ck0001027596-20230430
Reverb
ETF
(RVRB)
Listed
on Cboe BZX Exchange, Inc.
PROSPECTUS
August 28,
2023
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved
of these securities or passed upon the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
Reverb
ETF
TABLE
OF CONTENTS
FUND
SUMMARY
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
0.30% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses(1) |
0.00% |
Total
Annual Fund Operating Expenses |
0.30% |
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(1) Pursuant to an
investment advisory agreement, Distribution Cognizant, LLC (the “Adviser”) pays
all other expenses of the Fund except for the management fee, 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, distribution fees and
expenses paid under the Fund’s Rule 12b-1 plan, and any extraordinary expenses
(such as litigation expenses and indemnification of the Trustees and officers
with respect thereto).
This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other funds. The Example assumes that
you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your Shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The Example does not take into account brokerage commissions
that you may pay on your purchases and sales of Shares.
Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1 Year |
3
Years |
5
Years |
10
Years |
$31 |
$97 |
$169 |
$381 |
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These costs, which are not reflected in annual fund
operating expenses or in the Example, affect the Fund’s performance. During the
most recent fiscal period, the Fund’s portfolio turnover rate was
2.37% of the average
value of its portfolio.
The Fund is an actively managed exchange-traded fund
(“ETF”). The Fund will invest in equity securities of companies that are
publicly listed on one or more major U.S. national securities exchanges and
which are among the largest approximately 450-550 domestic equity companies as
determined by the Adviser on the basis of their free float market capitalization
(the “Investable Universe”). In managing the Fund, the Adviser employs a market
“sentiment” based investment strategy, determined in accordance with its own
proprietary web-based algorithm discussed below (the “Reverberate App” or the
“App”), to adjust the weightings of positions in the Fund’s portfolio. When
sentiment and/or change in sentiment is positive for a particular company, the
Adviser will likely increase its holdings of securities of that company within
the Fund’s portfolio. When sentiment and/or change in sentiment is negative the
Adviser will likely reduce its holdings of securities of that company within the
Fund’s portfolio. If sentiment and/or change in sentiment is neutral or there is
not enough information to allow for an accurate determination, the Adviser will
typically maintain or reduce its existing active position in the security or
match the weighting of the security in the Fund’s portfolio to the company’s
relative market capitalization weighting as compared to total market
capitalization of all of the companies within the Investable Universe.
The
Adviser believes that market sentiment is a strong indicator of whether a
company is satisfying consumer, shareholder and stakeholder needs and therefore
likely to thrive or struggle over the longer term. The Adviser also believes
that the Reverberate App may be able to provide real time information about a
company’s performance and information that is available in advance of
traditional quarterly or periodic reports to the public. The Adviser believes
that with sufficient real time input from a broad segment of the public, it can
make a determination whether to more heavily weight a company within the
portfolio in advance of the release of more traditional backward-looking data,
such as quarterly sales or subscriber information. The Adviser does not perform
company level research on any of the positions in the portfolio, other than its
analysis of the market sentiment information provided by the Reverberate App.
The
Reverberate App
– The Adviser has developed a web-based application, known as the Reverberate
App, which uses its own proprietary technology and algorithms to collect,
analyze and process feedback regarding companies listed in the Reverberate App.
Generally, each of the companies in the Investable Universe will be listed in
the Reverberate App. Through the Reverberate App, users have the ability to
provide immediate feedback regarding any or all of the public companies listed
in the Reverberate App. The Reverberate App is available to the general public
without charge and users do not need to be shareholders of the Fund to provide
feedback on the App. All firms in the Investable Universe will be available to
rate on the App. The companies listed on the App are reviewed on a regular basis
and the Adviser will make changes from time to time as the market capitalization
of companies conditions within the Investable Universe changes.
In
developing the Reverberate App, the Adviser seeks to capture, in an efficient
manner, the satisfaction and utility that the public are receiving from the
companies listed in the App. The App allows users to directly communicate their
views and makes this information available to the Adviser. The Reverberate App
uses proprietary technology and statistical analysis to convert data collected
from the App into investment signals used by the Adviser as discussed below.
Through its proprietary algorithms, the Reverberate App identifies average user
ratings of certain companies as well as changes in ratings and how meaningful
these changes may be. The Reverberate App also uses tools and technology to seek
to identify and limit the influence of non-human users (Bots) or multiple votes
by the same user. The information collected via the Reverberate App is not
publicly available except to the Adviser and the Fund.
The
Investment Process
– The Fund’s portfolio will generally contain all of the securities from within
the Investable Universe. The Adviser will adjust the weightings of each security
in the Fund’s portfolio based on its review of the data supplied by the
Reverberate App. Generally, those companies that have received greater increases
in positive feedback when compared to other companies in the Investable Universe
will have a higher average relative weighting in the Fund and those companies
with greater increases in negative feedback compared to other companies in the
Investable Universe will have a lower average relative weighting in the Fund.
If
the Reverberate App is unable to draw sufficient users to express their views on
a company, the Adviser will invest in the company at a level approximately equal
to its market-capitalization proportional to that of the Investable Universe.
The
Adviser considers approximately 1,000 user responses to be a sufficient number
of responses to signal trading for the Fund and cause a holding to become
underweight or overweight.
The Adviser employs guardrails, generally a maximum of 10% of the size
of the market capitalization weight, to limit the size of active positions in
the portfolio in order to manage downside risk. The active positions will also
be scaled by user response variation and number of responses, and in practice
will not reach the guardrail size and will generally be much smaller in the case
of larger holdings, although due to rounding constraints, the guardrails may
from time to time be violated in the case of smaller holdings making up
fractional percentages of the Fund’s portfolio. The Adviser also employs
thresholds, requiring statistically significant changes in sentiment before
adjusting active weights, in order to limit turnover and ensure that overall
changes in consumer sentiment are meaningful. If market sentiment on a company
is extremely negative, the adviser may choose to remove the position from the
portfolio entirely.
By
itself, the Fund is not a complete, balanced investment plan. The Fund cannot
guarantee that it will achieve its investment objectives. Losing all or a portion of your
investment is a risk of investing in the Fund. The following
risks are considered principal and could affect the value of your investment in
the Fund:
•New
Adviser Risk. The
Adviser is a new entity formed in 2021 and has not previously managed an ETF.
ETFs and their advisers are subject to restrictions and limitations imposed by
the Investment Company Act of 1940, as amended (the “1940 Act”) and the Internal
Revenue Code. As a result, investors do not have a long-term track record of
managing a
pooled
investment vehicle from which to judge the newly-formed Adviser and the Adviser
may not achieve the intended result in managing the Fund.
•Management
Risk.
The
investment strategies, practices and risk analysis used by the Adviser may not
produce the desired results. The ability of the Fund to meet its investment
objective is directly related to the Adviser’s investment strategies for the
Fund. If the Adviser’s investment strategies do not produce the expected
results, your investment could be diminished or even lost.
•Consumer
Sentiment Risk.
Investment decisions that are based primarily on consumer sentiment involve
additional risks. Information received may be inaccurate, incomplete or
misleading. Information received may be outdated or could be duplicative making
the information ineffective for accurately gauging current sentiment. There is a
possibility that users have an undisclosed agenda with an attempt to manipulate
a company’s stock price.
•Research
Risk. The
Adviser does not conduct company research on any of the positions held in the
portfolio outside of analysis of the sentiment data received from the
Reverberate App. The Adviser also does not consider market developments or the
status of the economy in its management of the Fund. The Adviser’s strategy is
to base its investment decisions entirely on the expressions of sentiment as
identified in the Reverberate App. As a result, the Fund is subject to the
risks, which may be substantial, that negative developments effecting a held
company, the economy, or markets in general, may not be apparent to the users of
the Reverberate App. These negative developments could have significant negative
impact on the value of your investment and the Fund’s portfolio.
•Reverberate
App. The
Reverberate App is a new web-based utility and currently has a limited number of
users. The ability of the App to properly and accurately gauge public sentiment
is highly dependent on its ability to attain a high level of regular usage among
a broad market segment of the population. If the App is unable to draw
sufficient users to express their views on a company, the Adviser will invest in
the company at a level equal to its market-capitalization proportional to that
of the Investable Universe. If the Adviser is unable to take material active
positions due to lack of sufficient data or otherwise, the Fund will likely
experience performance similar to the broad large capitalization market in
general. In addition, while the App seeks to use tools and technology to
identify and limit the influence of non-human users (Bots) or multiple votes by
the same user, there is no guarantee that it will be successful in doing so. In
that event, the information provided by the App may not properly reflect
sentiment regarding a company, leading the Adviser to take active positions in a
company that are inconsistent with true market sentiment. The
investment strategy of relying entirely on general public sentiment as expressed
on a web-based user app in order to take active positions is novel. The strategy
may not work and this may have a significant negative impact on the value of
your investment.
•General
Market Risk.
Economies
and financial markets throughout the world are becoming increasingly
interconnected, which increases the likelihood that events or conditions in one
country or region will adversely impact markets or issuers in other countries or
regions. Securities in the Fund’s portfolio may underperform in comparison to
securities in general financial markets, a particular financial market or other
asset classes due to a number of factors, including: inflation (or expectations
for inflation); interest rates; global demand for particular products or
resources; natural disasters or events; pandemic diseases; terrorism; regulatory
events; and government controls. U.S. and international markets have experienced
significant periods of volatility in recent years and months due to a number of
economic, political and global macro factors, which 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.
Continuing uncertainties regarding interest rates, rising inflation, political
events, rising government debt in the U.S. and trade tensions also contribute to
market volatility. As a result of continuing political tensions and armed
conflicts, including the war between Ukraine and Russia, the U.S. and the
European Union imposed sanctions on certain Russian individuals and companies,
including certain financial institutions, and have limited certain exports and
imports to and from Russia. The war has contributed to recent market volatility
and may continue to do so.
•Equity
Securities Risk.
The
value of the Fund’s shares will go up or down based on the movement of the
overall stock market and the value of the individual securities held by the
Fund, both of which can sometimes be volatile.
•High
Portfolio Turnover Risk. The
Fund may be subject to increased trading based on the level of user responses
received and this trading can lead to higher than normal portfolio turnover. The
Fund may frequently buy and sell portfolio securities and other assets to
rebalance the Fund’s exposure to specific securities. Higher portfolio turnover
may
result
in the Fund paying higher levels of transaction costs and generating greater tax
liabilities for shareholders. Portfolio turnover may cause the Fund’s
performance to be less than you expect.
•ETF
Risks.
The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
•Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
•Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
•Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
•Trading. Although
Shares are listed for trading on 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, and this could lead to differences
between the market price of the Shares and the underlying value of those Shares.
•Newer
Fund Risk.
The
Fund is a recently organized investment company with a limited operating
history. There can be no assurance that the Fund will grow to or maintain an
economically viable size, in which case the Board may determine to liquidate the
Fund.
•Sector
Emphasis Risk. The securities of companies in the same or related businesses, if
comprising a significant portion of the Fund’s portfolio, could react in some
circumstances negatively to market conditions, interest rates and economic,
regulatory or financial developments and adversely affect the value of the
portfolio to a greater extent than if such business comprised a lesser portion
of the Fund’s portfolio. The Adviser does not manage the Fund’s sector exposure
so that at any given time the Fund may have significant exposure to individual
sectors.
Performance information for the Fund is not
included because the Fund did not have a full calendar year of performance prior
to the date of this Prospectus. In the future, performance
information for the Fund will be presented in this section. Updated performance
information is available on the Fund’s website at www.reverb-etf.com.
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Adviser |
Distribution
Cognizant, LLC |
Sub-Adviser |
Penserra
Capital Management LLC (“Penserra” or the “Sub-Adviser”) |
Portfolio
Managers |
Patrick
Neal, PhD., CFA, Managing Partner of the Adviser, has been a portfolio
manager of the Fund since its inception in 2022.
|
| Dustin
Lewellyn, CFA, Managing Director of Penserra, has been a portfolio manager
of the Fund since its inception in 2022. |
| Ernesto
Tong, CFA, Managing Director of Penserra, has been a portfolio manager of
the Fund since its inception in 2022. |
| Anand
Desai, Director of Penserra, has been a portfolio manager of the Fund
since its inception in 2022. |
Shares
are listed on the Exchange, and most investors will buy and sell Shares through
brokers at market prices, rather than NAV. Because Shares trade at market prices
rather than NAV, Shares may trade at a price greater than NAV (premium) or less
than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem.
Creation Units generally consist of 50,000 Shares, though this may change from
time to time. The Fund generally issues and redeems Creation Units in exchange
for a portfolio of securities closely approximating the holdings of the Fund
(the “Deposit Securities”) and/or a designated amount of U.S. cash.
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an
individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
ADDITIONAL
INFORMATION
ABOUT
THE
FUND
Investment
Objective.
Reverb ETF (the “Fund”) seeks long-term capital appreciation. The Fund’s
investment objective has been adopted as a non-fundamental investment policy and
may be changed without shareholder approval upon written notice to shareholders.
Temporary
or Cash Investments.
Under normal market conditions, the Fund will invest according to its principal
investment strategies noted above. However, the Fund may temporarily depart from
its principal investment strategy and make short-term investments in cash, cash
equivalents, short-term debt securities and money market instruments in response
to adverse market, economic or political conditions. As a result, to the extent
the Fund makes such “defensive investments,” it may not achieve its investment
objective. For longer periods of time, the Fund may hold a substantial cash
position. If the market advances during periods when the Fund is holding a large
cash position, the Fund may not realize as significant a gain as it would
otherwise have, had it been more fully invested. To the extent the Fund invests
in a money market fund for its cash position, there will be some duplication of
expenses because the Fund will bear its pro rata portion of such money market
fund’s advisory fees and operational expenses.
Principal
Risks of Investing in the Fund. The
principal risks of investing in the Fund that may adversely affect the Fund’s
net asset value (“NAV”) or total return were previously summarized and are
discussed in more detail below. There can be no assurance that the Fund will
achieve its investment objective.
•New
Adviser Risk. Given
that the Adviser is a new entity formed in 2021, it has not previously managed
an ETF. ETFs and their advisers are subject to restrictions and limitations
imposed by the Investment Company Act of 1940, as amended (the “1940 Act”)
and the Internal Revenue Code. As a result, investors do not have a long-term
track record of managing a mutual fund from which to judge the newly-formed
Adviser and the Adviser may not achieve the intended result in managing the
Fund.
•Management
Risk.
The investment strategies, practices and risk analysis used by the portfolio
managers may not produce the desired results.
The
ability of the Fund to meet its investment objective is directly related to the
Adviser’s investment strategies for the Fund.
The
value of your investment in the Fund may vary with the effectiveness of the
Adviser’s research, analysis and asset allocation among portfolio
securities.
If
the Adviser’s investment strategies do not produce the expected results, your
investment could be diminished or even lost.
•Consumer
Sentiment Risk.
Investment decisions that are based primarily on consumer sentiment involve
additional risks. Information received may be inaccurate, incomplete or
misleading. Information received may be outdated or could be duplicative making
the information ineffective for accurately gauging current sentiment. There is a
possibility that users have an undisclosed agenda with an attempt to manipulate
a company’s stock price.
•Research
Risk. The
Adviser does not conduct company research on any of the positions held in the
portfolio outside of analysis of the sentiment data received from the
Reverberate App. The Adviser also does not consider market developments or the
status of the economy in its management of the Fund. The Adviser’s strategy is
to base its investment decisions entirely on the expressions of sentiment as
identified in the Reverberate App. As a result, the Fund is subject to the
risks, which may be substantial, that negative developments effecting a held
company, the economy, or markets in general, may not be apparent to the users of
the Reverberate App. These negative developments could have significant negative
impact on the value of your investment and the Fund’s portfolio.
•Reverberate
App. The
Reverberate App is a new web-based utility and currently has a limited number of
users. The ability of the App to properly and accurately gauge public sentiment
is highly dependent on its ability to attain a high level of regular usage among
a broad market segment of the population. If the App is unable to draw
sufficient users to express their views on a company, the Adviser will invest in
the company at a level equal to its market capitalization proportional to that
of the Investable Universe. If the Adviser is unable to take material active
positions due to lack of sufficient data or otherwise, the Fund will likely
perform like the general market. In addition, while the App seeks to use tools
and technology to identify and limit the influence of non-human users (Bots) or
multiple votes by the same user, there is no guarantee that it will be
successful in doing so. In that event, the information provided by the App may
not properly reflect sentiment regarding a company, leading the Adviser to take
active positions in a company that are inconsistent with true market sentiment.
As an untested process the correlation between a company’s stock price and its
scores through the Reverberate app may prove to be an inaccurate means at
predicting stock performance. The Fund is also subject to the possibility that
hardware or software failures, security breaches, or the like would cause the
Fund to not receive and/or process information in a timely manner.
•General
Market Risk.
Economies
and financial markets throughout the world are becoming increasingly
interconnected, which increases the likelihood that events or conditions in one
country or region will adversely impact markets or issuers in other countries or
regions. Securities in the Fund’s portfolio may underperform in comparison to
securities in general financial markets, a particular financial market or other
asset classes due to a number of factors, including: inflation (or expectations
for inflation); interest rates; global demand for particular products or
resources; natural disasters or events; pandemic diseases; terrorism; regulatory
events; and government controls. U.S. and international markets have experienced
significant periods of volatility in recent years and months due to a number of
economic, political and global macro factors, which 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.
Continuing uncertainties regarding interest rates, rising inflation, political
events, rising government debt in the U.S. and trade tensions also contribute to
market volatility. As a result of continuing political tensions and armed
conflicts, including the war between Ukraine and Russia, the U.S. and the
European Union imposed sanctions on certain Russian individuals and companies,
including certain financial institutions, and have
limited
certain exports and imports to and from Russia. The war has contributed to
recent market volatility and may continue to do so.
•Equity
Securities Risk.
The price of equity securities may rise or fall because of changes in the broad
market or changes in a company’s financial condition, sometimes rapidly or
unpredictably. These price movements may result from factors affecting
individual companies, sectors or industries selected for the Fund’s portfolio or
the securities market as a whole, such as changes in economic or political
conditions. Equity securities are subject to “stock market risk” meaning that
stock prices in general (or in particular, the prices of the types of securities
in which the Fund invests) may decline over short or extended periods of time.
When the value of the Fund’s securities goes down, your investment in the Fund
decreases in value.
•High
Portfolio Turnover Risk. The
Fund may be subject to increased trading based on the level of user responses
received and this trading can lead to higher than normal portfolio turnover. The
Fund may frequently buy and sell portfolio securities and other assets to
rebalance the Fund’s exposure to specific securities. Higher portfolio turnover
may result in the Fund paying higher levels of transaction costs and generating
greater tax liabilities for shareholders. Portfolio turnover may cause the
Fund’s performance to be less than you expect.
•ETF
Risks.
The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
•APs,
Market Makers, and Liquidity Providers Concentration Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
•Costs
of Buying or Selling Shares.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid-ask spread.” The bid-ask spread varies over time for Shares
based on trading volume and market liquidity, and the spread is generally lower
if Shares have more trading volume and market liquidity and higher if Shares
have little trading volume and market liquidity. Further, a relatively small
investor base in the Fund, asset swings in the Fund, and/or increased market
volatility may cause increased bid-ask spreads. Due to the costs of buying or
selling Shares, including bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
•Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price and the NAV vary
significantly, including due to supply and demand of the Fund’s Shares and/or
during periods of market volatility. Thus, you may pay more (or less) than NAV
intra-day when you buy Shares in the secondary market, and you may receive more
(or less) than NAV when you sell those Shares in the secondary market. This risk
is heightened in times of market volatility, periods of steep market declines,
and periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
•Trading.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500®
Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when
extraordinary
volatility causes sudden, significant swings in the market price of Shares.
There can be no assurance that Shares will trade with any volume, or at all, on
any stock exchange. In stressed market conditions, the liquidity of Shares may
begin to mirror the liquidity of the Fund’s underlying portfolio holdings, which
can be significantly less liquid than Shares, and this could lead to differences
between the market price of the Shares and the underlying value of those
Shares.
•Newer
Fund Risk.
The
Fund is a recently organized investment company with a limited operating
history. There can be no assurance that the Fund will grow to or maintain an
economically viable size, in which case the Board may determine to liquidate the
Fund. The Board can liquidate the Fund without shareholder vote and, while
shareholder interests will be the paramount consideration, the timing of any
liquidation may not be favorable to certain individual shareholders.
•Sector
Emphasis Risk.
The
Fund’s investing approach may result in an emphasis on certain sectors or
sub-sectors of the market at any given time. To the extent the Fund invests more
heavily in one sector or sub-sector of the market, it thereby presents a more
concentrated risk and its performance will be especially sensitive to
developments that significantly affect those sectors or sub-sectors. In
addition, the value of Shares may change at different rates compared to the
value of shares of a fund with investments in a more diversified mix of sectors
and industries. An individual sector or sub-sector of the market may have
above-average performance during particular periods, but may also move up and
down more than the broader market. The several industries that constitute a
sector may all react in the same way to economic, political or regulatory
events. The Fund’s performance could also be affected if the sectors or
sub-sectors do not perform as expected. Alternatively, the lack of exposure to
one or more sectors or sub-sectors may adversely affect performance.
Information
about the Fund’s daily portfolio holdings is available at www.reverb-etf.com. A
complete description of the Fund’s policies and procedures with respect to the
disclosure of the Fund’s portfolio holdings is available in the Fund’s Statement
of Additional Information (“SAI”).
MANAGEMENT
The
Adviser provides the Fund with advice on buying and selling securities. The
Adviser also furnishes the Fund with office space and certain administrative
services and provides most of the personnel needed by the Fund. For the services
it provides to the Fund, the Fund pays the Adviser a unified management fee,
which is calculated daily and paid monthly, at an annual rate of 0.30% of the
Fund’s average daily net assets. For the fiscal period November 3, 2022
(commencement of operations) through April 30, 2023, the Fund paid the
Adviser 0.30% of the Fund’s average daily net assets.
Under
the Investment Advisory Agreement, the Adviser has agreed to pay all expenses of
the Fund except for the management fee, 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, distribution fees and expenses paid
under the Fund’s Rule 12b-1 plan, and any extraordinary expenses (such as
litigation expenses and indemnification of the Trustees and officers with
respect thereto).
The
basis for the Board’s approval of the Fund’s Investment Advisory Agreement is
available in the Fund’s shareholder report dated April 30,
2023.
Manager-of-Managers
Arrangement
Section
15(a) of the 1940 Act requires that all contracts pursuant to which persons
serve as investment advisers to investment companies be approved by
shareholders. This requirement also applies to the appointment of sub-advisers
to the Fund. The Trust and the Adviser will apply for exemptive relief from the
SEC (the “Order”), which will permit the Adviser, on behalf of the Fund and
subject to the approval of the Board, including a majority of the independent
members of the Board, to hire, and to modify any existing or future subadvisory
agreement with, unaffiliated sub-advisers and affiliated sub-advisers, including
sub-advisers that are wholly-owned subsidiaries (as defined in the 1940 Act) of
the Adviser or its parent company and sub-advisers that are partially-owned by,
or otherwise affiliated with, the Adviser or its parent company (the
“Manager-of-Managers Structure”). The Adviser has the ultimate responsibility
for overseeing the Fund’s sub-advisers and recommending their hiring,
termination and replacement, subject to oversight by the Board. Assuming the
Order is granted, it will also provide relief from certain disclosure
obligations with regard to sub-advisory fees. With this relief, the Fund may
elect to disclose the aggregate fees payable to the Adviser and wholly-owned
sub-advisers and the aggregate fees payable to unaffiliated sub-advisers and
sub-advisers affiliated with Adviser or its parent company, other than
wholly-owned sub-advisers. The Order will be subject to various conditions,
including that the Fund will notify shareholders and provide them with certain
information required by the exemptive order within 90 days of hiring a new
sub-adviser. The Fund may also rely on any other current or future laws, rules
or regulatory guidance from the SEC or its staff applicable to the
Manager-of-Managers Structure. The sole initial shareholder of the Fund has
approved the operation of the Fund under a Manager-of-Managers Structure with
respect to any affiliated or unaffiliated subadviser, including in the manner
that is permitted by the Order.
The
Manager-of-Managers Structure will enable the Trust to operate with greater
efficiency by not incurring the expense and delays associated with obtaining
shareholder approvals for matters relating to sub-advisers or sub-advisory
agreements. Operation of the Fund under the Manager-of-Managers Structure will
not permit management fees paid by the Fund to the Adviser to be increased
without shareholder approval. Shareholders will be notified of any changes made
to the Sub-Adviser or material changes to sub-advisory agreements within 90 days
of the change. There is no assurance the Order will be granted.
The
Adviser and its affiliates may have other relationships, including significant
financial relationships, with current or potential sub-advisers or their
affiliates, which may create a conflict of interest. However, in making
recommendations to the Board to appoint or to change a sub-adviser, or to change
the terms of a sub-advisory agreement, the Adviser considers the sub-adviser’s
investment process, risk management, and historical performance with the goal of
retaining sub-advisers for the Fund that the Adviser believes are skilled and
can deliver appropriate risk-adjusted returns over a full market cycle. The
Adviser does not consider any other relationship it or its affiliates may have
with a sub-adviser or its affiliates, and the
Adviser
discloses to the Board the nature of any material relationships it has with a
sub-adviser or its affiliates when making recommendations to the Board to
appoint or to change a sub-adviser, or to change the terms of a sub-advisory
agreement.
The
Adviser has retained Penserra Capital Management, LLC to serve as sub-adviser
for the Fund. The Sub-Adviser is responsible for the day-to-day trading of the
Fund. The Sub-Adviser is a registered investment adviser and New York limited
liability company whose principal office is located at 4 Orinda Way, Suite
100-A, Orinda, California 94563. The Sub-Adviser provides investment management
services to investment companies and other investment advisers. The Sub-Adviser
is responsible for trading portfolio securities for the Fund, including
selecting broker-dealers to execute purchase and sale transactions or in
connection with the rebalancing of the portfolio, subject to the supervision of
the Adviser and the Board. For its services, the Adviser will pay the
Sub-Adviser a management fee. The management fee paid to the Sub-Adviser is paid
by the Adviser and not the Fund.
The
basis for the Board of Trustees’ approval of the Fund’s Sub-Advisory Agreement
is available in the Fund’s shareholder report dated April 30, 2023.
Patrick
Neal, PhD, CFA, Dustin Lewellyn, CFA, Managing Director of the Sub-Adviser,
Ernesto Tong, CFA, Managing Director of the Sub-Adviser, and Anand Desai,
Director of the Sub-Adviser, are the Fund’s portfolio managers (the “Portfolio
Managers”) and are jointly responsible for the day to day management of the
Fund. The Portfolio Managers are responsible for various functions related to
portfolio management, including, but not limited to, identifying companies that
meet the Adviser’s strict criteria and to continue to monitor those companies,
investing cash inflows, implementing investment strategy, researching and
reviewing issuers and potential investment opportunities, and overseeing members
of their portfolio management team with more limited
responsibilities.
Mr.
Neal is a portfolio manager of the Fund and Managing Partner of Distribution
Cognizant, LLC. Prior to founding Distribution Cognizant in 2021, Patrick
conducted research and portfolio management for Analytic Investors, a
quantitative equity hedge fund based in Los Angeles, from 2017-2020. Prior to
Analytic, he spent five years directing pricing, economic analysis, and
negotiation support at Acertas. He holds a PhD in Economics from the Claremont
Graduate University and an MS in Financial Analysis from the University of San
Francisco.
Mr.
Lewellyn has been a Managing Director with the Sub-Adviser since 2012. He was
President and Founder of Golden Gate Investment Consulting LLC from 2011 through
2015. Prior to that, Mr. Lewellyn was a managing director at Charles Schwab
Investment Management, Inc. (“CSIM”), which he joined in 2009, and head of
portfolio management for Schwab ETFs. Prior to joining CSIM, he worked for two
years as director of ETF product management and development at a major financial
institution focused on asset and wealth management. Prior to that, he was a
portfolio manager for institutional clients at a financial services firm for
three years. In addition, he held roles in portfolio accounting and portfolio
management at a large asset management firm for more than 6 years.
Mr.
Tong has been a Managing Director with the Sub-Adviser since 2015. Prior to
joining Penserra, Mr. Tong spent seven years as a vice president at Blackrock,
where he was a portfolio manager for a number of the iShares ETFs, and prior to
that, he spent two years in the firm’s index research group.
Mr.
Desai has been a Director with the Sub-Adviser since 2023. Prior to that, he was
a Senior Vice President with the Sub-Adviser since 2021 and was previously an
Associate since 2015. Prior to joining Penserra, Mr. Desai spent five years as a
portfolio fund accountant at State Street.
The
SAI provides additional information about the Portfolio Managers’ compensation
structure, other accounts managed by the Portfolio Managers, and the Portfolio
Managers’ ownership of Shares.
The
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from the Fund, and only APs may tender their Shares for
redemption directly to the Fund, at NAV. APs must be a member or participant of
a clearing agency registered with the SEC and must execute a Participant
Agreement that has been agreed to by the Distributor (defined below), and that
has been accepted by the Fund’s transfer agent, with respect to purchases and
redemptions of Creation Units. Once created, Shares trade in the secondary
market in quantities less than a Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Shares are listed for trading on the secondary market on the Exchange and can be
bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the bid-ask spread on
your transactions. In addition, because secondary market transactions occur at
market prices, you may pay more than NAV when you buy Shares and receive less
than NAV when you sell those Shares.
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.
Trading
prices of Shares on the Exchange may differ from the Fund’s daily NAV. Market
forces of supply and demand, economic conditions and other factors may affect
the trading prices of Shares. To provide additional information regarding the
indicative value of Shares, the Exchange or a market data vendor disseminates
information every 15 seconds through the facilities of the Consolidated
Tape Association, or other widely disseminated means, an updated “intraday
indicative value” (“IIV”) for Shares as calculated by an information provider or
market data vendor. The Fund is not involved in or responsible for any aspect of
the calculation or dissemination of the IIVs and makes no representation or
warranty as to the accuracy of the IIVs. If the calculation of the IIV is based
on the basket of securities to be delivered in exchange for a Creation Unit
(“Deposit Securities”) and/or a designated amount of U.S. cash, such IIV may not
represent the best possible valuation of the Fund’s portfolio because the basket
of Deposit Securities does not necessarily reflect the precise composition of
the current Fund portfolio at a particular point in time and does not include a
reduction for the fees, operating expenses, or transaction costs incurred by the
Fund. The IIV should not be viewed as a “real-time” update of the Fund’s NAV
because the IIV may not be calculated in the same manner as the NAV, which is
computed only once a day, typically at the end of the business day. The IIV is
generally determined by using both current market quotations and/or price
quotations obtained from broker-dealers that may trade in the Deposit
Securities.
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, the Board has also
determined that frequent purchases and redemptions for cash may increase
tracking error and portfolio transaction costs and may lead to the realization
of capital gains. To minimize these potential consequences of frequent purchases
and redemptions, the Fund employs fair value pricing and may impose transaction
fees on purchases and redemptions of Creation Units to cover the custodial and
other costs incurred by the Fund in effecting trades. In addition, the Fund and
the Adviser reserve the right to reject any purchase order at any time.
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern time, each day
the NYSE is open for business. The NAV is calculated by dividing the Fund’s net
assets by its Shares outstanding.
In
calculating its NAV, the Fund generally values its assets on the basis of market
quotations, last sale prices, or estimates of value furnished by a pricing
service or brokers who make markets in such instruments. If such information is
not available for a security held by the Fund or is determined to be unreliable,
the security will be valued at fair value estimates under guidelines established
by the Adviser (as described below).
The
Board has designated the Adviser as the “valuation designee” for the Fund under
Rule 2a-5 of the 1940 Act, subject to its oversight. The Adviser has adopted
procedures and methodologies to fair value Fund securities whose market prices
are not “readily available” or are deemed to be unreliable. For example, such
circumstances may arise when: (i) a security has been
de-listed
or has had its trading halted or suspended; (ii) a security’s primary pricing
source is unable or unwilling to provide a price; (iii) a security’s primary
trading market is closed during regular market hours; or (iv) a security’s value
is materially affected by events occurring after the close of the security’s
primary trading market. Generally, when fair valuing a security, the Fund will
take into account all reasonably available information that may be relevant to a
particular valuation including, but not limited to, fundamental analytical data
regarding the issuer, information relating to the issuer’s business, recent
trades or offers of the security, general and/or specific market conditions and
the specific facts giving rise to the need to fair value the security. Fair
value determinations are made in good faith and in accordance with the fair
value methodologies included in the Adviser’s valuation procedures. Due to the
subjective and variable nature of fair value pricing, there can be no assurance
that the Adviser will be able to obtain the fair value assigned to the security
upon the sale of such security.
Householding
is an option available to certain investors of the Fund. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Fund is available through certain broker-dealers. If
you are interested in enrolling in householding and receiving a single copy of
prospectuses and other shareholder documents, please contact your broker-dealer.
If you are currently enrolled in householding and wish to change your
householding status, please contact your broker-dealer.
The
Fund intends to pay out dividends and distribute net realized capital gains, if
any, to its shareholders at least annually. The Fund will declare and pay
capital gain distributions, if any, in cash. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to
you.
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax advisor
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Fund intends to elect and qualify each year for treatment as a regulated
investment company (“RIC”) under the Code. If it meets certain minimum
distribution requirements, a RIC is not subject to tax at the fund level on
income and gains from investments that are timely distributed to shareholders.
However, the Fund’s failure to qualify as a RIC or to meet minimum distribution
requirements would result (if certain relief provisions were not available) in
fund-level taxation and, consequently, a reduction in income available for
distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when the Fund makes distributions, when you sell your Shares listed
on the Exchange; and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions. The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long the Fund owned the investments that generated them,
rather than how long a shareholder has owned his or her Shares. Sales of assets
held by the Fund for more than one year generally result in long-term capital
gains and losses, and sales of assets held by the Fund for one year or less
generally result in short-term capital gains and losses. Distributions of the
Fund’s net capital gain (the excess of net long-term capital gains over net
short-term capital losses) that are reported by the Fund as capital gain
dividends (“Capital Gain Dividends”) will be taxable as long-term capital gains,
which for non-corporate shareholders are subject to tax at reduced rates of up
to 20% (lower rates apply to individuals in lower tax brackets). Distributions
of short-term capital gain will generally be taxable as ordinary income.
Dividends and distributions are generally taxable to you whether you receive
them in cash or reinvest them in additional Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that the Fund received in respect of stock of certain
foreign corporations may be qualified dividend income if that stock is readily
tradable on an established U.S. securities market. Dividends received by a Fund
from an ETF or underlying fund taxable as a
RIC
may be treated as qualified dividend income generally only to the extent so
reported by such ETF or underlying fund. Corporate shareholders may be entitled
to a dividends received deduction for the portion of dividends they receive from
a Fund that are attributable to dividends received by the Fund from U.S.
corporations, subject to certain limitations.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your investment.
If
the Fund’s distributions exceed its earnings and profits, all or a portion of
the distributions made for a taxable year may be recharacterized as a return of
capital to shareholders. A return of capital distribution will generally not be
taxable, but will reduce each shareholder’s cost basis in Shares and result in a
higher capital gain or lower capital loss when the Shares are sold. After a
shareholder’s basis in Shares has been reduced to zero, distributions in excess
of earnings and profits in respect of those Shares will be treated as gain from
the sale of the Shares.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares generally are not subject to U.S. taxation, unless you are a
nonresident alien individual who is physically present in the U.S. for 183 days
or more per year. The Fund may, under certain circumstances, report all or a
portion of a dividend as an “interest-related dividend” or a “short-term capital
gain dividend,” which would generally be exempt from this 30%
U.S. withholding tax, provided certain other requirements are met.
Different tax consequences may result if you are a foreign shareholder engaged
in a trade or business within the United States or if a tax treaty applies.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act),
the Fund is required to withhold 30% of certain ordinary dividends it pays to
shareholders that are foreign entities and that fail to meet prescribed
information reporting or certification requirements.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale or redemption proceeds paid to
any shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that he, she or it is not subject to such withholding.
Taxes
When Shares are Sold on the Exchange.
Any capital gain or loss realized upon a sale of Shares generally is treated as
a long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares of the Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of Shares. The ability to deduct capital
losses may be limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Internal Revenue Code. The difference
between the selling price and the cost basis of Shares generally determines the
amount of the capital gain or loss realized on the sale or exchange of Shares.
Contact the broker through whom you purchased your Shares to obtain information
with respect to the available cost basis reporting methods and elections for
your account.
Taxes
on Purchases and Redemptions of Creation Units. An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who
exchanges
Creation Units for securities will generally recognize a gain or loss equal to
the difference between the exchanging AP’s basis in the Creation Units and the
aggregate U.S. dollar market value of the securities received, plus any cash
received for such Creation Units. The Internal Revenue Service may assert,
however, that a loss that is realized upon an exchange of securities for
Creation Units may not be currently deducted under the rules governing “wash
sales” (for an AP who does not mark-to-market their holdings), or on the basis
that there has been no significant change in economic position. APs exchanging
securities should consult their own tax advisor with respect to whether wash
sale rules apply and when a loss might be deductible.
Any
capital gain or loss realized upon redemption of Creation Units is generally
treated as long-term capital gain or loss if Shares have been held for more than
one year and as a short-term capital gain or loss if Shares have been held for
one year or less.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and
local tax on Fund distributions and sales of Shares. Consult your personal
tax advisor about the potential tax consequences of an investment in Shares
under all applicable tax laws. For more information, please see the section
entitled “Federal Income Taxes” in the SAI.
DISTRIBUTION
The
Distributor, Quasar Distributors, LLC, is a broker-dealer registered with the
SEC. The Distributor distributes Creation Units for the Fund on an agency basis
and does not maintain a secondary market in Shares. The Distributor has no role
in determining the policies of the Fund or the securities that are purchased or
sold by the Fund. The Distributor’s principal address is 111 East Kilbourn
Avenue, Suite 2200, Milwaukee, Wisconsin 53202.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year for certain
distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to
impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because the fees are paid out of the Fund’s assets, over time these fees
will increase the cost of your investment and may cost you more than certain
other types of sales charges.
Information
regarding how often Shares traded on the Exchange at a price above (i.e., at
a premium) or below (i.e., at
a discount) the NAV per Share is available, free of charge, on the Fund’s
website at www.reverb-etf.com.
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.
The
financial highlights table is intended to help you understand the Fund’s
financial performance for the period of the Fund’s operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Tait, Weller & Baker
LLP, an independent registered public accounting firm, whose report, along with
the Fund’s financial statements, are included in the annual
report
dated April 30, 2023, which is available upon request.
For
a share outstanding throughout the period
|
|
|
|
|
|
|
| |
| For
the period November 3, 2022* through April 30, 2023 |
|
Net
asset value, beginning of period |
$ |
19.24 |
| |
|
| |
Income
from investment operations: |
| |
Net
investment income |
0.14 |
|
Net
realized and unrealized gain on investments |
2.28 |
| |
Total
from investment operations |
2.42 |
| |
|
| |
Less
distributions: |
| |
From
net investment income |
(0.05) |
| |
Total
distributions |
(0.05) |
| |
|
| |
Net
asset value, end of period |
$ |
21.61 |
| |
|
| |
Total
return, at NAV |
12.60%(2) |
|
Total
return, at Market |
12.60%(2) |
|
|
| |
Ratios/supplemental
data: |
| |
Net
assets, end of period (thousands) |
$ |
2,161 |
| |
Ratio
of expenses to average net assets |
0.30%(1) |
|
Ratio
of net investment income to average net assets |
1.27%(1) |
|
Portfolio
turnover rate(3) |
2.37%(2) |
|
(1) Annualized.
(2) Not
Annualized.
(3) Excludes
impact of in-kind transactions.
* Commencement
of operations.
Reverb
ETF
|
|
|
|
|
|
|
|
|
|
| |
Adviser |
Distribution
Cognizant, LLC
288
Pearl Street, #304
Monterey,
California 93940 |
Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Dr.
Milwaukee,
Wisconsin 53212 |
Sub-Adviser |
Penserra
Capital Management LLC
4
Orinda Way, Suite 100-A
Orinda,
California 94563 |
Distributor |
Quasar
Distributors, LLC
111
East Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202 |
Transfer
Agent, Administrator, and Fund Accountant |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Legal
Counsel |
Sullivan
& Worcester LLP
1633
Broadway, 32nd Floor
New
York, New York 10019 |
Independent
Registered Public Accounting Firm |
Tait,
Weller & Baker LLP
Two
Liberty Place
50
South 16th Street, Suite 2900
Philadelphia,
Pennsylvania 19102 |
| |
Investors
may find more information about the Fund in the following documents:
Statement
of Additional Information: The
Fund’s SAI provides additional details about the investments and techniques of
the Fund and certain other additional information. A current SAI is on file with
the SEC and is herein incorporated by reference into this Prospectus. It is
legally considered a part of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments will be available in the Fund’s annual
or semi-annual reports to shareholders. In the annual report you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at Reverb ETF, c/o U.S.
Bank Global Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or
calling 1-800-617-0004.
Shareholder
reports and other information about the Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Fund’s Internet website at www.reverb-etf.com;
or
(SEC
Investment Company Act File No. 811-07959)