ck0001592900-20231130
Guru
Favorite Stocks ETF
Ticker
Symbol: GFGF
Prospectus
March 31,
2024
Listed
on The Nasdaq Stock Market LLC
These
securities have not been approved or disapproved by the Securities and Exchange
Commission nor has the Securities and Exchange Commission passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
Table
of Contents
GURU
FAVORITE STOCKS ETF
INVESTMENT
OBJECTIVE
Guru Favorite Stocks
ETF (the “Fund”) seeks long-term capital
appreciation.
FEES AND
EXPENSES
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may also pay brokerage commissions on the purchase and sale of Shares, which are
not reflected in the table and example below.
ANNUAL FUND
OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE OF THE VALUE
OF YOUR INVESTMENT)1
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Management
Fee |
0.65 |
% |
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Distribution
and/or Service (12b-1) Fees |
0.00 |
% |
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Other
Expenses |
0.00 |
% |
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Total
Annual Fund Operating Expenses |
0.65 |
% |
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1The
Fund’s investment advisory agreement provides that the Fund’s investment adviser
will pay substantially all expenses of the Fund, except for the management fee
payment under the Fund’s Investment Advisory Agreement, payments under the
Fund’s Rule 12b-1 Distribution and Service Plan, brokerage expenses, acquired
fund fees and expenses, taxes, interest (including borrowing costs), litigation
expense and other non-routine or extraordinary expenses. Additionally, the Fund
shall be responsible for its non-operating expenses, including brokerage
commissions and the fees and expenses associated with the Fund’s securities
lending program, if applicable.
EXAMPLE
The following 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 for the time periods indicated and then redeem
all of your Shares at the end of those periods. The example also assumes that
the Fund provides a return of 5% a year and that operating expenses remain the
same. You may also pay brokerage commissions on the purchase and sale of Shares,
which are not reflected in the example. 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: |
| $66 |
$208 |
$362 |
$810 |
PORTFOLIO
TURNOVER
The
Fund may pay transaction costs, including commissions when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These costs, which are not reflected in annual fund
operating expenses or in the example, affect the Fund’s performance. For the
fiscal year ended November 30, 2023, the Fund’s portfolio turnover rate was
81%.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund is an actively-managed exchange-traded fund (“ETF”). The Fund’s investment
strategy is to seek to grow the capital by investing in high quality companies
that are favored by prominent long-term investors (“Gurus”) and at reasonable
prices.
The
Fund’s investment sub-adviser, GuruFocus Investments, LLC (the “Sub-Adviser”)
tracks the equity portfolio holdings of approximately twenty Gurus. To be
considered a Guru, the investor must have a long-term, publicly available, track
record of at least ten years. In addition, the Guru must follow an investment
strategy of investing in
companies
that the Guru considers to be high-quality. The list of Gurus will generally
remain consistent absent unusual circumstances – for example, the retirement of
a particular Guru.
The
Sub-Adviser then generates an initial universe of U.S.-listed securities based
on the Gurus’ portfolios. The Sub-Adviser tracks each of the Guru’s portfolio
holdings using publicly available information, including information contained
in Form 13F filings. The Sub-Adviser then generally eliminates securities of
companies with a market capitalization of less than one billion dollars. In
addition, the Sub-Adviser excludes any debt securities and derivative
instruments from the initial universe. The Sub-Adviser then ranks the remaining
equity securities held in Gurus’ portfolios based on the Gurus’ ownership. A
security is counted each time it is held in any Guru’s portfolio. For example,
if five Gurus hold the securities of a particular company, that company’s
securities would receive a rank of 5. The ranking is done without regard to the
size of the Gurus’ holdings. For example, if two securities are held by the same
number of Gurus, the two securities will have the same rank regardless of
whether the Gurus invest more heavily in one of them.
After
the Sub-Adviser has ranked the equity securities in the initial universe, the
Sub-Adviser then employs a proprietary quantitative methodology to determine the
quality and value of each of them. Quality is a measure of the strength of a
security’s fundamentals. In contrast, value is a measure of a security’s price
relative to the Sub-Adviser’s estimate of the fundamental value of that
security.
For
the quality determination, the Sub-Adviser analyzes each company using various
financial measurements, such as the company’s return on invested capital (ROIC),
profit margin, growth, and the predictability of the businesses etc. For the
valuation determination, the Sub-Adviser analyzes a different set of financial
measurements, which may include an analysis of a company’s price to earnings,
price to book value, price to sales, and discounted cash flow. All things being
equal, the Sub-Adviser will recommend a high-ranked security over a lower-ranked
security. However, the Sub-Adviser may recommend a lower-ranked security over a
high-ranked security if, based on the Sub-Adviser’s assessment, the lower-ranked
security is of a better quality or value.
The
Sub-Adviser will recommend approximately 25-35 equity securities for the Fund’s
portfolio. The Fund will generally be fully invested. The Sub-Adviser takes a
long-term investment view, and will generally recommend changes to the Fund’s
portfolio twice a year, near the beginning of each year, and
mid-year.
As of November
30, 2023, the Fund had significant exposure to the Information Technology sector
(42.2%), Financials sector (20.5%) and Healthcare sector
(14.7%).
PRINCIPAL
RISKS
An
investment in the Fund involves risk, including those described below.
There
is no assurance that the Fund will achieve its investment objective.
An
investor may lose money by investing in the Fund. An investment in
the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or
any government agency. More complete risk descriptions are set
forth below under the heading “Additional
Information About the Fund’s Risks.”
Investment
Risk. When
you sell your Shares of the Fund, they could be worth less than what you paid
for them. The Fund could lose money due to short-term market movements and over
longer periods during market downturns. Securities may decline in value due to
factors affecting securities markets generally or particular asset classes or
industries represented in the markets. The value of a security may decline due
to general market conditions, economic trends or events that are not
specifically related to the issuer of the security or to factors that affect a
particular industry or group of industries. During a general downturn in the
securities markets, multiple asset classes may be negatively affected.
Therefore, you may lose money by investing in the
Fund.
Stale
Information Risk.
The Sub-Adviser will recommend securities for the Fund based on publicly
available information about the Gurus’ holdings. However, the publicly available
information does not generally reflect real-time portfolio holdings. For
example, information obtained via Form 13F filings are available only quarterly,
and will contain information that is at least 45 days’ old. As a result, the
Sub-Adviser may rank a particular security higher than it would have been ranked
if the Sub-Adviser had access to all of the Guru’s portfolio holdings on a
real-time basis. As a result, the Fund may purchase securities or retain
securities that are no longer favored by the Gurus, which may hurt the Fund’s
performance.
Equity
Investing Risk. An
investment in the Fund involves risks similar to those of investing in any fund
holding equity securities, such as market fluctuations, changes in interest
rates and perceived trends in stock prices. The values of equity securities
could decline generally or could underperform other investments. In addition,
securities may decline in value due to factors affecting a specific issuer,
market or securities markets
generally.
Quantitative
Security Selection Risk. Data
for some companies may be less available and/or less current than data used by
other investment advisory firms. The Sub-Adviser uses quantitative analyses, and
its processes could be adversely affected if erroneous or outdated data is
utilized. In addition, securities selected using a quantitative analysis could
perform differently from the financial markets as a whole as a result of the
characteristics used in the analysis, the weight placed on each characteristic,
and changes in the characteristic’s historical
trends.
Management
Risk.
The Fund is actively managed and may not meet its investment objective based on
the Adviser’s or Sub-Adviser’s success or failure to implement investment
strategies for the Fund.
Semi-Annual
Reallocation Risk. Because
the Sub-Adviser will normally recommend changes to the Fund’s portfolio on a
semi-annual basis, (i) the Fund’s market exposure may be affected by significant
market movements promptly following a semi-annual reconstitution that are not
predictive of the market’s performance for the subsequent semi-annual period and
(ii) changes to the Fund’s market exposure may lag a significant change in the
market’s direction (up or down) by as long as a half a year if such changes
first take effect promptly following a semi-annual reconstitution. Such lags
between market performance and changes to the Fund’s exposure may result in
significant underperformance relative to the broader equity or fixed income
market.
Large-Capitalization
Companies Risk. Large-capitalization
companies may trail the returns of the overall stock market.
Large-capitalization stocks tend to go through cycles of doing better - or worse
- than the stock market in general. These periods have, in the past, lasted for
as long as several years.
Mid-Capitalization
Companies Risk.
Investing in securities of medium-capitalization companies involves greater risk
than customarily is associated with investing in larger, more established
companies. These companies’ securities may be more volatile and less liquid than
those of more established companies. Often medium-capitalization companies and
the industries in which they focus are still evolving and, as a result, they may
be more sensitive to changing market
conditions.
Sector
Risk.
Companies with similar characteristics may be grouped together in broad
categories called sectors. A certain sector may underperform other sectors or
the market as a whole. As the Sub-Adviser allocates more of the Fund’s portfolio
holdings to a particular sector, the Fund’s performance will be more susceptible
to any economic, business or other developments which generally affect that
sector.
•Information
Technology Sector Risk. The
Fund will have exposure to companies operating in the technology sector.
Technology companies, including information technology companies, may have
limited product lines, financial resources and/or personnel. Technology
companies typically face intense competition and potentially rapid product
obsolescence. They are also heavily dependent on intellectual property rights
and may be adversely affected by the loss or impairment of those
rights.
•Financials
Sector Risk. The
Fund is expected to have exposure to companies in the financials sector, and
therefore, the Fund’s performance could be negatively impacted by events
affecting this sector. The financials sector includes, for example, banks and
financial institutions providing mortgage and mortgage related services. This
sector can be significantly affected by, among other things, changes in interest
rates, government regulation, the rate of defaults on corporate, consumer and
government debt, the availability and cost of capital, and fallout from the
housing and sub-prime mortgage crisis.
•Healthcare
Sector Risk.
The Fund is expected to have exposure to companies in the healthcare sector, and
therefore, the Fund’s performance could be negatively impacted by events
affecting this sector. The healthcare sector includes companies relating to
medical and healthcare goods and services, such as companies engaged in
manufacturing medical equipment, supplies and pharmaceuticals, as well as
operating healthcare facilities and the provision of managed healthcare.
Companies in this sector may be affected by government regulations including new
regulations and scrutiny related to data privacy, and government healthcare
programs, increases or decreases in the cost of medical products and services
and product liability claims, among other factors. Many healthcare companies are
heavily dependent on patent
protection,
and the expiration of a company’s patent may adversely affect that company’s
profitability. Healthcare companies are subject to competitive forces that may
result in price discounting, and may be thinly capitalized and susceptible to
product obsolescence. Companies in the healthcare sector may be subject to
adverse government or regulatory actions, which may be
costly.
Geopolitical/Natural
Disaster Risks. The
Fund’s investments are subject to geopolitical and natural disaster risks, such
as war, terrorism, trade disputes, political or economic dysfunction within some
nations, public health crises and related geopolitical events, as well as
environmental disasters, epidemics and/or pandemics, which may add to
instability in world economies and volatility in markets. The impact may be
short-term or may last for extended
periods.
ETF
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.
•Premium-Discount
Risk.
The
Shares may trade above or below their net asset value (“NAV”). The market prices
of Shares will generally fluctuate in accordance with changes in NAV as well as
the relative supply of, and demand for, Shares on The Nasdaq Stock Market LLC
(the “Exchange”) or other securities exchanges. The trading price of Shares may
deviate significantly from NAV during periods of market volatility or limited
trading activity in Shares. In addition, you may incur the cost of the “spread,”
that is, any difference between the bid price and the ask price of the
Shares.
•Cost
of Trading Risk.
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.
•Trading
Risk.
Although
the Shares are listed on the Exchange, there can be no assurance that an active
or liquid trading market for them will develop or be maintained. In addition,
trading in Shares on the Exchange may be halted. In stressed market conditions,
the liquidity of Shares may begin to mirror the liquidity of its underlying
portfolio holdings, which can be less liquid than Shares, potentially causing
the market price of Shares to deviate from its NAV. The spread varies over time
for Shares of the Fund based on the Fund’s trading volume and market liquidity
and is generally lower if the Fund has high trading volume and market liquidity,
and higher if the Fund has little trading volume and market liquidity (which is
often the case for funds that are newly launched or small in
size).
PERFORMANCE
The following information provides some indication of the risks
of investing in the Fund. The bar chart shows the Fund’s
performance for calendar years ended December 31. The table shows how the Fund’s
average annual returns for one-year and since inception periods compare with
those of a broad measure of market performance as well as an additional index
that represents the asset class in which the Fund invests. The
Fund’s past performance, before and after taxes, is not necessarily an
indication of how the Fund will perform in the future.
Performance information is also available on the Fund’s website at
www.GuruFocusETF.com or by calling the Fund at
(215) 882-9983.
Calendar Year Total Returns
as of December 31
During
the period of time shown in the bar chart, the Fund’s highest return for a
calendar quarter was 14.98% (quarter ended
December 31,
2023) and the Fund’s lowest return for a
calendar quarter was -16.65% (quarter ended
June 30,
2022).
Average
Annual Total Returns
For
the Periods Ended December 31, 2023
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Favorite Stocks ETF |
1
Year |
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Since
Inception
(12/15/2021) |
| Return Before
Taxes |
24.51% |
| 0.12% |
| Return After
Taxes on Distributions |
24.49% |
| 0.07% |
| Return After
Taxes on Distributions and Sale of Fund Shares |
14.53% |
| 0.09% |
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S&P 500
Total Return (reflects
no deduction for fees, expenses or
taxes) |
26.29% |
| 2.27% |
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Solactive GBS
United States 1000 NTR Index (reflects
no deduction for fees, expenses or
taxes) |
26.11% |
| 1.09% |
After-tax returns are calculated using the highest historical
individual U.S. federal marginal income tax rates during the period covered by
the table above and do not reflect the impact of state and local
taxes. In certain
cases, the figure representing “Return After Taxes on Distributions and Sale of
Fund Shares” may be higher than the other return figures for the same
period. A higher after-tax return results when a capital loss
occurs upon redemption and provides an assumed tax deduction that benefits the
investor. Actual
after-tax returns depend on an investor’s tax situation and may differ from
those shown. After-tax returns shown are not relevant to investors who hold
their Shares through tax-deferred arrangements such as an individual retirement
account (“IRA”) or other tax-advantaged accounts.
The
S&P 500 Total Return Index is a market-capitalization weighted index of 500
leading publicly traded companies in the U.S.
The
Solactive GBS United States 1000 Index intends to track the performance of the
largest 1000 companies from the US stock market and is based on the Solactive
Global Benchmark Series. Constituents are selected based on
company
market capitalization and weighted by free float market capitalization. The
index is calculated as a net total return index in USD and is reconstituted
quarterly.
INVESTMENT
ADVISER & INVESTMENT SUB-ADVISER
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| Investment
Adviser: |
Empowered
Funds, LLC dba EA Advisers (“Adviser”) |
| Investment
Sub-Adviser: |
GuruFocus
Investments, LLC (“Sub-Adviser”) |
PORTFOLIO
MANAGERS
Charlie
Tian, Ph.D., founder and chief executive officer of the Sub-Adviser, has been
primarily responsible for the day-to-day management of the Fund since 2021. Dr.
Tian provides his recommendations to Messrs. Wm. Joshua Russell and Richard
Shaner, Portfolio Managers of the Adviser, who, since 2023 and 2021,
respectively, are also primarily and jointly responsible for the day-to-day
management of the Fund.
SUMMARY
INFORMATION ABOUT PURCHASES, SALES, TAXES, AND FINANCIAL INTERMEDIARY
COMPENSATION
PURCHASE
AND SALE OF FUND SHARES
The
Fund issues and redeems Shares on a continuous basis only in large blocks of
Shares, typically 10,000 Shares, called “Creation Units,” and only APs
(typically, broker-dealers) may purchase or redeem Creation Units. Creation
Units generally are issued and redeemed ‘in-kind’ for securities and partially
in cash. Individual Shares may only be purchased and sold in secondary market
transactions through brokers. Once created, individual Shares generally trade in
the secondary market at market prices that change throughout the day. Market
prices of Shares may be greater or less than their NAV. Except
when aggregated in Creation Units, the Fund’s shares are not redeemable
securities.
TAX
INFORMATION
The
Fund’s distributions generally are taxable to you as ordinary income, capital
gain, or some combination of both, unless your investment is in an IRA or other
tax-advantaged account. However, subsequent withdrawals from such a
tax-advantaged account may be subject to U.S. federal income tax. You should
consult your own tax advisor about your specific tax situation.
PURCHASES
THROUGH BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If
you purchase Shares through a broker-dealer or other financial intermediary, the
Fund and its related companies may pay the intermediary for the sale of Shares
and related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend Shares over another investment. Ask your salesperson or visit your
financial intermediary’s website for more information.
ADDITIONAL
INFORMATION ABOUT THE FUND
How
Is the Fund Different From a Mutual Fund?
Redeemability.
Mutual
fund shares may be bought from, and redeemed with, the issuing fund for cash at
NAV typically calculated once at the end of the business day. Shares of the
Fund, by contrast, cannot be purchased from or redeemed with the Fund except by
or through APs (typically, broker-dealers), and then principally for an in-kind
basket of securities (and a limited cash amount). In addition, the Fund issues
and redeems Shares on a continuous basis only in large blocks of Shares,
typically 10,000 Shares, called “Creation Units.”
Exchange
Listing. Unlike
mutual fund shares, Shares of the Fund will be listed for trading on the
Exchange. Investors can purchase and sell Shares on the secondary market through
a broker. Investors purchasing Shares in the secondary market through a
brokerage account or with the assistance of a broker may be subject to brokerage
commissions and charges. Secondary-market transactions do not occur at NAV, but
at market prices that change throughout the day, based on the supply of, and
demand for, Shares and on changes in the prices of the Fund’s portfolio
holdings. The market price of Shares may differ from the NAV of the Fund. The
difference between market price of Shares and the NAV of the Fund is called a
premium when the market price is above the reported NAV and called a discount
when the market price is below the reported NAV, and the difference is expected
to be small most of the time, though it may be significant, especially in times
of extreme market volatility.
Tax
Treatment. The
Fund and the Shares have been designed to be tax-efficient. Specifically, the
in-kind creation and redemption feature has been designed to protect Fund
shareholders from adverse tax consequences applicable to non-ETF registered
investment companies as a result of cash transactions in the non-ETF registered
investment company’s shares, including cash redemptions. Nevertheless, to the
extent redemptions from the Fund are paid in cash, the Fund may realize capital
gains or losses, including in some cases short-term capital gains, upon the sale
of portfolio securities to generate the cash to satisfy the
redemption.
Transparency.
The
Fund’s portfolio holdings are disclosed on its website daily after the close of
trading on the Exchange and prior to the opening of trading on the Exchange the
following day. A description of the Fund’s policies and procedures with respect
to the disclosure of the Fund’s portfolio holdings is available in the Fund’s
Statement of Additional Information (“SAI”).
Premium/Discount
Information. Information
about the premiums and discounts at which the Fund’s Shares have traded will be
available at www.GuruFocusETF.com.
ADDITIONAL
INFORMATION ABOUT THE FUND’S INVESTMENT OBJECTIVE AND STRATEGIES
The
Fund’s investment objective is to seek long-term capital appreciation. The
Fund’s investment objective is a non-fundamental investment policy and may be
changed without a vote of shareholders upon prior written notice to
shareholders.
Temporary
Defensive Positions.
From time to time, the Fund may take temporary defensive positions that are
inconsistent with its principal investment strategies in attempting to respond
to adverse market, economic, political, or other conditions. In those instances,
the Fund may hold up to 100% of its assets in cash; short-term U.S. government
securities and government agency securities; investment grade money market
instruments; money market mutual funds; investment grade fixed income
securities; repurchase agreements; commercial paper; cash equivalents; and
exchange-traded investment vehicles that principally invest in the foregoing
instruments. As a result of engaging in these temporary measures, the Fund may
not achieve its investment objective.
ADDITIONAL
INFORMATION ABOUT THE FUND’S PRINCIPAL RISKS
The
following information is in addition to, and should be read along with, the
description of the Fund’s principal investment risks in the sections titled
“Fund Summary—Principal Investment Risks” above.
ETF
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.
•Cost
of Trading Risk.
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 that an investor is willing to pay for Shares (the “bid”
price) and the price at which an investor is willing to sell Shares (the “ask”
price). This difference in bid and ask prices is often referred to as the
“spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, increased market volatility may
cause increased bid/ask spreads.
•Premium-Discount
Risk.
The
Shares may trade above or below their net asset value (“NAV”). The market prices
of Shares will generally fluctuate in accordance with changes in NAV as well as
the relative supply of, and demand for, Shares on the Exchange or other
securities exchanges. The trading price of Shares may deviate significantly from
NAV during periods of market volatility or limited trading activity in Shares.
In addition, you may incur the cost of the “spread,” that is, any difference
between the bid price and the ask price of the Shares.
•Trading
Risk.
Although
the Shares are listed on the Exchange, there can be no assurance that an active
or liquid trading market for them will develop or be maintained. In addition,
trading in Shares on the Exchange may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
When markets are stressed, Shares could suffer erratic or unpredictable trading
activity, extraordinary volatility or wide bid/ask spreads, which could cause
some market makers and APs to reduce their market activity or “step away” from
making a market in ETF shares. This could cause the Fund’s market price to
deviate, materially, from the NAV, and reduce the effectiveness of the ETF
arbitrage process. Further, trading in Shares on the Exchange is subject to
trading halts caused by extraordinary market volatility pursuant to the “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%). There can be no assurance that the requirements of the Exchange
necessary to maintain the listing of the Fund will continue to be met or will
remain unchanged. 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.
Equity
Investing Risk. An
investment in the Fund involves risks similar to those of investing in any fund
holding equity securities, such as market fluctuations, changes in interest
rates and perceived trends in stock prices. The values of equity securities
could decline generally or could underperform other investments. Different types
of equity securities tend to go through cycles of outperformance and
underperformance in comparison to the general securities markets. In addition,
securities may decline in value due to factors affecting a specific issuer,
market or securities markets generally. Recent turbulence in financial markets
and reduced liquidity in credit and fixed income markets may negatively affect
many issuers worldwide, which may have an adverse effect on the
Fund.
Geopolitical/Natural
Disaster Risks. The
Fund’s investments are subject to geopolitical and natural disaster risks, such
as war, terrorism, trade disputes, political or economic dysfunction within some
nations, public health crises and related geopolitical events, as well as
environmental disasters, epidemics and/or pandemics, which may add to
instability in world economies and volatility in markets. The impact may be
short-term or may last for extended periods.
Investment
Risk.
When you sell your Shares of the Fund, they could be worth less than what you
paid for them. The Fund could lose money due to short-term market movements and
over longer periods during market downturns. Securities may decline in value due
to factors affecting securities markets generally or particular asset classes or
industries represented in the markets. The value of a security may decline due
to general market conditions,
economic
trends or events that are not specifically related to the issuer of the security
or to factors that affect a particular industry or group of industries. During a
general downturn in the securities markets, multiple asset classes may be
negatively affected. Therefore, you may lose money by investing in the
Fund.
Large-Capitalization
Companies Risk. Large-capitalization
companies may trail the returns of the overall stock market.
Large-capitalization stocks tend to go through cycles of doing better - or worse
- than the stock market in general. These periods have, in the past, lasted for
as long as several years.
Management
Risk.
The Fund is actively-managed and may not meet its investment objective based on
the Adviser’s or Sub-Adviser’s success or failure to implement investment
strategies for the Fund. The Adviser’s and Sub-Adviser’s evaluations and
assumptions regarding investments may not successfully achieve the Fund’s
investment objective given actual market trends. The Adviser will generally
follow Sub-Adviser’s investment recommendations to buy, hold, and sell
securities and financial instruments. However, the Adviser may deviate from
Sub-Adviser recommendations due to a clear error in a particular recommendation,
compliance concerns (e.g., concentration limits), liquidity concerns, authorized
participant-related concerns, or due to regulatory requirements.
Mid-Capitalization
Companies Risk.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some of these companies have limited product lines, markets,
and financial and managerial resources and tend to concentrate on fewer
geographical markets relative to larger capitalization companies.
Quantitative
Security Selection Risk.
Data used by the Sub-Adviser may be less available and/or less current than data
used by other investment advisory firms. The Sub-Adviser uses quantitative
analyses in conjunction with fundamental analysis, and its processes could be
adversely affected if erroneous or outdated data is utilized. In addition,
securities selected using a quantitative model could perform differently from
the financial markets as a whole as a result of the characteristics used in the
analyses, the weight placed on each characteristic, and changes in the
characteristic’s historical trends. The factors used in those analyses may not
be predictive of a security’s value and its effectiveness can change over time.
These changes may not be reflected in the quantitative analyses.
Semi-Annual
Reallocation Risk. Because
the Sub-Adviser will normally recommend changes to the Fund’s portfolio on a
semi-annual basis, (i) the Fund’s market exposure may be affected by significant
market movements promptly following a semi-annual reconstitution that are not
predictive of the market’s performance for the subsequent semi-annual period and
(ii) changes to the Fund’s market exposure may lag a significant change in the
market’s direction (up or down) by as long as a half a year if such changes
first take effect promptly following a semi-annual reconstitution. Such lags
between market performance and changes to the Fund’s exposure may result in
significant underperformance relative to the broader equity or fixed income
market.
Sector
Risk.
Companies with similar characteristics may be grouped together in broad
categories called sectors. A certain sector may underperform other sectors or
the market as a whole. As the Sub-Adviser allocates more of the Fund’s portfolio
holdings to a particular sector, the Fund’s performance will be more susceptible
to any economic, business or other developments which generally affect that
sector.
•Information
Technology Sector Risk.
Information technology companies face intense competition, both domestically and
internationally, which may have an adverse effect on their profit margins. Like
other technology companies, information technology companies may have limited
product lines, markets, financial resources or personnel. The products of
information technology companies may face obsolescence due to rapid
technological developments, frequent new product introduction, unpredictable
changes in growth rates and competition for the services of qualified personnel.
Companies in the information technology sector are heavily dependent on patent
and intellectual property rights. The loss or impairment of these rights may
adversely affect the profitability of these companies. Companies in the
information technology sector are facing increased government and regulatory
scrutiny and may be subject to adverse government or regulatory action.
Companies in the application software industry, in particular, may also be
negatively affected by the decline or fluctuation of subscription renewal rates
for their products and services, which may have an adverse effect on profit
margins. Companies in the systems software industry may be adversely affected
by, among other things, actual or perceived security vulnerabilities in their
products
and services, which may result in individual or class action lawsuits, state or
federal enforcement actions and other remediation costs.
•Financials
Sector Risk.
Companies
in the financials sector of an economy are subject to extensive governmental
regulation and intervention, which may adversely affect the scope of their
activities, the prices they can charge, the amount of capital they must maintain
and, potentially, their size. The extent to which the Fund may invest in a
company that engages in securities-related activities or banking is limited by
applicable law. Governmental regulation may change frequently and may have
significant adverse consequences for companies in the financials sector,
including effects not intended by such regulation. Recently enacted legislation
in the U.S. has relaxed capital requirements and other regulatory burdens on
certain U.S. banks. While the effect of the legislation may benefit certain
companies in the financials sector, increased risk taking by affected banks may
also result in greater overall risk in the U.S. and global financials sector.
The impact of changes in capital requirements, or recent or future regulation in
various countries, on any individual financial company or on the financials
sector as a whole cannot be predicted. Certain risks may impact the value of
investments in the financials sector more severely than those of investments
outside this sector, including the risks associated with companies that operate
with substantial financial leverage. Companies in the financials sector may also
be adversely affected by increases in interest rates and loan losses, decreases
in the availability of money or asset valuations, credit rating downgrades and
adverse conditions in other related markets. Insurance companies, in particular,
may be subject to severe price competition and/or rate regulation, which may
have an adverse impact on their profitability. The financials sector is
particularly sensitive to fluctuations in interest rates. The financials sector
is also a target for cyberattacks, and may experience technology malfunctions
and disruptions. In recent years, cyberattacks and technology malfunctions and
failures have become increasingly frequent in this sector and have reportedly
caused losses to companies in this sector, which may negatively impact the
Fund.
•Healthcare
Sector Risk. The
profitability of companies in the healthcare sector may be adversely affected by
the following factors, government regulations, including new regulations and
scrutiny related to data privacy, restrictions on government reimbursement for
medical expenses, rising costs of medical products and services, pricing
pressure, an increased emphasis on outpatient services, changes in the demand
for medical products and services, a limited number of products, industry
innovation, changes in technologies and other market developments. A number of
issuers in the healthcare sector have recently merged or otherwise experienced
consolidation. The effects of this trend toward consolidation are unknown and
may be far-reaching. Many healthcare companies are heavily dependent on patent
protection. The expiration of a company’s patents may adversely affect that
company’s profitability. Many healthcare companies are subject to extensive
litigation based on product liability and similar claims. Healthcare companies
are subject to competitive forces that may make it difficult to raise prices
and, in fact, may result in price discounting. Many new products in the
healthcare sector may be subject to regulatory approvals. The process of
obtaining such approvals may be long and costly, and such efforts ultimately may
be unsuccessful. Companies in the healthcare sector may be thinly capitalized
and may be susceptible to product obsolescence. In addition, a number of
legislative proposals concerning healthcare have been considered by the U.S.
Congress in recent years. It is unclear what proposals will ultimately be
enacted, if any, and what effect they may have on companies in the healthcare
sector. Companies in the healthcare sector may be subject to adverse government
or regulatory actions, which may be costly.
Stale
Information Risk.
The Sub-Adviser will recommend securities for the Fund based on publicly
available information about the Gurus’ holdings. However, the publicly available
information does not generally reflect real-time portfolio holdings. For
example, information obtained via Form 13F filings are available only quarterly,
and will contain information that is at least 45 days’ old. As a result, the
Sub-Adviser may rank a particular security higher than it would have been ranked
if the Sub-Adviser had access to all of the Guru’s portfolio holdings on a
real-time basis. As a result, the Fund may purchase securities or retain
securities that are no longer favored by the Gurus, which may hurt the Fund’s
performance.
FUND
MANAGEMENT
Investment
Adviser
Empowered
Funds, LLC dba EA Advisers acts as the Fund’s investment adviser. The Adviser is
located at 19 East Eagle Road, Havertown, PA 19083 and is wholly-owned by Alpha
Architect, LLC. The Adviser is registered with the Securities and Exchange
Commission (“SEC”) under the Investment Advisers Act of 1940 and provides
investment advisory services solely to the Fund and other exchange-traded funds.
The Adviser was founded in October, 2013.
The
Adviser is responsible for overseeing the management and business affairs of the
Fund, and has discretion to purchase and sell securities in accordance with the
Fund’s objectives, policies and restrictions. The Adviser continuously reviews,
supervises and administers the Fund’s investment programs pursuant to the terms
of investment advisory agreement (the “Advisory Agreement”) between the Trust
and the Adviser. The Adviser (or an affiliate of the Adviser) bears all of the
Adviser’s own costs associated with providing these advisory services and all
expenses of the Fund, except for the fee payment under the Advisory Agreement,
payments under the Fund’s Rule 12b-1 Distribution and Service Plan (the “Plan”),
brokerage expenses, acquired fund fees and expenses (including affiliated funds’
fees and expenses), taxes, interest (including borrowing costs), litigation
expenses and other non-routine (including fees and expenses associated with
securities lending) or extraordinary expenses.
Pursuant
to the terms of the Advisory Agreement, the Fund pays the Adviser an annual
advisory fee based on its average daily net assets for the services and
facilities it provides payable at the annual rate as follows:
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Advisory
Fee |
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Favorite Stocks ETF |
0.65% |
For
the fiscal year ended November 30, 2023, the Adviser was paid $195,705 in
investment advisory fees.
The
Advisory Agreement for the Fund provides that it may be terminated at any time,
without the payment of any penalty, by the Board or, with respect to the Fund,
by a majority of the outstanding shares of the Fund, on 60 days’ written notice
to the Adviser, and by the Adviser upon 60 days’ written notice, and that it
shall be automatically terminated if it is assigned.
Investment
Sub-Adviser
The
Adviser has retained GuruFocus Investments, LLC (the “Sub-Adviser”), an
investment adviser registered with the SEC, to provide sub-advisory services for
the Fund. The Sub-Adviser is organized as a Delaware limited liability company
with its principal offices located at 1309 West 15th
Street, Suite 370, Plano TX 75075, and was founded in June 2021, and became a
registered investment adviser in 2021. The Sub-Adviser is responsible for
recommending the investments for the Fund, subject to the overall supervision
and oversight of the Adviser and the Board. The Sub-Adviser will perform its
services as a non-discretionary sub-adviser, which means that the Sub-Adviser
will not be responsible for selecting brokers or placing the Fund’s trades.
Rather, the Sub-Adviser will provide trade recommendations to the Adviser and,
in turn, the Adviser will be responsible for selecting brokers and placing the
Fund’s trades. It is anticipated that the Adviser will generally adhere to the
Sub-Adviser’s recommendations.
For
its services, the Adviser pays Sub-Adviser a fee, which is calculated daily and
paid monthly, at an annual rate based on the Fund’s average daily net assets of
0.30%, which is shown as a percentage of average daily net assets. During the
fiscal year ended November 30, 2023, the aggregate sub-advisory fee paid to the
Sub-Adviser by the Adviser was $250.
Fund
Sponsor
The
Adviser has entered into a fund sponsorship agreement with the Sub-Adviser
pursuant to which the Sub-Adviser is also the sponsor of the Fund (“Fund
Sponsor”). Under this arrangement, the Fund Sponsor has agreed to provide
financial support to the Fund (as described below) and, in turn, the Adviser has
agreed to share with the Fund Sponsor a portion of profits, if any, generated by
the Fund’s Advisory Fee (also as described below). Every month, the Advisory
Fee, which is a unitary management fee, is calculated and paid to the
Adviser.
If
the amount of the unitary management fee exceeds the Fund’s operating expenses
and the Adviser-retained amount, the Adviser pays the net total to the Fund
Sponsor. The amount paid to the Fund Sponsor represents both the sub-advisory
fee and any remaining profits from the Advisory Fee. During months where there
are no profits or the funds are not sufficient to cover the entire sub-advisory
fee, the Sub-Advisory fee is automatically waived.
If
the amount of the unitary management fee is less than the Fund’s operating
expenses and the Adviser-retained amount, the Sub-Adviser is obligated to
reimburse the Adviser for the shortfall.
APPROVAL
OF ADVISORY AGREEMENT & INVESTMENT SUB-ADVISORY AGREEMENT
A
discussion regarding the basis for the Board’s approval of the Advisory
Agreement and the Sub-Advisory Agreement with respect to the Fund is available
in the Fund’s semi-annual
report
for the fiscal period ended May 31, 2022.
PORTFOLIO
MANAGERS
The
portfolio managers are jointly and primarily responsible for various functions
related to portfolio management, including, but not limited to, making
recommendations (or implementing) with respect to the following: investing cash
inflows, implementing investment strategy, researching and reviewing investment
strategy, and overseeing members of the portfolio management team with more
limited responsibilities.
Dr.
Tian has been portfolio manager of the Fund since 2021. He provides his
recommendations to Messrs. Russell and Shaner, portfolio managers of the
Adviser.
Charlie
Tian, Ph.D. is the founder and Chief Executive Officer of GuruFocus Investments,
LLC, an SEC-registered investment management firm (the “Sub-Adviser”). Dr. Tian
is the author of “Invest
Like A Guru: How to Generate Higher Returns At Reduced Risk With Value
Investing”.
He also contributed to the book “The
Warren Buffett Shareholder: Stories from Inside the Berkshire Hathaway Annual
Meeting”
and has been actively involved in financial research since 2004. Dr. Tian holds
a PhD in Physics from the Peking University in Beijing,
China.
Mr.
Wm. Joshua Russell, PhD, CFA® has been a Senior Portfolio Manager with the
Adviser since October 2022 and a portfolio manager of the Fund since January
2023. Prior to joining the Adviser, he was a Portfolio Manager at Carson Group
where he was responsible for approximately $1.7 billion in assets. He has also
served in quant research roles as VP, Sr. Research Analyst at Franklin Templeton
and Senior Quantitative Strategist at WisdomTree. Prior to entering the
industry, Dr. Russell was a PhD candidate where he conducted research on
large-scale distributed systems for the US Army, the US Air Force, and NASA. He
earned a PhD in Electrical and Computer Engineering, a Masters in Economics, and
a Masters in Electrical and Computer Engineering at the University of
California, Santa Barbara. He earned a Bachelor of Science in Electrical
Engineering from the University of Washington and is a CFA®
Charterholder.
Mr.
Richard Shaner,
CFA®
has been portfolio manager of the Fund since 2021. Mr. Shaner has advised on
trading and execution matters for the Adviser since January 2021, where he
supports trading operations and assists in quantitative research. Prior to Mr.
Shaner’s tenure with the Adviser, Mr. Shaner executed various trading strategies
for a private family office. Mr. Shaner has a B.Sc in Kinesiology and Applied
Physiology from the University of Colorado. He is also a CFA®
Charterholder.
The
Fund’s SAI provides additional information about the portfolio managers,
including other accounts each manages, their ownership in the Fund, and
compensation.
OTHER
SERVICE PROVIDERS
Quasar
Distributors, LLC (“Distributor”) serves as the distributor of Creation Units
(defined above) for the Fund on an agency basis. The Distributor does not
maintain a secondary market in Shares.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services, is
the administrator, fund accountant, and transfer agent for the
Fund.
U.S.
Bank National Association is the custodian for the Fund.
Practus,
LLP, 11300 Tomahawk Creek Parkway, Suite 310, Leawood, Kansas 66211, serves as
legal counsel to the Trust.
Tait,
Weller & Baker LLP, 50 South 16th
Street, Suite 2900, Philadelphia, PA 19102, serves as the Fund’s independent
registered public accounting firm. The independent registered public accounting
firm is responsible for auditing the annual financial statements of the
Fund.
THE
EXCHANGE
Shares
of the Fund 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 of, prices of, or quantities of Shares of the Fund to be issued,
nor in the determination or calculation of the equation by which the Shares are
redeemable. The Exchange has no obligation or liability to owners of the Shares
of the Fund in connection with the administration, marketing or trading of the
Shares of the Fund. Without limiting any of the foregoing, in no event shall the
Exchange have any liability for any direct, indirect, special, punitive,
consequential or any other damages (including lost profits) even if notified of
the possibility of such damages.
BUYING
AND SELLING FUND SHARES
Shares
will be issued or redeemed by the Fund at NAV per Share only in Creation Units
of 10,000 Shares. Creation Units are generally issued and redeemed only in-kind
for securities although a portion may be in cash.
Shares
will trade on the secondary market, however, which is where most retail
investors will buy and sell Shares. It is expected that only a limited number of
institutional investors, called Authorized Participants or “APs,” will purchase
and redeem Shares directly from the Fund. APs may acquire Shares directly from
the Fund, and APs may tender their Shares for redemption directly to the Fund,
at NAV per Share only in large blocks, or Creation Units. Purchases and
redemptions directly with the Fund must follow the Fund’s procedures, which are
described in the SAI.
Except
when aggregated in Creation Units, Shares are not redeemable with the Fund.
BUYING
AND SELLING SHARES ON THE SECONDARY MARKET
Most
investors will buy and sell Shares in secondary market transactions through
brokers and, therefore, must have a brokerage account to buy and sell Shares.
Shares can be bought or sold through your broker throughout the trading day like
shares of any publicly traded issuer. The Trust does not impose any redemption
fees or restrictions on redemptions of Shares in the secondary market. When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offered prices in the secondary market for Shares. The price at
which you buy or sell Shares (i.e.,
the market price) may be more or less than the NAV of the Shares. Unless imposed
by your broker, there is no minimum dollar amount you must invest in the Fund
and no minimum number of Shares you must buy.
Shares
of the Fund will be listed on the Exchange under the following
symbol:
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Trading
Symbol |
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Guru
Favorite Stocks ETF |
GFGF |
The
Exchange is generally open Monday through Friday and is closed for weekends and
the following holidays: New Year’s Day, Martin Luther King, Jr. Day,
Washington’s Birthday, Good Friday, Memorial Day, Independence Day, Juneteenth
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
For
information about buying and selling Shares on the Exchange or in the secondary
markets, please contact your broker or dealer.
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, will be the registered
owner of all outstanding Shares of the Fund and is recognized as the owner of
all Shares. Participants in DTC include securities brokers and dealers, banks,
trust companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
Shares, you are not entitled to receive physical delivery of stock certificates
or to have Shares registered in your name, and you are not considered a
registered owner of Shares. Therefore, to exercise any right as an owner of
Shares, you must rely on the procedures of DTC and its participants. These
procedures
are the same as those that apply to any stocks that you hold in book entry or
“street name” through your brokerage account. Your account information will be
maintained by your broker, which will provide you with account statements,
confirmations of your purchases and sales of Shares, and tax information. Your
broker also will be responsible for distributing income dividends and capital
gain distributions and for ensuring that you receive shareholder reports and
other communications from the Fund.
Share
Trading Prices. The
trading prices of the Fund’s Shares may differ from the Fund’s daily NAV and can
be affected by market forces of supply and demand for the Fund’s Shares, the
prices of the Fund’s portfolio securities, economic conditions and other
factors.
The
Exchange through the facilities of the Consolidated Tape Association or another
market information provider intends to disseminate the approximate value of the
Fund’s portfolio every fifteen seconds during regular U.S. trading hours. This
approximate value should not be viewed as a “real-time” update of the NAV of the
Fund because the approximate value may not be calculated in the same manner as
the NAV, which is computed once a day. The quotations for certain investments
may not be updated during U.S. trading hours if such holdings do not trade in
the U.S., except such quotations may be updated to reflect currency
fluctuations. The Fund is not involved in, or responsible for, the calculation
or dissemination of the approximate values and makes no warranty as to the
accuracy of these values.
Continuous
Offering. The
method by which Creation Units of Shares are created and traded may raise
certain issues under applicable securities laws. Because new Creation Units of
Shares are issued and sold by the Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers
and other persons are cautioned that some activities on their part may,
depending on the circumstances, result in their being deemed participants in a
distribution in a manner which could render them statutory underwriters and
subject them to the prospectus delivery requirements and liability provisions of
the Securities Act. For example, a broker-dealer firm or its client may be
deemed a statutory underwriter if it takes Creation Units after placing an order
with the Distributor, breaks them down into constituent Shares and sells the
Shares directly to customers or if it chooses to couple the creation of a supply
of new Shares with an active selling effort involving solicitation of secondary
market demand for Shares. A determination of whether one is an underwriter for
purposes of the Securities Act must take into account all the facts and
circumstances pertaining to the activities of the broker-dealer or its client in
the particular case, and the examples mentioned above should not be considered a
complete description of all the activities that could lead to a characterization
as an underwriter.
Broker-dealer
firms should also note that dealers who are not “underwriters” but are effecting
transactions in Shares, whether or not participating in the distribution of
Shares, are generally required to deliver a prospectus. This is because the
prospectus delivery exemption in Section 4(a)(3) of the Securities Act is
not available in respect of such transactions as a result of Section 24(d)
of the Investment Company Act of 1940, as amended (the “Investment Company
Act”). As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with
engaging in ordinary secondary market transactions) and thus dealing with the
Shares that are part of an overallotment within the meaning of Section
4(a)(3)(C) of the Securities Act, will be unable to take advantage of the
prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act.
For delivery of prospectuses to exchange members, the prospectus delivery
mechanism of Rule 153 under the Securities Act is only available with respect to
transactions on a national exchange.
ACTIVE
INVESTORS AND MARKET TIMING
The
Board has evaluated the risks of market timing activities by the Fund’s
shareholders. The Board noted that the Fund’s Shares can be purchased and
redeemed directly from the Fund only in Creation Units by APs and that the vast
majority of trading in the Fund’s Shares occurs on the secondary market. Because
the secondary market trades do not directly involve the Fund, it is unlikely
those trades would cause the harmful effects of market timing, including
dilution, disruption of portfolio management, increases in the Fund’s trading
costs and the realization of capital gains. With regard to the purchase or
redemption of Creation Units directly with the Fund, to the extent effected
in-kind (i.e.,
for securities), the Board noted that those trades do not cause the harmful
effects (as previously noted) that may result from frequent cash trades. To the
extent trades are effected in whole or in part in cash, the Board noted that
those trades could result in dilution to the Fund and increased transaction
costs, which could negatively impact the Fund’s ability to achieve its
investment objective, although in certain circumstances (e.g., in conjunction
with a reallocation of the Fund’s investments), such trades may benefit Fund
shareholders by increasing
the
tax efficiency of the Fund. The Board also noted that direct trading by APs is
critical to ensuring that the Fund’s Shares trade at or close to NAV. In
addition, the Fund will impose transaction fees on purchases and redemptions of
Shares to cover the custodial and other costs incurred by the Fund in effecting
trades. Given this structure, the Board determined that it is not necessary to
adopt policies and procedures to detect and deter market timing of the Fund’s
Shares.
DISTRIBUTION
AND SERVICE PLAN
The
Fund has adopted the Plan pursuant to Rule 12b-1 under the Investment Company
Act. Under the Plan, the Fund may be authorized to pay distribution fees of
up
to 0.25% of its average daily net assets each year to
the Distributor and other firms that provide distribution and shareholder
services (“Service Providers”). As of the date of this Prospectus, the maximum
amount payable under the Plan is set at 0% until further action by the Board. In
the event 12b-1 fees are charged, over time they would increase the cost of an
investment in the Fund because they would be paid on an ongoing
basis.
NET
ASSET VALUE
The
NAV of Shares is calculated each business day as of the close of regular trading
on the New York Stock Exchange (“NYSE”), generally 4:00 p.m., Eastern
time.
The
Fund calculates its NAV per Share by:
•Taking
the current market value of its total assets,
•Subtracting
any liabilities, and
•Dividing
that amount by the total number of Shares owned by shareholders.
If
you buy or sell Shares on the secondary market, you will pay or receive the
market price, which may be higher or lower than NAV. Your transaction will be
priced at NAV only if you purchase or redeem your Shares in Creation
Units.
Equity
securities that are traded on a national securities exchange, except those
listed on the NASDAQ Global Market®
(“NASDAQ”) are valued at the last reported sale price on the exchange on which
the security is principally traded. Securities traded on NASDAQ will be valued
at the NASDAQ Official Closing Price (“NOCP”). If, on a particular day, an
exchange-traded or NASDAQ security does not trade, then the most recent quoted
bid for exchange traded or the mean between the most recent quoted bid and ask
price for NASDAQ securities will be used. Equity securities that are not traded
on a listed exchange are generally valued at the last sale price in the
over-the-counter market. If a nonexchange traded security does not trade on a
particular day, then the mean between the last quoted closing bid and asked
price will be used.
Redeemable
securities issued by open-end investment companies are valued at the investment
company’s applicable net asset value, with the exception of exchange-traded
open-end investment companies which are priced as equity
securities.
If
a market price is not readily available or is deemed not to reflect market
value, the Fund will determine the price of the security held by the Fund based
on a determination of the security’s fair value pursuant to policies and
procedures approved by the Board.
To
the extent the Fund holds securities that may trade infrequently, fair valuation
may be used more frequently. Fair valuation may have the effect of reducing
stale pricing arbitrage opportunities presented by the pricing of Shares.
However, when the Fund uses fair valuation to price securities, it may value
those securities higher or lower than another fund would have priced the
security. Also, the use of fair valuation may cause the Shares’ NAV performance
to diverge from the Shares’ market price and from the performance of various
benchmarks used to compare the Fund’s performance because benchmarks generally
do not use fair valuation techniques. Because of the judgment involved in fair
valuation decisions, there can be no assurance that the value ascribed to a
particular security is accurate.
FUND
WEBSITE AND DISCLOSURE OF PORTFOLIO HOLDINGS
The
Trust maintains a website for the Fund at www.GuruFocusETF.com. Among other
things, the website includes this Prospectus and the SAI, the Fund’s holdings,
and the Fund’s last annual and semi-annual reports. The website shows the Fund’s
daily NAV per share, market price, and premium or discount, each as of the prior
business day. The website also shows the extent and frequency of the Fund’s
premiums and discounts. Further, the website includes the Fund’s median bid-ask
spread over the most recent thirty calendar days.
Each
day the Fund is open for business, the Trust publicly disseminates the Fund’s
full portfolio holdings as of the close of the previous day through its website
at www.GuruFocusETF.com. A description of the Trust’s policies and procedures
with respect to the disclosure of the Fund’s portfolio holdings is available in
the Fund’s SAI.
INVESTMENTS
BY OTHER INVESTMENT COMPANIES
For
purposes of the Investment Company Act, Shares are issued by a registered
investment company and purchases of such Shares by registered investment
companies and companies relying on Section 3(c)(1) or 3(c)(7) of the Investment
Company Act are subject to the restrictions set forth in Section 12(d)(1) of the
Investment Company Act, except as permitted by Rule 6c-11, Rule 12d1-4, or an
exemptive order of the SEC.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
As
with any investment, you should consider how your investment in Shares will be
taxed. The tax information in this Prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in Shares.
Unless
your investment in Shares is made through a tax-exempt entity or tax-deferred
retirement account, such as an IRA plan, you need to be aware of the possible
tax consequences when:
•Your
Fund makes distributions,
•You
sell your Shares listed on the Exchange, and
•You
purchase or redeem Creation Units.
Dividends
and Distributions
Dividends
and Distributions.
The Fund intends to qualify to be treated each year as a regulated investment
company under the Internal Revenue Code of 1986, as amended. As a regulated
investment company, the Fund generally pays no U.S. federal income tax on the
income and gains it distributes to you. The Fund expects to declare and to
distribute its net investment income, if any, to shareholders as dividends
annually. The Fund will distribute net realized capital gains, if any, at least
annually. The Fund may distribute such income dividends and capital gains more
frequently, if necessary, in order to reduce or eliminate U.S. federal excise or
income taxes on the Fund. The amount of any distribution will vary, and there is
no guarantee the Fund will pay either an income dividend or a capital gains
distribution. Distributions may be reinvested automatically in additional whole
Shares only if the broker through whom you purchased Shares makes such option
available.
Avoid
“Buying a Dividend.”
At the time you purchase Shares of the Fund, the Fund’s NAV may reflect
undistributed income, undistributed capital gains, or net unrealized
appreciation in value of portfolio securities held by the Fund. For taxable
investors, a subsequent distribution to you of such amounts, although
constituting a return of your investment, would be taxable. Buying Shares in the
Fund just before it declares an income dividend or capital gains distribution is
sometimes known as “buying a dividend.”
Taxes
Tax
Considerations.
The Fund expects, based on its investment objective and strategies, that its
distributions, if any, will be taxable as ordinary income, capital gain, or some
combination of both. This is true whether you reinvest your distributions in
additional Shares or receive them in cash. For federal income tax purposes, Fund
distributions of short-term capital gains are taxable to you as ordinary income.
Fund distributions of long-term capital gains are taxable to you as long-term
capital gain no matter how long you have owned your Shares. A portion of income
dividends reported by the Fund may be qualified dividend income eligible for
taxation by certain shareholders at long-term capital gain rates provided
certain holding period requirements are met.
Taxes
on Sales of Shares.
A sale or exchange of Shares is a taxable event and, accordingly, a capital gain
or loss may be recognized. Currently, any capital gain or loss realized upon a
sale of Shares generally is treated as long-term capital gain or loss if the
Shares have been held for more than one year and as short-term capital gain or
loss if the Shares have been held for one year or less. The ability to deduct
capital losses may be limited.
Medicare
Tax.
An additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital gain distributions received from the
Fund and net gains from redemptions or other taxable dispositions of Shares) of
U.S. individuals, estates and trusts to the extent that such person’s “modified
adjusted gross income” (in the case of an individual) or “adjusted gross income”
(in the case of an estate or trust) exceeds a threshold amount. This Medicare
tax, if applicable, is reported by you on, and paid with, your U.S. federal
income tax return.
Backup
Withholding.
By law, if you do not provide the Fund with your proper taxpayer identification
number and certain required certifications, you may be subject to backup
withholding on any distributions of income, capital gains or proceeds from the
sale of your Shares. The Fund also must backup withhold if the Internal Revenue
Service (“IRS”) instructs it to do so. When backup withholding is required, the
amount will be 24% of any distributions or proceeds paid.
State
and Local Taxes.
Fund distributions and gains from the sale or exchange of your Shares generally
are subject to state and local taxes.
Taxes
on Purchase and Redemption of Creation Units.
An AP who exchanges equity securities for Creation Units generally will
recognize a gain or a loss. The gain or loss will be equal to the difference
between the market value of the Creation Units at the time of purchase and the
exchanger’s aggregate basis in the securities surrendered and the cash amount
paid. A person who exchanges Creation Units for equity securities generally will
recognize a gain or loss equal to the difference between the exchanger’s basis
in the Creation Units and the aggregate market value of the securities received
and the cash amount received. The IRS, however, may assert that a loss realized
upon an exchange of securities for Creation Units cannot be deducted currently
under the rules governing “wash sales,” 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 the wash sale rules apply
and when a loss might not be deductible.
Under
current U,S. federal tax laws, any capital gain or loss realized upon redemption
of Creation Units is generally treated as long-term capital gain or loss if the
Shares have been held for more than one year and as a short-term capital gain or
loss if the Shares have been held for one year or less.
If
the Fund redeems Creation Units in cash, it may recognize more capital gains
than it will if it redeems Creation Units in-kind.
Non-U.S.
Investors.
Non-U.S. investors may be subject to U.S. withholding tax at a 30% or lower
treaty rate and are subject to special U.S. tax certification requirements to
avoid backup withholding and claim any treaty benefits. An exemption from U.S.
withholding tax is provided for capital gain dividends paid by the Fund from
long-term capital gains, if any. However, interest-related dividends paid by the
Fund from its qualified net interest income from U.S. sources and short-term
capital gain dividends may be exempt from U.S. withholding provided the Fund
makes certain designations and other requirements are met. Furthermore,
notwithstanding such exemptions from U.S. withholding at the source, any such
dividends and distributions of income and capital gains will be subject to
backup withholding at a rate of 24% if you fail to properly certify that you are
not a U.S. person. In addition, U.S. estate tax may apply to Shares of the
Fund.
Other
Reporting and Withholding Requirements.
Under the Foreign Account Tax Compliance Act (FATCA), the Fund will be required
to withhold a 30% tax on (i) income dividends paid by the Fund, and (ii)
possibly in the future, certain capital gain distributions and the proceeds
arising from the sale of Shares paid by the Fund, to certain foreign entities,
referred to as foreign financial institutions or non-financial foreign entities,
that fail to comply (or be deemed compliant) with extensive reporting and
withholding requirements designed to inform the U.S. Department of the Treasury
of US-owned foreign investment accounts. The Fund may disclose the information
that it receives from its shareholders to the IRS, non-U.S. taxing authorities
or other parties as necessary to comply with FATCA. Withholding also may be
required if a foreign entity that is a shareholder of the Fund fails to provide
the Fund with appropriate certifications or other documentation concerning its
status under FATCA.
Possible
Tax Law Changes.
At the time that this prospectus is being prepared, various administrative and
legislative changes to the U.S. federal tax laws are under consideration, but it
is not possible at this time to determine whether any of these changes will be
made or what the changes might entail.
This
discussion of “Dividends, Distributions and Taxes” is not intended or written to
be used as tax advice. Because everyone’s tax situation is unique, you should
consult your tax professional about U.S. federal, state, local or foreign tax
consequences before making an investment in the Fund.
FINANCIAL
HIGHLIGHTS
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 Share. The total returns in
the table represent the rate that an investor would have gained (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information in the table below prior to 2023 fiscal year was
audited by the Fund’s prior independent registered public accounting firm.
Information for the remaining period in the table has been audited by Tait,
Weller & Baker LLP, an independent registered public accounting firm, whose
report, along with the Fund’s financial statements, is included in the Fund’s
Annual
Report,
which is available upon request.
GURU
FAVORITE STOCKS ETF
FINANCIAL
HIGHLIGHTS
For
the Year Ended November 30, 2023
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| Net
Asset Value, Beginning of Period |
|
Net
Investment Income(1) |
| Net
Realized and Unrealized Gain (Loss) on Investments |
| Net
Increase (Decrease) in Net Asset Value Resulting from Operations |
| Distributions
from Net Investment Income |
| Total
Distributions |
Transaction
Fees (See Note 1) |
| Net
Asset Value, End of Period |
|
Total
Return(2) |
| Net
Assets, End of Period (000’s) |
|
Net
Expenses(3)(4) |
|
Net
Investment Income(3) |
|
Portfolio
Turnover Rate(5) |
| Year
Ended November 30, 2023 |
| $21.37 |
| 0.02 |
| 2.35 |
| 2.37 |
| (0.08) |
| (0.08) |
(0.00)(7) |
| $23.66 |
| 11.17% |
| $32,418 |
| 0.65% |
| 0.11% |
| 81% |
|
December
16, 2021(6)
to November 30, 2022 |
| $25.00 |
| 0.08 |
| (3.71) |
| (3.63) |
|
(0.00)(7) |
|
(0.00)(7) |
(0.00)(7) |
| $21.37 |
| -14.50% |
| $30,135 |
| 0.65% |
| 0.40% |
| 28% |
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(1)Net
investment income per share represents net investment income divided by the
daily average shares of beneficial interest outstanding throughout the
period.
(2)All
returns reflect reinvested dividends, if any, but do not reflect the impact of
taxes. Total return for a period of less than one year is not
annualized.
(3)For
periods of less than one year, these ratios are annualized.
(4)Net
expenses include effects of any reimbursement or recoupment.
(5)Portfolio
turnover is not annualized and is calculated without regard to short-term
securities having a maturity of less than one year. Excludes the impact of
in-kind transactions.
(6)Commencement
of operations.
(7)Rounds
to less than $0.005.
ANNUAL/SEMI-ANNUAL
REPORTS TO SHAREHOLDERS
Additional
information about the Fund is in its annual and semi-annual reports to
shareholders. The annual
report
explains the market conditions and investment strategies affecting the Fund’s
performance during the last fiscal year.
STATEMENT
OF ADDITIONAL INFORMATION
The
SAI dated March 31, 2024, which contains more details about the Fund, is
incorporated by reference in its entirety into this Prospectus, which means that
it is legally part of this Prospectus.
To
receive a free copy of the latest annual or semi-annual report, or the SAI, or
to request additional information about the Fund, please contact us as
follows:
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| Call: |
(215)
882-9983 |
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| Write: |
19
East Eagle Road
Havertown, PA 19083 |
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| Visit: |
www.GuruFocusETF.com |
PAPER
COPIES
Please
note that paper copies of the Fund’s shareholder reports will generally not be
sent, unless you specifically request paper copies of the Fund’s reports from
your financial intermediary, such as a broker-dealer or bank. Instead, the
reports will be made available on the Fund’s website, and you will be notified
by mail each time a report is posted and provided with a website link to access
the report.
You
may elect to receive all future Fund reports in paper free of charge. Please
contact your financial intermediary to inform them that you wish to continue
receiving paper copies of Fund shareholder reports and for details about whether
your election to receive reports in paper will apply to all funds held with your
financial intermediary.
INFORMATION
PROVIDED BY THE SECURITIES AND EXCHANGE COMMISSION
Information
about the Fund, including its reports and the SAI, has been filed with the SEC.
It can be reviewed on the EDGAR database on the SEC’s internet site
(http://www.sec.gov). You can also request copies of these materials, upon
payment of a duplicating fee, by electronic request at the SEC’s e-mail address
([email protected]) or by calling the SEC at (202) 551-8090.
Investment
Company Act File No. 811-22961
