component has negligible interest rate risk, while the long-term
component has all of the interest rate risk of the original bond. After income
is paid on the short-term securities at current rates, the residual income goes
to the long-term securities.
Therefore,
rising short-term interest rates result in lower income for the longer-term
portion, and vice versa. The longer-term components can be very volatile and may
be less liquid than other municipal bonds of comparable maturity. These
securities have been developed in the secondary market to meet the demand for
short-term, tax-exempt securities.
Prices
and yields on municipal bonds are dependent on a variety of factors, including
general money-market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. A number of these
factors, including the ratings of particular issues, are subject to change from
time to time. Information about the financial condition of an issuer of
municipal bonds may not be as extensive as that which is made available by
corporations whose securities are publicly traded. Tax Anticipation Notes are
used to finance working capital needs of municipalities and are issued in
anticipation of various seasonal tax revenues, to be payable from these specific
future taxes. They are usually general obligations of the issuer, secured by the
taxing power for the payment of principal and interest. Municipal securities
also include various forms of notes. These notes include, but are not limited
to, the following types:
•Revenue
anticipation notes which are issued in expectation of receipt of other kinds of
revenue, such as federal revenues. They, also, are usually general obligations
of the issuer.
•Bond
anticipation notes which are normally issued to provide interim financial
assistance until long-term financing can be arranged. The long-term bonds then
provide funds for the repayment of the notes.
•Construction
loan notes which are sold to provide construction financing for specific
projects. After successful completion and acceptance, many projects receive
permanent financing through the Federal Housing Administration (“FHA”) under the
Federal National Mortgage Association (“FNMA”) or the Government National
Mortgage Association (“GNMA”).
•Project
notes which are instruments sold by the U.S. Department of Housing and Urban
Development (“HUD”) but issued by a state or local housing agency to provide
financing for a variety of programs. They are backed by the full faith and
credit of the U.S. government, and generally carry a term of one year or
less.
•Short-term
discount notes (tax-exempt commercial paper), which are short-term (365 days or
less) promissory notes issued by municipalities to supplement their cash
flow.
An
entire issue of municipal securities may be purchased by one or a small number
of institutional investors such as the Fund. Thus, the issue may not be said to
be publicly offered. Unlike securities that must be registered under the 1933
Act prior to offer and sale, unless an exemption from such registration is
available, municipal securities that are not publicly offered may nevertheless
be readily marketable. A secondary market may exist for municipal securities
that were not publicly offered initially.
There
are, in addition, a variety of hybrid and special types of municipal
obligations, such as municipal lease obligations, as well as numerous
differences in the security of municipal securities both within and between the
two principal classifications described above. Municipal lease obligations are
municipal securities that may be supported by a lease or an installment purchase
contract issued by state and local government authorities to acquire funds to
obtain the use of a wide variety of equipment and facilities, such as fire and
sanitation vehicles, computer equipment and other capital assets. These
obligations, which may be secured or unsecured, are not general obligations and
have evolved to make it possible for state and local governments to obtain the
use of property and equipment without meeting constitutional and statutory
requirements for the issuance of debt. Thus, municipal lease obligations have
special risks not normally associated with municipal securities. These
obligations frequently contain “non-appropriation” clauses that provide that the
governmental issuer of the obligation has no obligation to make future payments
under the lease or contract unless money is appropriated for such purposes by
the legislative body on a yearly or other periodic basis. In addition to the
“non-appropriation” risk, many
municipal
lease obligations have not yet developed the depth of marketability associated
with municipal bonds; moreover, although the obligations may be secured by the
leased equipment, the disposition of the equipment in the event of foreclosure
might prove difficult. For the purpose of the Fund’s investment restrictions,
the identification of the “issuer” of municipal securities that are not general
obligation bonds is made by the Adviser on the basis of the characteristics of
the municipal securities as described above, the most significant of which is
the source of funds for the payment of principal and interest on such
securities.
The
liquidity of municipal lease obligations purchased by the Fund will be
determined pursuant to guidelines approved by the Board of Trustees (the
“Board”). Factors considered in making such determinations may include: the
frequency of trades and quotes for the obligation; the number of dealers willing
to purchase or sell the security and the number of other potential buyers; the
willingness of dealers to undertake to make a market in the security; the nature
of marketplace trades; the obligation’s rating; and, if the security is unrated,
the factors generally considered by a rating agency. If municipal lease
obligations are determined to be illiquid, then the Fund will limit its
investment in these securities subject to its limitation on investments in
illiquid investments.
Borrowing.
The Fund may borrow money to the extent permitted under the 1940 Act, or
otherwise limited herein, as such may be interpreted or modified by regulatory
authorities having jurisdiction, from time to time. This borrowing may be
unsecured. The 1940 Act precludes the Fund from borrowing if, as a result of
such borrowing, the total amount of all money borrowed by the Fund exceeds 33
1/3% of the value of its total assets (that is, total assets including
borrowings, less liabilities exclusive of borrowings) at the time of such
borrowings. This means that the 1940 Act requires the Fund to maintain
continuous asset coverage of 300% of the amount borrowed. If the 300% asset
coverage should decline as a result of market fluctuations or other reasons, the
Fund may be required to sell some of its portfolio holdings within three days to
reduce the debt and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell securities at that time,
and could cause the Fund to be unable to meet certain requirements for
qualification as a regulated investment company under the Code.
Diversification.
The Fund is non-diversified. A fund is considered “non-diversified” when a
relatively high percentage of its assets may be invested in the securities of a
limited number of issuers. Under applicable federal laws, the diversification of
a fund’s holdings is measured at the time the fund purchases a security.
However, if the Fund purchases a security and holds it for a period of time, the
security may become a larger percentage of the Fund’s total assets due to
movements in the financial markets. If the market affects several securities
held by the Fund, the Fund may have a greater percentage of its assets invested
in securities of fewer issuers. Because the Fund is non-diversified, the Fund is
subject to the risk that its performance may be hurt disproportionately by the
poor performance of relatively few securities.
Illiquid
Investments.
The Fund may invest in illiquid investments if such purchases at the time
thereof would not cause more than 15% of the value of the Fund’s net assets to
be invested in such illiquid or not readily marketable assets.
Investment
Companies.
The Fund may invest in securities of other investment companies, including
closed-end investment companies, ETFs and business development companies,
subject to limitations prescribed by the 1940 Act and any applicable investment
restrictions described in the Fund’s Prospectus and SAI. With certain
exceptions, the 1940 Act limitations prohibit the Fund from: (1) acquiring more
than 3% of the voting shares of an investment company; (2) investing more than
5% of the Fund’s total assets in securities of any one investment company; and
(3) investing more than 10% of the Fund’s total assets in securities of all
investment companies. These restrictions may not apply to certain investments in
money market funds. The Fund may invest in other investment companies, including
those managed by the Adviser, to the extent permitted by any rule under the 1940
Act or any interpretation thereunder or order granted by the SEC. Section
12(d)(1)(F) of the 1940 Act
provides
that the provisions of paragraph 12(d)(1) shall not apply to securities
purchased or otherwise acquired by the Fund if: (i) immediately after such
purchase or acquisition not more than 3% of the total outstanding shares of such
investment company is owned by the Fund and all affiliated persons of the Fund;
and (ii) the Fund has not offered or sold, and is not proposing to offer or sell
its shares through a principal underwriter or otherwise at a public offering
price that includes a sales load of more than 1 1/2%.
The
Fund may also rely on Rule 12d1-4 of the 1940 Act, which provides an exemption
from Section 12(d)(1) that allows the Fund to invest all of its assets in other
registered funds, including ETFs, if the Fund satisfies certain conditions
specified in the Rule, including, among other conditions, that the Fund and its
advisory group will not control (individually or in the aggregate) an acquired
fund (e.g., hold more than 25% of the outstanding voting securities of an
acquired fund that is a registered open-end management investment company). The
Fund indirectly will bear its proportionate share of any management fees and
other expenses paid by the investment companies in which the Fund invests in
addition to the fees and expenses the Fund bears directly in connection with its
own operations. These securities represent interests in professionally managed
portfolios that may invest in various types of instruments pursuant to a wide
range of investment styles. Investing in other investment companies involves
substantially the same risks as investing directly in the underlying
instruments, but may involve duplicative management and advisory fees and
operating expenses. Certain types of investment companies, such as closed-end
investment companies, issue a fixed number of shares that trade on a stock
exchange or OTC at a premium or a discount to their NAV per share. Others are
continuously offered at NAV per share but may also be traded in the secondary
market.
Lending
of Portfolio Securities. The
Fund may lend portfolio securities to certain broker/dealers and institutions to
the extent permitted by the 1940 Act, as modified or interpreted by regulatory
authorities having jurisdiction, from time to time, in accordance with
procedures adopted by the Board. By lending its securities, the Fund attempts to
increase its net investment income through the receipt of interest on the loan.
Any gain or loss in the market price of the securities loaned that might occur
during the term of the loan would belong to the Fund. Such loans must be secured
by collateral in cash or U.S. government securities maintained on a current
basis in an amount at least equal to 100% of the current market value of the
securities loaned. The Fund may call a loan and obtain the securities loaned at
any time generally on less than five days’ notice. For the duration of a loan,
the Fund would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and would also receive compensation
from the investment of the collateral. The Fund would not, however, have the
right to vote any securities having voting rights during the existence of the
loan, but the Fund would call the loan in anticipation of an important vote to
be taken among holders of the securities or of the giving or withholding of
their consent on a material matter affecting the investment.
When-Issued
Securities.
The
Fund may from time to time purchase securities on a “when-issued” basis. When
purchasing a security on a when-issued basis, the Fund assumes the rights and
risks of ownership of the security, including the risk of price and yield
fluctuations, and takes such fluctuations into account when determining its NAV.
Debt securities, including municipal securities, are often issued in this
manner. The price of such securities, which may be expressed in yield terms, is
fixed at the time a commitment to purchase is made, but delivery of and payment
for the when-issued securities take place at a later date. Normally, the
settlement date occurs within one month of the purchase (60 days for municipal
bonds and notes). During the period between purchase and settlement, no payment
is made by the Fund, and no interest accrues to the Fund. To the extent that
assets of the Fund are held in cash pending the settlement of a purchase of
securities, the Fund would earn no income; however, it is the Fund’s intention
that the Fund will be fully invested to the extent practicable and subject to
the policies stated herein and the Statement of Additional Information. Although
when-issued securities may be sold prior to the settlement date, the Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons.
Temporary
Strategies.
The
Fund may take temporary defensive measures that are inconsistent with the Fund’s
normal fundamental or non-fundamental investment limitations and strategies in
response to adverse market, economic, political, or other conditions as
determined by the Adviser. Such measures could include, but are not limited to,
investments in (1) highly liquid short-term fixed income securities issued by or
on behalf of municipal or corporate issuers, obligations of the U.S. Government
and its agencies, commercial paper and bank certificates of deposit; (2) shares
of other investment companies which have investment objectives consistent with
those of the Fund; (3) repurchase agreements involving any such securities; and
(4) money market funds or other money market instruments. There is no limit on
the extent to which the Fund may take temporary defensive measures. In taking
such measures, the Fund may fail to achieve its investment
objective.
Principal
Risks
All
investments have risks. The Fund is designed for long-term investors. You should
be prepared to accept fluctuations in portfolio value as the Fund seeks to
achieve its investment objective. The Fund cannot provide assurance that it will
achieve its objective. Loss of money is a risk of investing in the Fund. The
following information is in addition to, and should be read along with, the
description of the Fund’s principal investment risks in the section titled
“Summary Section— Principal Risks of Investing in the Fund” above. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with those of other funds. Losing all or a portion of your
investment is a risk of investing in the Fund. The following additional risks
could affect the value of your investment, and are ordered alphabetically rather
than by importance. You should understand these risks before investing. The
principal risks of investing in the Fund are:
Active
Management Risk. Active
management by the Adviser in selecting and maintaining a portfolio of securities
that will achieve the Fund’s investment objective could cause the Fund to
underperform compared to other funds having similar investment
objectives.
AMT
Risk. Certain
bonds owned by the Fund may generate income that is subject to the federal AMT.
The interest on these “private activity” bonds could become subject to the
federal AMT if you are a taxpayer that meets the federal AMT criteria. If you
are subject to the federal AMT, you will be required to add any income
attributable to these bonds (as reported by the Fund annually) to other
so-called “tax preference items” to determine possible liability for the federal
AMT.
Below
Investment Grade Bonds Risk.
The Fund’s investments in below investment grade bonds (which are also known as
“high yield” or “junk” bonds) are subject to a greater risk of loss of income
and principal than higher grade debt securities. The Fund’s investments in below
investment grade bonds also subject the Fund to greater levels of interest rate,
credit and liquidity risk than funds that do not invest in such securities.
Issuers of below investment grade bonds are often highly leveraged and are more
vulnerable to changes in the economy. These securities are considered
predominately speculative with respect to the issuer’s continuing ability to
make principal and interest payments.
Call
Risk.
During periods of falling interest rates, an issuer of a callable bond held by
the Fund may “call” or repay
the
security before its stated maturity, and the Fund may have to reinvest the
proceeds at lower interest rates, resulting in a decline in the Fund’s
income.
Capital
Gains Tax-Related Risk.
Two ways in which Fund shareholders can recognize taxable income from their
investment in Fund shares are: (1) if you sell your Shares at a price that is
higher than the price when you bought them, as adjusted, you will have a taxable
capital gain; on the other hand, if you sell your Shares at a price that is
lower than the price when you bought them, you will have a capital loss; and (2)
in the event the Fund sells more
securities
at prices higher than the prices when they were bought by the Fund, as adjusted,
the Fund may pass through the profit it makes from these transactions by making
a taxable capital gain distribution.
Credit
Risk.
Debt issuers and other counterparties may not honor their obligations or may
have their debt downgraded by ratings agencies. Credit risk is the risk that an
issuer or other obligated party of a municipal bond may be unable or unwilling
to make interest and principal payments when due and the related risk that the
value of a municipal bond may decline because of concerns about the issuer’s
ability or willingness to make such payments. The Fund's investments in inverse
floaters will increase the Fund's credit risk.
Cybersecurity
Risk. With
the increasing use of the Internet and technology in connection with the Fund’s
operations, the Fund is susceptible to greater operational and information
security risks through breaches in cyber security. Cyber security breaches
include, without limitation, infection by computer viruses and unauthorized
access to the Fund’s systems through “hacking” or other means for the purpose of
misappropriating assets or sensitive information, corrupting data, or causing
operations to be disrupted. Cyber security breaches may also occur in a manner
that does not require gaining unauthorized access, such as denial-of-service
attacks or situations where authorized individuals intentionally or
unintentionally release confidential information stored on the Fund’s systems. A
cyber security breach may cause disruptions and impact the Fund’s business
operations, which could potentially result in financial losses, inability to
determine the Fund’s NAV, violation of applicable law, regulatory penalties
and/or fines, compliance and other costs. The Fund and its shareholders could be
negatively impacted as a result. In addition, because the Fund works closely
with third-party service providers, indirect cyber security breaches at such
third-party service providers may subject Fund shareholders to the same risks
associated with direct cyber security breaches. Further, indirect cyber security
breaches at an issuer of securities in which the Fund invests may similarly
negatively impact Fund shareholders because of a decrease in the value of these
securities. While the Fund has established risk management systems designed to
reduce the risks associated with cyber security breaches, there can be no
assurances that such measures will be successful particularly since the Fund
does not control the cyber security systems of issuers or third-party service
providers.
ETF
Risk.
The Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
The Fund has a limited number of financial institutions that may act as
Authorized Participants (“APs”). In addition, there may be a limited number of
market makers and/or liquidity providers in the marketplace. To the extent
either of the following events occur, Shares may trade at a material discount to
NAV and possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Cash
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. The Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to realize a capital
gain that it might not have realized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used. To the extent that the transaction fees
charged for redemptions of creation units is insufficient to cover the Fund’s
transaction costs of selling portfolio securities, the Fund’s performance could
be negatively impacted.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. As a result, investors in the Fund may pay significantly more or
receive significantly less for Shares than the Fund’s NAV. Although it is
expected that the market price of Shares will approximate the Fund’s NAV, there
may be times when the market price of Shares is more than the NAV intra-day
(premium) or less than the NAV intra-day (discount) due to supply and demand of
Shares or during periods of market volatility. This risk is heightened in times
of market volatility, periods of steep market declines, and periods when there
is limited trading activity for Shares in the secondary market, in which case
such premiums or discounts may be significant.
◦Trading.
Although Shares are listed for trading on the Cboe BZX Exchange, Inc. (the
“Exchange”) and may be traded on U.S. exchanges other than the Exchange, there
can be no assurance that Shares will trade with any volume, or at all, on any
stock exchange. In stressed market conditions, the liquidity of Shares may begin
to mirror the liquidity of the Fund’s underlying portfolio holdings, which can
be significantly less liquid than Shares. This could lead to the Fund’s shares
trading at a price that is higher or lower than the Fund’s NAV.
Extension
Risk.
During periods of rising interest rates, certain debt obligations will be paid
off substantially more slowly than originally anticipated and the value of those
securities may fall sharply, resulting in a decline in the Fund’s income and
potentially in the value of the Fund’s investments.
Interest
Rate Risk.
An increase in interest rates may cause the value of fixed-income securities
held by the Fund to decline. The Fund may be subject to a greater risk of rising
interest rates due to the current period of historically low rates and the
effect of potential government fiscal policy initiatives and resulting market
reaction to those initiatives.
Inverse
Floating Rate Obligations Risk. Inverse
floating rate obligations (“inverse floaters”) represent interests in bonds with
interest rates that vary inversely to changes in short-term rates. As short-term
rates rise, inverse floaters produce less income, and as short-term rates
decline, inverse floaters produce more income. As a result, the price of inverse
floaters is expected to decline when interest rates rise, and generally will
decline further than the price of a bond with a similar maturity. The price of
inverse floaters is typically more volatile than the price of bonds with similar
maturities. Interest rate risk and price volatility of inverse floaters can be
particularly high if leverage is used in the formula that determines the
interest payable by the inverse floater. Leverage may make the Fund’s returns
more volatile and increase the risk of loss. The Fund generally invests in
inverse floaters that include embedded leverage, thus exposing the Fund to
greater risks and increased costs. The market value of a “leveraged” inverse
floater will fluctuate in response to changes in market rates of interest to a
greater extent than the value of an unleveraged investment, and the value of,
and income earned on, an inverse floater that has a higher degree of leverage
are more likely to be eliminated entirely under adverse market conditions. The
use of short-term floating rate obligations may require the Fund to segregate or
earmark cash or liquid assets to cover its obligations. Securities so segregated
or earmarked will be unavailable for sale by the Fund (unless replaced by other
securities qualifying for segregation requirements), which may limit the Fund’s
flexibility and may require that the Fund sell other portfolio investments at a
time when it may be disadvantageous to sell such assets. Upon the occurrence of
certain adverse events, the special purpose trust that created the inverse
floater may be collapsed and the underlying security liquidated, and the Fund
could lose the entire amount of its investment in the inverse floater and may,
in some cases, be contractually required to pay the negative difference, if any,
between the liquidation value of the underlying security and the principal
amount of the short-term floating rate interests. On October 2020, the SEC
adopted new regulations governing the use of derivatives by registered
investment companies (“Rule 18f-4”). The Fund will be required to implement and
comply with Rule 18f-4 by the third quarter of 2022. Once implemented, Rule
18f-4 will impose limits on the amount of derivatives a fund can enter into,
eliminate the asset segregation framework currently used by funds to comply with
Section 18 of the
1940
Act, treat derivatives as senior securities so that a failure to comply with the
limits would result in a statutory violation and require funds whose use of
derivatives is more than a limited specified exposure amount to establish and
maintain a comprehensive derivatives risk management program and appoint a
derivatives risk manager.
Large
Shareholder Risk. Certain
account holders may from time to time own or control a significant percentage of
Shares. The Fund is subject to the risk that a redemption by large shareholders
of all or a portion of their Shares or a purchase of Shares in large amounts
and/or on a frequent basis will adversely affect the Fund’s performance if it is
forced to sell portfolio securities or invest cash when the Adviser would not
otherwise choose to do so. This risk will be particularly pronounced if one
shareholder owns a substantial portion of the Fund. Redemptions of a large
number of Shares may affect the liquidity of the Fund’s portfolio, increase the
Fund’s transaction costs and/or lead to the liquidation of the Fund. Such
transactions also potentially limit the use of any capital loss carryforwards
and certain other losses to offset future realized capital gains (if
any).
Liquidity
Risk. Certain
debt obligations may be difficult or impossible to sell at the time and price
that the Adviser would like to sell. The Adviser may have to lower the price,
sell other debt obligations or forego an investment opportunity, any of which
may have a negative effect on the management or performance of the
Fund.
Market
Risk.
The trading prices of equity securities and other instruments fluctuate in
response to a variety of factors. The Fund’s NAV and market price may fluctuate
significantly in response to these and other factors. As a result, an investor
could lose money over short or long periods of time.
Minnesota
Municipal Securities Risk.
Because the Fund invests substantially in Minnesota municipal instruments, it is
more exposed to the impact of negative political, economic and legislative
factors within Minnesota than a fund that invests more widely.
Minnesota
State Specific Risk.
Because the Fund substantially invests in municipal securities issued by the
state of Minnesota and its political subdivisions, the Fund’s performance will
be affected by economic and political conditions in the state of Minnesota and
may be more volatile than the performance of a more geographically diversified
fund. The state relies heavily on a progressive individual income tax and a
retail sales tax for revenue, which results in a fiscal system that is sensitive
to economic conditions. The ability of Minnesota or its municipalities to meet
their obligations depends on the availability of tax and other revenues, the
economic, political and demographic conditions within the state, and the
underlying fiscal condition of the state, its counties and its municipalities.
Minnesota and its municipalities are also facing rising levels of unfunded
pension and similar liabilities, which are increasing pressure on their budgets
and could adversely affect their ability to meet their outstanding
obligations.
Municipal
Bond Market Risk. The
amount of public information available about the municipal bonds held by the
Fund is generally less than that for corporate equities or bonds, and the
investment performance of the Fund may therefore be more dependent on the
analytical abilities of the Adviser than would be a stock fund or taxable bond
fund. The secondary market for municipal bonds also tends to be less
well-developed or liquid than many other securities markets, which may adversely
affect the Fund’s ability to sell its bonds at attractive prices.
The
ability of municipal issuers to make timely payments of interest and principal
may be diminished during general economic downturns and as governmental cost
burdens are reallocated among federal, state and local governments. In addition,
laws enacted in the future by Congress or state legislatures or referenda could
extend the time for payment of principal and/or interest, or impose other
constraints on enforcement of such obligations, or on the ability of municipal
issuers to levy taxes. Issuers of municipal securities might seek protection
under the bankruptcy laws. In the event of bankruptcy of such an issuer, the
Fund could experience delays in collecting principal and interest and may not,
in all circumstances, be able to collect all principal and
interest
to which it is entitled. To enforce its rights in the event of a default in the
payment of interest or repayment of principal, or both, the Fund may take
possession of, and manage, the assets securing the issuer's obligations on such
securities, which may increase the Fund’s operating expenses. Any income derived
from the Fund’s ownership or operation of such assets may not be tax-exempt.
Municipal
Securities Risk.
The Fund invests primarily in municipal securities. Municipal securities are
fixed income securities issued by state or local governments or their agencies
(such as housing or hospital authorities) to finance capital expenditures and
operations. Municipal securities are subject to call/prepayment risk,
credit/default risk, extension risk, interest risk and certain additional risks.
The Fund may be more sensitive to adverse economic, business or political
developments if it invests a substantial portion of its assets in the debt
securities of similar projects (such as those relating to education, health
care, housing, transportation, and utilities), industrial development bonds, or
in particular types of municipal securities (such as general obligation bonds,
private activity bonds and moral obligation bonds). While interest earned on
municipal securities is generally not subject to federal tax, any interest
earned on taxable municipal securities is fully taxable at the federal level and
may be subject to tax at the state level. Specific risks are associated with
different types of municipal securities. Certain of the municipalities in which
the Fund invests may experience significant financial difficulties, which may
lead to bankruptcy or default. The Fund will be more susceptible to factors
which adversely affect issuers of municipal obligations than a fund which does
not have as great of a concentration in municipal obligations. Also, there may
be economic or political changes, including changes in law, after issuance of
the securities, as well as uncertainties in the municipal market related to
taxation, legislative changes or the rights of municipal security holders,
including in connection with an issuer insolvency, that impact the ability of
issuers of municipal securities to repay principal and to make interest payments
on securities owned by the Fund. Any changes in the financial condition of
municipal issuers also may adversely affect the value of the Fund’s
securities.
With
respect to general obligation bonds, the full faith, credit and taxing power of
the municipality that issues a general obligation bond secures payment of
interest and repayment of principal. Timely payments depend on the issuer’s
credit quality, ability to raise tax revenues and ability to maintain an
adequate tax base. With respect to revenue bonds, payments of interest and
principal are made only from the revenues generated by a particular facility,
class of facilities or the proceeds of a special tax, or other revenue source,
and depends on the money earned by that source. Private activity bonds are
issued by municipalities and other public authorities to finance development of
industrial facilities for use by a private enterprise. The private enterprise
pays the principal and interest on the bond, and the issuer does not pledge its
full faith, credit and taxing power for repayment. If the private enterprise
defaults on its payments, the Fund may not receive any income or get its money
back from the investment. Moral obligation bonds are generally issued by special
purpose public authorities of a state or municipality. If the issuer is unable
to meet its obligations, repayment of these bonds becomes a moral commitment,
but not a legal obligation, of the state or municipality. Municipal notes are
shorter term municipal debt obligations. They may provide interim financing in
anticipation of, and are secured by, tax collection, bond sales or revenue
receipts. If there is a shortfall in the anticipated proceeds, the notes may not
be fully repaid and the Fund may lose money. In a municipal lease obligation,
the issuer agrees to make payments when due on the lease obligation. The issuer
will generally appropriate municipal funds for that purpose, but is not
obligated to do so. Although the issuer does not pledge its unlimited taxing
power for payment of the lease obligation, the lease obligation is secured by
the leased property. However, if the issuer does not fulfill its payment
obligation it may be difficult to sell the property and the proceeds of a sale
may not cover the Fund’s loss.
New
Fund Risk. There
can be no assurance that the Fund will grow to or maintain an economically
viable size, in which case the Board may determine to liquidate the Fund.
Liquidation of the Fund can be initiated without shareholder approval by the
Board if it determines that liquidation is in the best interest of shareholders.
The timing of such liquidation may not be favorable and could have negative tax
consequences for shareholders. From time to time, an Authorized Participant, a
third-party investor, the Adviser or an affiliate of the Adviser, may
invest
in the Fund and hold its investment for a specific period of time in order to
facilitate commencement of the Fund’s operations or for the Fund to achieve size
or scale. There can be no assurance that any such entity would not redeem its
investment or that the size of the Fund would be maintained at such levels,
which could negatively impact the Fund. The Fund’s distributor does not maintain
a secondary market in the shares.
Non-Diversification
Risk. Because
the Fund is “non-diversified,” it may invest a greater percentage of its assets
in the securities of a single issuer or a smaller number of issuers than if it
were a diversified fund. As a result, a decline in the value of an investment in
a single issuer could cause the Fund’s overall value to decline to a greater
degree than if the Fund held a more diversified portfolio. This may increase the
Fund’s volatility and cause the performance of a relatively smaller number of
issuers to have a greater impact on the Fund’s performance.
Other
Investment Companies Risk. Federal
law generally prohibits an investment company, such as the Fund, from acquiring
shares of another investment company if, immediately after such acquisition, the
fund and its affiliated persons would hold more than 3% of such investment
company’s total outstanding shares. This prohibition may prevent the Fund from
allocating its investments in an optimal manner. You will indirectly bear fees
and expenses charged by the underlying funds in addition to the Fund’s direct
fees and expenses and, as a result, your cost of investing in the Fund will
generally be higher than the cost of investing directly in the underlying fund
shares. In The SEC recently adopted certain regulatory changes relating to a
fund’s ability to invest in another investment company. These changes include
the adoption of Rule 12d1-4 under the 1940 Act and the rescission of certain
related exemptive relief. These changes may negatively impact the Fund’s
investment strategies and operations.
Rating
Agencies Risks. Rating
agencies may fail to make timely changes in credit ratings and an issuer’s
current financial condition may be better or worse than a rating indicates. In
addition, rating agencies are subject to an inherent conflict of interest
because they are often compensated by the same issuers whose securities they
grade.
Recent
Market Events Risk.
U.S. and international markets have experienced significant periods of
volatility in recent years and months due to a number of economic, political and
global macro factors including the impact of COVID-19 as a global pandemic and
related public health crisis, growth concerns in the U.S. and overseas,
uncertainties regarding interest rates, rising inflation, trade tensions, and
the threat of tariffs imposed by the U.S. and other countries. In particular,
the global spread of COVID-19 has resulted in disruptions to business operations
and supply chains, stress on the global healthcare system, growth concerns in
the U.S. and overseas, staffing shortages and the inability to meet consumer
demand, and widespread concern and uncertainty. The global recovery from
COVID-19 is proceeding at slower than expected rates due to the emergence of
variant strains and may last for an extended period of time. Health crises and
related political, social and economic disruptions caused by the spread of
COVID-19 may also exacerbate other pre-existing political, social and economic
risks in certain countries. As a result of continuing political tensions and
armed conflicts, including the war between Ukraine and Russia, the U.S. and the
European Union imposed sanctions on certain Russian individuals and companies,
including certain financial institutions, and have limited certain exports and
imports to and from Russia. The war has contributed to recent market volatility
and may continue to do so. These developments, as well as other events, could
result in further market volatility and negatively affect financial asset
prices, the liquidity of certain securities and the normal operations of
securities exchanges and other markets, despite government efforts to address
market disruptions. As a result, the risk environment remains elevated. The
Adviser will monitor developments and seek to manage the Fund in a manner
consistent with achieving the Fund’s investment objective, but there can be no
assurance that the Adviser will be successful in doing so.
Tax
Risk.
Municipal obligations may decrease in value during times when federal income tax
rates are falling. Since interest income on municipal obligations is normally
not subject to regular federal income taxation, the attractiveness of municipal
obligations in relation to other investment alternatives is affected by changes
in federal income tax rates applicable to, or the continuing federal tax-exempt
status of, such interest income. Any proposed or actual changes in such rates or
exempt status, therefore, can significantly affect the liquidity, marketability
and
supply
and demand for municipal obligations, which would in turn affect the Fund’s
ability to acquire and dispose of municipal obligations at desirable yield and
price levels. In addition, interest earned on certain municipal obligations may
be a preference item subject to the federal AMT for non-corporate shareholders.
Investment in federally tax-exempt securities poses additional risks. In many
cases, the Internal Revenue Service (“IRS”) has not ruled on whether the
interest received on a particular obligation is tax-exempt, and accordingly,
purchases of these obligations are based on the opinion of bond counsel to the
issuers at the time of issuance. The Fund and the Adviser rely on these opinions
and will not review the basis for them.
Unrated
Securities Risks. Unrated
securities may be less liquid than comparable rated securities and involve the
risk that the Adviser may not accurately evaluate the security’s comparative
credit rating. To the extent that the Fund purchases or holds unrated
securities, the Fund’s success in achieving its investment objective may depend
more heavily on the Adviser’s creditworthiness analysis than if the Fund
invested exclusively in rated securities.
Valuation
Risk. It
may be difficult for the Fund to purchase and sell particular investments within
a reasonable time at a fair price, or the price at which it has been valued for
purposes of the Fund’s NAV, causing the Fund to be less liquid and unable to
sell securities for what the Adviser believes is the appropriate price of the
investment. Valuation of portfolio investments may be difficult, such as during
periods of market turmoil or reduced liquidity and for investments that trade
infrequently or irregularly. In these and other circumstances, an investment may
be valued using fair value methodologies, which are inherently subjective,
reflect good faith judgments based on available information and may not
accurately estimate the price at which the Fund could sell the investment at
that time. Based on its investment strategies, a significant portion of the
Fund’s investments can be difficult to value and potentially less liquid and
therefore particularly prone to these risks.
Zero
Coupon Bond Risk.
The Fund may purchase zero coupon bonds, which are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from their face value. The discount
approximates the total amount of interest the bonds would accrue and compound
over the period until maturity at a rate of interest reflecting the market rate
at the time of issuance. Because interest on zero coupon obligations is not paid
to the Fund on a current basis but is, in effect, compounded, the value of the
securities of this type is subject to greater fluctuations in response to
changing interest rates than the value of debt obligations that distribute
income regularly. Zero coupon bonds tend to be subject to greater market risk
than interest paying securities of similar maturities. The discount represents
income, a portion of which the Fund must accrue and distribute every year even
though the Fund receives no payment on the investment in that year. Zero coupon
bonds tend to be more volatile than conventional debt securities.
Portfolio
Holdings Information
Information
about the Fund’s daily portfolio holdings is available at www.mairsandpower.com.
A complete description of the Fund’s policies and procedures with respect to the
disclosure of the Fund’s portfolio holdings is available in the Fund’s SAI.
Management
and Organization of the Fund
Investment
Adviser
Mairs
& Power, Inc., located at W1520 First National Bank Building, 332 Minnesota
Street, Saint Paul, Minnesota 55101-1363, manages the Fund’s investments subject
to the general supervision of the Board of Trustees. The Adviser is an
SEC-registered investment advisory firm. As of December 31, 2021, the Adviser
had approximately $12.4 billion in assets under management.
Pursuant
to the investment advisory agreement (the “Advisory Agreement”) between the
Trust, on behalf of the Fund, and the Adviser, the Adviser is responsible for
managing the Fund in accordance with its investment objective and policies and
for making decisions with respect to and placing orders for all purchases and
sales of portfolio securities. The Adviser also maintains related records for
the Fund.
For
the services it provides to the Fund, the Fund pays the Adviser a unified
management fee, which is calculated daily and paid monthly, at an annual rate of
0.39% of the Fund’s average daily net assets.
Under
the Advisory Agreement, the Adviser has agreed to pay all expenses of the Fund
except interest charges on any borrowings, dividends, and other expenses on
securities sold short, taxes, brokerage commissions and other expenses incurred
in placing orders for the purchase and sale of securities and other investment
instruments, acquired fund fees and expenses, accrued deferred tax liability,
extraordinary expenses, distribution fees and expenses paid by the Fund under
any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act, and the
unified management fee payable to the Adviser.
A
discussion regarding the basis of the Board of Trustees’ approval of the
Advisory Agreement is included in the Fund’s semi-annual report to shareholders
for the period ended June 30, 2021.
The
Adviser also serves as investment adviser to the Mairs & Power Growth Fund,
Mairs & Power Balanced Fund and Mairs & Power Small Cap Fund, which are
currently offered in a separate prospectus and SAI.
Portfolio
Managers
Unless
stated otherwise, each of the following portfolio managers is jointly and
primarily responsible for the day-to-day management of the Fund.
Brent
S. Miller, CFA®.
Mr.
Miller serves as Lead Portfolio Manager for the Fund. Mr. Miller joined Mairs
& Power, Inc. in 2019 and has served as Assistant Portfolio Manager since
joining the Adviser. Mr. Miller began his career in 2011 as a fixed income
analyst at The Travelers Companies in St. Paul, Minnesota from 2011 to 2019. Mr.
Miller earned a BS from the University of Minnesota’s Carlson School of
Management and went on to graduate with an MBA from Northwestern University’s
Kellogg School of Management. He is a CFA charterholder.
Robert
(Bob) W. Thompson, CFA®,
CIC.
Mr. Thompson serves as Co-Manager for the Fund. Mr. Thompson joined the Adviser
in 2016 and has served as Director of Fixed Income since July 1, 2019. He
previously served as Vice President and Fixed Income Portfolio Manager from the
fall of 2016 to June 2019. He previously served as Assistant Vice President
since joining the Adviser. Mr. Thompson has served as Co-Manager of the Mairs
& Power Balanced Fund, a series of Mairs & Power Funds Trust, since
April 1, 2018. Prior to joining the Adviser, Mr. Thompson was Vice President,
Corporate Bonds at Advantus Capital Management (now Securian Asset Management),
in St. Paul Minnesota from 2003 to 2016, and before that he worked for Lutheran
Brotherhood (now Thrivent Financial). Mr. Thompson earned a Bachelor of
Accountancy from the University of North Dakota and an MBA in Finance from the
University of Minnesota, Carlson School of Management. Mr. Thompson is a CFA
charterholder, Chartered Investment Counselor and a Certified Public Accountant
(inactive).
Additional
information about each portfolio manager’s compensation, other accounts managed
by the portfolio managers and the portfolio managers’ ownership of shares in the
Fund is available in the Fund’s SAI.
CFA®
is a registered trademark owned by the CFA Institute.
Other
Service Providers
Foreside
Fund Services, LLC (the “Distributor”) is the principal underwriter and
distributor of the Fund’s shares. The Distributor’s principal address is Three
Canal Plaza, Suite 100, Portland, Maine 04101. Generally, the Distributor will
not distribute Shares in aggregations less than a Creation Unit, and the
Distributor does not maintain a secondary market in the shares. The Distributor
is a broker-dealer registered under the Securities Exchange Act of 1934 and a
member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). The
Distributor has no role in determining the policies of the Funds or the
securities that are purchased or sold by the Funds and is not affiliated with
the Adviser or any of their respective affiliates.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services,
located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the
administrator and transfer agent for the Fund.
U.S.
Bank National Association, located at 1555 N. Rivercenter Drive, Milwaukee,
Wisconsin 53212, serves as the custodian for the Funds.
Shareholder
Information
How
to Buy and Sell Shares
The
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from the Fund, and only APs may tender their Shares for
redemption directly to the Fund, at NAV. Each AP must be a member or other
participant of a clearing agency registered with the SEC and must execute a
Participant Agreement that has been agreed to by the Distributor, and that has
been accepted by the Transfer Agent, with respect to purchases and redemptions
of Creation Units. Once created, Shares trade in the secondary market in
quantities less than a Creation Unit.
Most
investors buy and sell individual Shares in secondary market transactions
through brokers. Shares are listed for trading on the secondary market on the
Exchange and can be bought and sold throughout the trading day like other
publicly traded securities. In addition, because secondary market transactions
occur at market prices, you may pay more than NAV when you buy Shares, and
receive less than NAV when you sell those Shares.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. The commission is frequently a fixed amount and
may be a significant proportional cost for investors seeking to buy or sell
small amounts of shares. The spread with respect to shares of the Fund varies
over time based on the Fund’s trading volume and market liquidity and is
generally lower if the Fund has a lot of trading volume and market liquidity and
higher if the Fund has little trading volume and market liquidity.
Because
of the costs of buying and selling Fund shares, frequent trading may reduce
investment return and an investment in the Fund may not be advisable for
investors who anticipate regularly making small investments.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust
companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to adopt a written policy restricting frequent
trading in the Fund, the Board evaluated the risks of market timing activities
by Fund shareholders. Purchases and redemptions by APs, who are the only parties
that may purchase or redeem Shares directly with the Fund, are an essential part
of the ETF process and help keep Share trading prices in line with NAV. As such,
the Fund accommodates frequent purchases and redemptions by APs. However,
frequent purchases and redemptions for cash may increase portfolio transaction
costs and may lead to the realization of capital gains. To minimize these
potential consequences of frequent purchases and redemptions, the Fund employs
fair value pricing and may impose transaction fees on purchases and redemptions
of Creation Units to cover the custodial and other costs incurred by the Fund in
effecting trades. In addition, the Fund and the Adviser reserve the right to
reject any purchase order at any time.
Determination
of Net Asset Value
The
Fund’s NAV is calculated by dividing the value of the Fund’s total assets, less
its liabilities, by the number of its shares outstanding. In calculating the
Fund’s NAV, portfolio securities are valued using current market values or
official closing prices, if available. If such information is not available for
a security held by the Fund or is determined to be unreliable, the security will
be valued at fair value estimates under guidelines established by the Board (as
described below). The Fund’s NAV is calculated at the close of regular trading
of the NYSE (which is generally 4:00 p.m., Eastern time). The Fund’s NAV will
not be calculated on days on which the NYSE is closed for trading. If the NYSE
closes early, the Fund will calculate its NAV as of the close of trading on the
NYSE on that day. If an emergency exists as permitted by the SEC, the NAV may be
calculated at a different time.
Fair
Value Pricing
The
Board of Trustees has adopted procedures and methodologies to fair value Fund
securities whose market prices are not “readily available” or are deemed to be
unreliable. For example, such circumstances may arise when: (i) an investment
has been de-listed or has had its trading halted or suspended; (ii) a security’s
primary pricing source is unable or unwilling to provide a price; (iii) an
investment’s primary trading market is closed during regular market hours; or
(iv) an investment’s value is materially affected by events occurring after the
close of the investment’s primary trading market. Generally, when fair valuing
an investment, the Fund will take into account all reasonably available
information that may be relevant to a particular valuation including, but not
limited to, fundamental analytical data regarding the issuer, information
relating to the issuer’s business, recent trades or offers of the investment,
general and/or specific market conditions and the specific facts giving rise to
the need to fair value the investment. Fair value determinations are made in
good faith and in accordance with the fair value methodologies included in the
Board-adopted valuation procedures. Due to the subjective and variable nature of
fair value pricing, there can be no assurance that the Adviser will be able to
obtain the fair value assigned to the investment upon the sale of such
security.
The
SEC has adopted Rule 2a-5 under the 1940 Act, which, among other things,
establishes an updated regulatory framework for registered investment company
valuation practices. The compliance date for Rule 2a-5 is September 8, 2022. The
Trust’s fair value policies and procedures and valuation practices may be
subject to change as a result of new Rule 2a-5.
Dividends,
Distributions, and Taxes
Dividends
and Distributions
The
Fund intends to pay out dividends and interest income, if any, monthly and
distribute any net realized capital gains to its shareholders at least annually.
The Fund will declare and pay income and capital gain distributions in cash.
Distributions in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option
available. Your broker is responsible for distributing the income and capital
gain distributions to you.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax advisor
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Fund intends to make distributions that are exempt from federal and Minnesota
state income tax, in the form of exempt-interest dividends. However, some of the
Fund’s distributions other than exempt-interest dividends may be taxed as
ordinary income or capital gains (or a combination). The Fund may invest a
portion of its assets in securities that generate income that is not exempt from
federal income tax or Minnesota state income tax. Income exempt from federal
income tax may be subject to state and local income tax. You may also be subject
to tax on distributions of any net capital gain made by the Fund. The federal
income tax status of all distributions made by the Fund for the preceding year
will be reported annually to shareholders.
The
Fund intends to qualify each year for treatment as a regulated investment
company (“RIC”) under Subchapter M of the Code, as amended. If it meets certain
minimum distribution requirements, a RIC is not subject to federal income tax at
the fund level on income and gains from investments that are timely distributed
to shareholders. However, the Fund’s failure to qualify as a RIC or to meet
minimum distribution requirements would result (if certain relief provisions
were not available) in fund-level taxation and, consequently, a reduction in
income available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when the Fund makes distributions, when you sell your Shares listed
on the Exchange, and when you purchase or redeem Creation Units (institutional
investors only).
Taxes
on Distributions
For
federal income tax purposes, distributions of net investment income are
generally taxable to shareholders as ordinary income or qualified dividend
income. A portion of dividends received from the Fund (but none of the Fund’s
capital gain distributions) may qualify for the dividends-received deduction for
corporations. Taxes on distributions of net capital gains (if any) are
determined by how long the Fund owned the investments that generated them,
rather than how long a shareholder has owned his or her Shares. Sales of assets
held by the Fund for more than one year generally result in long-term capital
gains and losses, and sales of assets held by the Fund for one year or less
generally result in short-term capital gains and losses. Distributions of the
Fund’s net capital gain (the excess of net long-term capital gains over net
short-term capital losses) that are reported by the Fund as capital gain
dividends (“Capital Gain Dividends”) will be taxable to shareholders as
long-term capital gains. Distributions of short-term capital gain will generally
be taxable to shareholders as ordinary income. Dividends
and
distributions are generally taxable to you whether you receive them in cash or
reinvest them in additional Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that the Fund receives in respect of stock of certain
foreign corporations may be qualified dividend income if that stock is readily
tradable on an established U.S. securities market. Corporate shareholders may be
entitled to a dividends-received deduction for the portion of dividends they
receive from the Fund that are attributable to dividends received by the Fund
from U.S. corporations, subject to certain limitations. The Fund’s investment
strategies may prevent the Fund’s income from being eligible for treatment as
qualified dividend income in the hands of non-corporate shareholders or eligible
for the dividends-received deduction for corporate shareholders. Since the Fund
invests in fixed-income securities, it is not expected that the dividends
received from the Fund will be eligible for treatment as qualified dividend
income in the hands of non-corporate shareholders or eligible for the
dividends-received deduction for corporate shareholders.
Shortly
after the close of each calendar year, you will be informed of the character of
any distributions received from the Fund.
In
addition to the federal income tax, certain individuals, trusts and estates may
be subject to a Net Investment Income (“NII”) tax of 3.8% on all or a portion of
their “net investment income,” which includes interest, dividends, and certain
capital gains (generally including capital gains distributions and capital gains
realized on the sale of Shares) but exempt-interest dividends are not taken into
account. This 3.8% tax also applies to all or a portion of the undistributed net
investment income of certain shareholders that are estates and
trusts.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable to you even if they are paid from income or gains earned by the Fund
before your investment (and thus were included in the Shares’ NAV when you
purchased your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable to you even
though it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. The Fund may, under certain circumstances,
report all or a portion of a dividend as an “interest-related dividend” or a
“short-term capital gain dividend,” which would generally be exempt from this
30% U.S. withholding tax, provided certain other requirements are
met.
Under
the Foreign Account Tax Compliance Act (“FATCA”), the Fund may be required to
withhold a generally nonrefundable 30% tax on (i) distributions of investment
company taxable income and (ii) distributions of net capital gain and the gross
proceeds of a sale or redemption of Fund shares paid to (A) certain “foreign
financial institutions” unless such foreign financial institution agrees to
verify, monitor, and report to the IRS the identity of certain of its
accountholders, among other items (or unless such entity is otherwise deemed
compliant under the terms of an intergovernmental agreement between the United
States and the foreign financial institution’s country of residence), and (B)
certain “non-financial foreign entities” unless such entity certifies to the
Fund that
it
does not have any substantial U.S. owners or provides the name, address, and
taxpayer identification number of each substantial U.S. owner, among other
items. In December 2018, the IRS and Treasury Department released proposed
Treasury Regulations that would eliminate FATCA withholding on Fund
distributions of net capital gain and the gross proceeds from a sale or
redemption of Fund shares. Although taxpayers are entitled to rely on these
proposed Treasury Regulations until final Treasury Regulations are issued, these
proposed Treasury Regulations have not been finalized, may not be finalized in
their proposed form, and are potentially subject to change. You are urged to
consult your tax adviser regarding the application of this FATCA withholding tax
to your investment in the Fund and the potential certification, compliance, due
diligence, reporting, and withholding obligations to which you may become
subject in order to avoid this withholding tax.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale or redemption proceeds paid to
any shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that he, she or it is not subject to such withholding.
Taxes
When Shares are Sold on the Exchange
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares and disallowed to the extent of the
amount of exempt-interest dividends received by the shareholder with respect to
such Shares. The ability to deduct capital losses may be limited.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The IRS may
assert, however, that a loss that is realized upon an exchange of securities for
Creation Units may not be currently deducted under the rules governing “wash
sales” (for an AP who does not mark-to-market their holdings) or on the basis
that there has been no significant change in economic position. Persons
exchanging securities should consult their own tax advisor with respect to
whether wash sale rules apply and when a loss might be deductible.
Any
capital gain or loss realized upon redemption of Creation Units is generally
treated as long-term capital gain or loss if Shares have been held for more than
one year and as a short-term capital gain or loss if Shares have been held for
one year or less.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to realize investment income and/or capital
gains or losses that it might not have realized if it had completely satisfied
the redemption in-kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Tax
Considerations
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax advisor about the
potential tax consequences of an investment in Shares under all applicable tax
laws. For more information, please see the section entitled “Federal Income Tax
Matters” in the SAI.
Distribution
Plan
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year for certain
distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the future,
because the fees are paid out of Fund assets, over time these fees will increase
the cost of your investment and may cost you more than certain other types of
sales charges.
Premium/Discount
Information
Information
regarding how often Shares are traded on the Exchange at a price above
(i.e.,
at a premium) or below (i.e.,
at a discount) the NAV of the Fund can be found on the Fund’s website at
www.mairsandpower.com.
Additional
Notices
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of, the timing,
prices, or quantities of Shares to be issued, nor in the determination or
calculation of the equation by which Shares are redeemable. The Exchange has no
obligation or liability to owners of Shares in connection with the
administration, marketing, or trading of Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser and the Fund make no representation or warranty, express or implied, to
the owners of Shares or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly.
Derivative
Actions
Pursuant
to the Trust’s Amended and Restated Declaration of Trust (the “Declaration of
Trust”), and subject to the limitations disclosed in the Declaration of Trust, a
Fund shareholder may only bring a derivative action if (i) the shareholder or
shareholders make a pre-suit demand upon the Board to bring the subject action
unless an effort to cause the Board to bring such an action is not likely to
succeed (as defined in the Declaration of Trust); (ii) shareholders eligible to
bring such derivative action under the Delaware Statutory Trust Act who hold at
least 10% of the outstanding voting securities of the Trust, or 10% of the
outstanding voting securities of the series or class to which such action
relates, shall join in the request for the Board to commence such action; and
(iii) the Board is afforded a reasonable amount of time to consider such
shareholder request and to investigate the basis of such claim. The Board shall
be entitled to retain counsel or other advisors in considering the merits of the
request and shall require an undertaking by the shareholders making such request
to reimburse the Trust for the expense of any such advisors in the event that
the Trustees determine not to bring such action. The provision requiring at
least 10% of the outstanding voting securities of the Trust, applicable series
or class to join in the request to bring the derivative action and the provision
requiring an undertaking by the requesting shareholders to reimburse the Trust
for the expense of any advisors retained by the Board in the event that the
Trustees determine not to bring such action, do not apply to claims brought
under federal securities laws.
Financial
Highlights
The
following financial highlights table shows financial performance information for
the Fund’s shares from March 11, 2021 (commencement of operations) to the fiscal
period ended December 31, 2021. Certain information reflects financial results
for a single share of the Fund. 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, are included in
the Fund’s 2021 Annual
Report
to Shareholders,
which is available upon request.
|
|
|
|
|
|
Per
Share Data for a Share Outstanding Throughout the Period |
|
|
|
Period
Ended December 31, 2021(1) |
Per
Share |
|
|
|
Net
asset value, beginning of period |
$25.00 |
|
|
Income
from investment operations: |
|
Net
investment income(2) |
$0.18 |
Net
realized and unrealized gain (loss) |
0.14 |
Total
from investment operations |
0.32 |
|
|
Distributions
to shareholders from: |
|
Net
investment income |
(0.16) |
Total
distributions |
(0.16) |
|
|
Net
asset value, end of period |
$25.16 |
|
|
Total
investment return, at NAV(3) |
1.29%(4) |
|
|
Total
investment return, at Market(3) |
1.32%(4) |
|
|
Net
assets, end of period, in thousands |
$18,619 |
|
|
Ratios/supplemental
data: |
|
Ratio
of expenses to average net assets |
0.39%(5) |
Ratio
of net investment income to average net assets |
0.88%(5) |
Portfolio
turnover rate |
2.54%(4) |
(1)The
Fund commenced investment operations on March 11, 2021.
(2)Per
share net investment income was calculated using average shares
outstanding.
(3)Total
return in the table represents the rate that the investor would have earned or
lost on an investment in the Fund, assuming reinvestment of
dividends.
(4)Not
annualized for periods less than one year.
(5)Annualized
for periods less than one year.
Investment
Adviser
Mairs
& Power, Inc.
W1520
First National Bank Building,
332
Minnesota Street,
Saint
Paul, Minnesota 55101-1363
Independent
Registered Public Accounting Firm
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
Wisconsin 53202
Legal
Counsel
Godfrey
& Kahn, S.C.
833
East Michigan Street, Suite 1800
Milwaukee,
Wisconsin 53202
Custodian
U.S.
Bank National Association
Custody
Operations
1555
North River Center Drive, Suite 302
Milwaukee,
Wisconsin 53212
Transfer
Agent, Fund Accountant and Fund Administrator
U.S.
Bancorp Fund Services, LLC
615
East Michigan Street
Milwaukee,
Wisconsin 53202
Distributor
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101
Mairs
& Power Minnesota Municipal Bond ETF
A
Series of Trust for Professional Managers
For
More Information
You
may find more information about the Fund in the following
documents:
Statement
of Additional Information
The
SAI provides additional details about the investments and techniques of the Fund
and certain other additional information. The current SAI on file with the SEC
is incorporated into this Prospectus by reference. This means that the SAI is
legally considered a part of this Prospectus even though it is not physically
within this Prospectus.
Annual
and Semi-Annual Reports
The
Fund’s annual and semi-annual reports provide the most recent financial reports
and portfolio holdings. The Fund’s annual report contains a discussion of the
market conditions and investment strategies that significantly affected the
Fund’s performance during the Fund’s prior fiscal period.
You
may obtain a free copy of these documents, request other information or make
general inquiries about the Fund by calling the Fund at (855) 839-2800
(toll-free), by visiting www.mairsandpower.com
or
by writing to:
Mairs
& Power Minnesota Municipal Bond ETF
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
WI 53201-0701
Shareholder
reports and other information about the Fund are also available:
•free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•for
a fee, by electronic request at the following e-mail address:
[email protected].
_______________________________________________
(The
Trust’s SEC Investment Company Act of 1940 file number is
811‑10401.)