ck0001540305-20210630
Point Bridge GOP Stock Tracker
ETF
(MAGA)
Listed
on Cboe BZX Exchange, Inc.
PROSPECTUS
October 31,
2021
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.
Point
Bridge GOP Stock Tracker ETF
TABLE
OF CONTENTS
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POINT
BRIDGE
GOP STOCK
TRACKER
ETF SUMMARY |
Investment Objective
The Point Bridge GOP Stock
Tracker ETF (the “Fund”) seeks to track the performance, before fees and
expenses, of the Point Bridge GOP Stock Tracker Index (the
“Index”).
Fees and Expenses of the Fund
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) |
Management
Fees |
0.72% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.72% |
Expense Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year |
3
Years |
5
Years |
10
Years |
$74 |
$230 |
$401 |
$894 |
Portfolio Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These costs, which are not reflected in annual fund
operating expenses or in the Example, affect the Fund’s performance.
For
the fiscal year ended June 30, 2021, the Fund’s portfolio turnover rate was
68% of the average value of its
portfolio.
Principal Investment
Strategy
The
Fund uses a “passive management” (or indexing) approach to track the
performance, before fees and expenses, of the Index. The Index was developed by
Point Bridge Capital, LLC, the Fund’s investment adviser and index provider
(“Point Bridge” or the “Adviser”).
Point
Bridge GOP Stock Tracker Index
The
Index uses an objective, rules-based methodology to track the performance of
companies whose employees and political action committees (“PACs”) are highly
supportive of Republican candidates for election to the United States Congress,
the Vice Presidency, or the Presidency (“Candidates”) and party-affiliated
federal committees or groups that are subject to federal campaign contribution
limits (e.g.,
Republican National Committee, National Republican Senatorial Committee)
(“Committees”). Republican Candidates and Republican Committees receiving
support from employees and/or PACs of companies in the Index have historically
been more supportive of a Republican President’s policies than Democratic
Candidates and Democratic Committees. The Index is composed of the common stock
of public operating companies and real estate investment trusts (“REITs”).
Construction
of the Index starts with an initial universe of the companies included in the
S&P 500® Index. The universe is then screened using electoral campaign
contribution data from the Federal Election Commission (the “FEC”) to eliminate
companies whose employees and PACs have made aggregate reported political
contributions of less than $25,000 across the two most recent election cycles.
Each election cycle spans two full calendar years, and the most recent election
cycle ended December 31, 2020. FEC data typically includes only information
pertaining to contributions from contributors who have given more than $200 to a
campaign in an election cycle because smaller contributions are not required by
U.S. campaign finance laws to be reported to the FEC.
Companies
that satisfy the initial screening test are then ranked based on a proprietary
screening process based primarily on the total net dollars and the net
percentage of dollars given by a company’s employees and/or PAC to Republican
Candidates and Republican Committees versus Democratic Candidates and Democratic
Committees. The top 150 companies (or fewer if necessary) based on such rankings
are included in the Index at the time of each reconstitution of the Index.
The
Index is equally weighted and rebalanced (i.e.,
weights are reset to equal-weighted, but no companies are added or deleted)
quarterly after the close of trading on the 3rd
Friday in each March, June, September, and December. The Index will be
reconstituted (i.e.,
companies are added or deleted based on the Index rules and weights are reset to
equal-weighted) after the close of trading on the 3rd
Friday of each June following the completion of an election cycle. The Index was
most recently reconstituted in June 2021, and the next scheduled reconstitution
of the Index will take place in June 2023. Companies may also be added or
removed from the Index upon their addition to or removal from the S&P 500
Index in accordance with the rules of the Index.
The
Index was developed by the Adviser in 2017 in anticipation of the commencement
of operations of the Fund.
The
Fund’s Investment Strategy
The
Fund attempts to invest all, or substantially all, of its assets in the
component securities that make up the Index. Under normal circumstances, at
least 80% of the Fund’s total assets (exclusive of any collateral held from
securities lending) will be invested in the component securities of the Index.
The Adviser expects that, over time, the correlation between the Fund’s
performance and that of the Index, before fees and expenses, will be 95% or
better.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning it generally will invest in all of the component securities
of the Index in approximately the same proportion as in the Index. However, the
Fund may use a “representative sampling” strategy, meaning it may invest in a
sample of the securities in the Index whose risk, return and other
characteristics closely resemble the risk, return and other characteristics of
the Index as a whole, when the Fund’s sub-adviser believes it is in the best
interests of the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
The
Fund may invest up to 20% of its total assets (exclusive of any collateral held
from securities lending) in securities or other investments not included in the
Index, but which the Fund’s sub-adviser believes will help the Fund track the
Index. For example, the Fund may invest in securities that are not components of
the Index to reflect various corporate actions and other changes to the Index
(such as reconstitutions, additions, and
deletions).
To
the extent the Index concentrates (i.e., holds more than 25% of its total assets)
in the securities of a particular industry or group of related industries, the
Fund will concentrate its investments to approximately the same extent as the
Index.
Principal Investment Risks
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with other funds. Each risk summarized below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Fund.”
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests. Common
stocks are generally exposed to greater risk than other types of securities,
such as preferred stock and debt obligations, because common stockholders
generally have inferior rights to receive payment from issuers. In addition,
local, regional or global events such as war, acts of terrorism, spread of
infectious diseases or other public health issues, recessions, or other events
could have a significant negative impact on the Fund and its investments. For
example, the global pandemic caused by COVID-19, a novel coronavirus, and the
aggressive responses taken by many governments, including closing borders,
restricting international and domestic travel, and the imposition of prolonged
quarantines or similar restrictions, has had negative impacts, and in many cases
severe impacts, on markets worldwide. The COVID-19 pandemic has caused prolonged
disruptions to the normal business operations of companies around the world and
the impact of such disruptions is hard to predict. Such events may affect
certain geographic regions, countries, sectors and industries more significantly
than others. Such events could adversely affect the prices and liquidity of the
Fund’s portfolio securities or other instruments and could result in disruptions
in the trading markets.
•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.
•Mid-Cap
Companies Risk. The
Fund may invest in the securities of mid-capitalization companies. As a result,
the Fund may be more volatile than funds that invest in larger, more established
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.
Mid-capitalization companies may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs, and
earnings.
•Models
and Data Risk. The
composition of the Index is heavily dependent on proprietary quantitative models
as well as information and data supplied by third parties (“Models and Data”).
In particular, the Index is dependent on the accuracy and completeness of
campaign contribution data reported to and by the FEC. When Models and Data
prove to be incorrect or incomplete, any decisions made in reliance thereon may
lead to the inclusion or exclusion of securities from the Index universe that
would have been excluded or included had the Models and Data been correct and
complete. If the composition of the Index reflects such errors, the Fund’s
portfolio can be expected to reflect the errors, too.
•Non-Financial
Factors Risk.
Because the methodology of the Index selects securities of issuers for
non-financial reasons, the Fund may underperform the broader equity market or
other funds that do not utilize similar criteria when selecting investments.
•Passive
Investment Risk.
The Fund is not actively managed, and its sub-adviser would not sell shares of
an equity security due to current or projected underperformance of a security,
industry, or sector, unless that security is removed from the Index or the
selling of shares of that security is otherwise required upon a reconstitution
or rebalancing of the Index in accordance with the Index
methodology.
•REIT
Investment Risk. Investments
in REITs involve unique risks. REITs may have limited financial resources, may
trade less frequently and in limited volume, and may be more volatile than other
securities. REITs may be affected by changes in the value of their underlying
properties or mortgages or by defaults by their borrowers or tenants.
Furthermore, these entities depend upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
financing a limited number of projects. In addition, the performance of a REIT
may be affected by changes in the tax laws or by its failure to qualify for
tax-free pass-through of income.
•Sector
Risk.
To the extent the Fund invests more heavily in particular sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those sectors.
◦Consumer
Sectors Risk.
The success of consumer product manufacturers and retailers is tied closely to
the performance of domestic and international economies, interest rates,
exchange rates, competition, consumer confidence, changes in demographics and
consumer preferences. Companies in the consumer staples sector, such as
companies that produce or sell food, beverage, and drug retail or other
household items, may be adversely impacted by changes in global and economic
conditions, rising energy prices, and changes in the supply or price of
commodities. Companies in the consumer discretionary sector, such as automobile,
textile, retail, and media companies, depend heavily on disposable household
income and consumer spending, and may be strongly affected by social trends and
marketing campaigns. These companies may be subject to severe competition, which
may have an adverse impact on their
profitability.
◦Energy
Sector Risk. The
energy sector is comprised of energy, industrial, infrastructure, and logistics
companies, and will therefore be susceptible to adverse economic, environmental,
business, regulatory, or other occurrences affecting that sector. The energy
sector has historically experienced substantial price volatility. At times, the
performance of these investments may lag the performance of other sectors or the
market as a whole. Companies operating in the energy sector are subject to
specific risks, including, among others, fluctuations in commodity prices;
reduced consumer demand for commodities such as oil, natural gas, or petroleum
products; reduced availability of natural gas or other commodities for
transporting, processing, storing, or delivering; slowdowns in new construction;
extreme weather or other natural disasters; and threats of attack by terrorists
on energy assets. Additionally, energy sector companies are subject to
substantial government regulation and changes in the regulatory environment for
energy companies may adversely impact their profitability. Over time, depletion
of natural gas reserves and other energy reserves may also affect the
profitability of energy companies.
◦Materials
Sector Risk. Companies
in the materials sector may be adversely impacted by the volatility of commodity
prices, changes in exchange rates, depletion of resources, over-production,
litigation and changes in government regulations, among other
factors.
◦Industrial
Sector Risk. The
industrial sector can be significantly affected by, among other things,
worldwide economic growth, supply and demand for specific products and services,
rapid technological developments, international political and economic
developments, environmental issues, tariffs and trade barriers, and tax and
governmental regulatory policies.
As the demand for, or prices of, industrials increase, the value of the Fund’s
investments generally would be expected to also increase. Conversely, declines
in the demand for, or prices of, industrials generally would be expected to
contribute to declines in the value of such securities. Such declines may occur
quickly and without warning and may negatively impact the value of the Fund and
your investment.
•Tracking
Error Risk. As
with all index funds, the performance of the Fund and the Index may differ from
each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for calendar
years ended December 31. The table illustrates how the Fund’s average annual
returns for the 1-year and since inception periods compare with those of a broad
measure of market performance and the Index. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.investpolitically.com.
Calendar Year Returns
For
the year-to-date period ended
September 30, 2021, the
Fund’s total return was 21.75%.
During
the period of time shown in the bar chart, the Fund’s highest quarterly return
was 22.88% for the quarter ended June 30, 2020, and the
lowest quarterly return was
-32.05% for the quarter ended March 31,
2020.
Average Annual Total Returns
For the Period Ended December 31,
2020
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Point
Bridge GOP Stock Tracker ETF |
1-Year |
Since
Inception (9/6/2017) |
Return Before
Taxes |
5.81% |
7.61% |
Return After Taxes on
Distributions |
5.17% |
7.05% |
Return After Taxes on Distributions and
Sale of Shares |
3.89% |
5.87% |
Point
Bridge GOP Stock Tracker Index
(reflects no deduction for
fees, expenses, or taxes) |
6.50% |
8.42% |
S&P
500®
Index
(reflects no deduction for
fees, expenses, or taxes) |
18.40% |
15.74% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts.
Portfolio
Management
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Adviser |
Point
Bridge Capital, LLC |
Sub-Adviser |
Vident
Investment Advisory, LLC (“VIA” or the “Sub-Adviser”) |
Portfolio
Managers |
Rafael
Zayas, Portfolio Manager for VIA has been a portfolio manager of the Fund
since June 2020. |
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Austin
Wen, Portfolio Manager for VIA, has been a portfolio manager of the Fund
since October 2018. |
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.investpolitically.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
ADDITIONAL
INFORMATION
ABOUT
THE
FUND
Investment
Objective. 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.
Additional
Information About the Index. The
Adviser provides the Index to the Fund. The Adviser created and is responsible
for maintaining and applying the rules-based methodology of the Index. The Index
is calculated by an independent third-party (the “Index Calculation Agent”) that
is not affiliated with the Fund, the Adviser, the Sub-Adviser, the Fund’s
distributor, or any of their respective affiliates. The Index Calculation Agent
provides information to the Fund about the Index constituents and does not
provide investment advice with respect to the desirability of investing in,
purchasing, or selling securities.
Eligibility
for inclusion in the Index is based on political contributions made during the
two most recent election cycles. Election cycles run for two calendar years with
the most recent election cycle ending on December 31, 2020. Data regarding
political contributions is sourced from the FEC and third parties that compile
publicly available information from the FEC regarding political contributions.
In constructing the Index, the Adviser may rely upon third parties to compile
data on a company’s political contributions. The Adviser generally relies on
third parties to determine whether political contributions to Committees are
considered to be associated with the Republican or Democratic Party. To the
extent a company is not reported on by the third parties the Adviser uses to
compile data, the Adviser will pull the data on such company directly from the
FEC website.
Index/Trademark
Licenses/Disclaimers
The
Index is part of the Adviser’s family of Politically Responsible
Investing®
products. The Index is the exclusive property of Point Bridge, which has
contracted with S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices) to
calculate and maintain the Index. The Index is not sponsored by S&P Dow
Jones Indices or its affiliates or its third party licensors. Neither S&P
Dow Jones Indices, nor any of their affiliates or third party licensors will be
liable for any errors or omissions in calculating the Index. “Calculated by
S&P Dow Jones Indices” and the related stylized mark(s) are service marks of
Standard & Poor’s Financial Services, LLC (“SPFS”) and have been licensed
for use by S&P Dow Jones Indices and sublicensed for certain purposes by
Point Bridge.
The
Fund is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices,
SPFS, or any of their affiliates or third party licensors (collectively,
“S&P Dow Jones Indices Entities”). S&P Dow Jones Indices Entities do not
make any representation or warranty, express or implied, to the owners of the
Fund or any member of the public regarding the advisability of investing in
securities generally or in the Fund particularly or the ability of the Index to
track general market performance. S&P Dow Jones Indices Entities’ only
relationship to Point Bridge with respect to the Index is the licensing of the
S&P 500, certain trademarks, service marks and trade names of S&P Dow
Jones Indices Entities, and the provision of the calculation and maintenance
services related to the Index. S&P Dow Jones Indices Entities are not
responsible for and have not participated in the determination of the prices and
amount of the Fund or the timing of the issuance or sale of the Fund or in the
determination or calculation of the equation by which the Fund may be converted
into cash or other redemption mechanics. S&P Dow Jones Indices Entities have
no obligation or liability in connection with the administration, marketing or
trading of the Fund. S&P Dow Jones Indices, LLC is not an investment
advisor. Inclusion of a security within the Index is not a recommendation by
S&P Dow Jones Indices Entities to buy, sell, or hold such security, nor is
it investment advice.
S&P
DOW JONES INDICES ENTITIES DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS
AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA RELATED THERETO OR ANY
COMMUNICATION WITH RESPECT THERETO, INCLUDING BUT NOT LIMITED TO, ORAL, WRITTEN
OR ELECTRONIC COMMUNICATIONS. S&P DOW JONES INDICES ENTITIES SHALL NOT BE
SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS
THEREIN. S&P DOW JONES INDICES ENTITIES MAKE NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY POINT BRIDGE
OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR
WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING,
IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES ENTITIES BE LIABLE FOR
ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING
BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN
IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN
CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE.
Additional
Information About the Fund’s Principal Risks. This
section provides additional information regarding the principal risks described
in the Fund Summary. As in the Fund Summary, the principal risks below are
presented in alphabetical order to facilitate finding particular risks and
comparing them with other funds. Each risk described below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. Each of the factors below could have a negative impact on the Fund’s
performance and trading prices.
•Equity
Market Risk.
Common stocks are susceptible to general stock market fluctuations and to
volatile increases and decreases in value as market confidence in and
perceptions of their issuers change. These investor perceptions are based on
various and
unpredictable
factors including: expectations regarding government, economic, monetary and
fiscal policies; inflation and interest rates; economic expansion or
contraction; and global or regional political, economic, public health, and
banking crises. If you held common stock, or common stock equivalents, of any
given issuer, you would generally be exposed to greater risk than if you held
preferred stocks and debt obligations of the issuer because common stockholders,
or holders of equivalent interests, generally have inferior rights to receive
payments from issuers in comparison with the rights of preferred stockholders,
bondholders, and other creditors of such issuers.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and, in many cases, unprecedented volatility and
severe losses due to the global pandemic caused by COVID-19, a novel
coronavirus. The pandemic has resulted in a wide range of social and economic
disruptions, including closed borders, voluntary or compelled quarantines of
large populations, stressed healthcare systems, reduced or prohibited domestic
or international travel, and supply chain disruptions affecting the United
States and many other countries. Some sectors of the economy and individual
issuers have experienced particularly large losses as a result of these
disruptions, and such disruptions may continue for an extended period of time or
reoccur in the future to a similar or greater extent. In response, the U.S.
government and the Federal Reserve have taken extraordinary actions to support
the domestic economy and financial markets, resulting in very low interest rates
and in some cases negative yields. It is unknown how long circumstances related
to the pandemic will persist, whether they will reoccur in the future, whether
efforts to support the economy and financial markets will be successful, and
what additional implications may follow from the pandemic. The impact of these
events and other epidemics or pandemics in the future could adversely affect
Fund performance.
•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 of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility, periods of
steep market declines, and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant.
◦Trading.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500®
Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than Shares, and this
could lead to differences between the market price of the Shares and the
underlying value of those Shares.
•Mid-Cap
Companies Risk. The
Fund may invest in the securities of mid-capitalization companies. As a result,
the Fund may be more volatile than funds that invest in larger, more established
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.
Mid-capitalization companies may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs, and earnings. The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. Some mid-capitalization companies have limited
product lines, markets, financial resources, and management personnel and tend
to concentrate on fewer geographical markets relative to large-capitalization
companies.
•Models
and Data Risk. The
Index relies heavily on proprietary quantitative Models and Data. Because the
Index is composed based on such Models and Data, when such Models and Data prove
to be incorrect or incomplete, the Index and the Fund may not perform as
expected. The Index is dependent on the accuracy and completeness of campaign
contribution data reported to and by the FEC. Federal campaign finance laws do
not presently require that aggregate donations of $200 or less to a single
candidate during an election cycle be reported to the FEC. Consequently, the FEC
data on which the Index is based may not reflect all campaign contributions.
Additionally, because campaign contribution data is not independently verified
with respect to each individual contribution, there is a risk that such data may
reflect inaccurate information (e.g.,
a misspelled company’s name) resulting in inaccuracies in the larger FEC data
set. Further, there are a variety of ways for donors to make significant
contributions that benefit one or more candidates, but which contributions are
made to organizations that are not required to publicly disclose their donors
(e.g.,
a social welfare organization operating under section 501(c)(4) of the Internal
Revenue Code of 1986 (the “Code”)). Consequently, FEC data may not fully reflect
the amount of contributions made by a company’s employees or the candidates or
groups to which such contributions are made.
•Non-Financial
Factors Risk.
Because the methodology of the Index selects securities of issuers for
non-financial reasons, the Fund may underperform the broader equity market or
other funds that do not utilize similar criteria when selecting
investments.
•Passive
Investment Risk.
The Fund invests in the securities included in, or representative of, the Index
regardless of their investment merit. The Fund does not attempt to outperform
the Index or take defensive positions in declining markets. As a result, the
Fund’s performance may be adversely affected by a general decline in the market
segments relating to the Index. The returns from the types of securities in
which the Fund invests may underperform returns from the various general
securities markets or different asset classes. This may cause the Fund to
underperform other investment vehicles that invest in different asset classes.
Different types of securities (for example, large-, mid- and
small-capitalization stocks) tend to go through cycles of doing better – or
worse – than the general securities markets. In the past, these periods have
lasted for as long as several years.
•REIT
Investment Risk.
Investments in REITs involve unique risks. REITs may have limited financial
resources, may trade less frequently and in limited volume, and may be more
volatile than other securities. In addition, to the extent the Fund holds
interests in REITs, it is expected that investors in the Fund will bear two
layers of asset-based management fees and expenses (directly at the Fund level
and indirectly at the REIT level). The risks of investing in REITs include
certain risks associated with the direct ownership of real estate and the real
estate industry in general. These include risks related to general, regional and
local economic conditions; fluctuations in interest rates and property tax
rates; shifts in zoning laws, environmental regulations and other governmental
action such as the exercise of eminent domain; cash flow dependency; increased
operating expenses; lack of availability of mortgage funds; losses due to
natural disasters; overbuilding; losses due to casualty or condemnation; changes
in property values and rental rates; and other factors.
In
addition to these risks, residential/diversified REITs and commercial equity
REITs may be affected by changes in the value of the underlying property owned
by the trusts, while mortgage REITs may be affected by the quality of any credit
extended. Further, REITs are dependent upon management skills and generally may
not be diversified. REITs are also subject to heavy cash flow dependency,
defaults by borrowers and self-liquidation. In addition, REITs could possibly
fail to qualify for the beneficial tax treatment available to REITs under the
Code, or to maintain their exemptions from registration under the Investment
Company Act of 1940, as amended (the “1940 Act”). The Fund expects that
dividends received from a REIT and distributed to Fund shareholders generally
will be taxable to the shareholder as ordinary income. The above factors may
also adversely affect a borrower’s or a lessee’s ability to meet its obligations
to the REIT. In the event of a default by a borrower or lessee, the REIT may
experience delays in enforcing its rights as a mortgagee or lessor and may incur
substantial costs associated with protecting investments.
•Sector
Risk. The
Fund’s investing approach may result in an emphasis on certain sectors or
sub-sectors of the market at any given time. To the extent the Fund invests more
heavily in one sector or sub-sector of the market, it thereby presents a more
concentrated risk and its performance will be especially sensitive to
developments that significantly affect those sectors or sub-sectors. In
addition, the value of Shares may change at different rates compared to the
value of shares of a fund with investments in a more diversified mix of sectors
and industries. An individual sector or sub-sector of the market may have
above-average performance during particular periods, but may also move up and
down more than the broader market. The several industries that constitute a
sector may all react in the same way to economic, political or regulatory
events. The Fund’s performance could also
be
affected if the sectors or sub-sectors do not perform as expected.
Alternatively, the lack of exposure to one or more sectors or sub-sectors may
adversely affect performance.
◦Consumer
Sectors Risk. The
success of consumer product manufacturers and retailers is tied closely to the
performance of domestic and international economies, interest rates, exchange
rates, competition, consumer confidence, tariffs and trade barriers, changes in
demographics, and consumer preferences. Companies in consumer-oriented sectors
depend heavily on disposable household income and consumer spending, and may be
strongly affected by social trends and marketing campaigns. These companies may
be subject to severe competition, which may have an adverse impact on their
profitability.
◦Energy
Sector Risk.
The
energy sector is comprised of energy, energy industrial, energy infrastructure,
and energy logistics companies, and will therefore be susceptible to adverse
economic, environmental, business, regulatory, or other occurrences affecting
that sector. The energy sector has historically experienced substantial price
volatility. At times, the performance of these investments may lag the
performance of other sectors or the market as a whole. Companies operating in
the energy sector are subject to specific risks, including, among others,
fluctuations in commodity prices; reduced consumer demand for commodities such
as oil, natural gas, or petroleum products; reduced availability of natural gas
or other commodities for transporting, processing, storing, or delivering;
slowdowns in new construction; extreme weather or other natural disasters; and
threats of attack by terrorists on energy assets. Additionally, energy sector
companies are subject to substantial government regulation and changes in the
regulatory environment for energy companies may adversely impact their
profitability. Certain energy sector companies may incur environmental costs and
liabilities due to the nature of their businesses and the substances they
handle. Changes in existing laws, regulations, or enforcement policies governing
the energy sector could significantly increase the compliance costs of such
companies. Such companies could, from time to time, be held responsible for
implementing remediation measures, the cost of which may not be recoverable from
insurance. Over time, depletion of natural gas reserves and other energy
reserves may also affect the profitability of energy companies. The above
factors may change quickly and without warning and may negatively impact the
value of the Fund and your investment.
◦Materials
Sector Risk. Companies
in the materials sector may be adversely affected by commodity price volatility,
exchange rates, import controls, increased competition, depletion of resources,
technical advances, labor relations, over-production, litigation and government
regulations, among other factors. Companies in the materials sector are also at
risk of liability for environmental damage and product liability claims.
Production of materials may exceed demand as a result of market imbalances or
economic downturns, leading to poor investment returns.
◦Industrial
Sector Risk. The
industrial sector can be significantly affected by, among other things,
worldwide economic growth, supply and demand for specific products and services,
rapid technological developments, international political and economic
developments, environmental issues, tariffs and trade barriers, and tax and
governmental regulatory policies. As the demand for, or prices of, industrials
increase, the value of the Fund’s investments generally would be expected to
also increase. Conversely, declines in the demand for, or prices of, industrials
generally would be expected to contribute to declines in the value of such
securities. Such declines may occur quickly and without warning and may
negatively impact the value of the Fund and your investment.
•Tracking
Error Risk.
As with all index funds, the performance of the Fund and the Index may vary
somewhat for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index. The Fund may use a
representative sampling strategy to achieve its investment objective, if the
Fund’s Sub-Adviser believes it is in the best interest of the Fund, which
generally can be expected to produce a greater non-correlation
risk.
PORTFOLIO
HOLDINGS
INFORMATION
Information
about the Fund’s daily portfolio holdings is available at
www.investpolitically.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
Investment
Adviser
Point
Bridge Capital, LLC, serves as the investment adviser and index provider and has
overall responsibility for the general management and administration of the
Fund. The Adviser is a registered investment adviser with offices located at 300
Throckmorton Street, Suite 1550, Fort Worth, Texas 76102, that provides
investment advisory services to high net worth individuals and charitable
organizations, as well as the Fund. The Adviser also arranges for sub-advisory,
transfer agency, custody, fund administration, and all other related services
necessary for the Fund to operate. The Adviser provides oversight of the
Sub-Adviser, defined below, monitoring of the Sub-Adviser’s buying and selling
of securities for the Fund, and review of the Sub-Adviser’s performance. 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 0.72% of the
Fund’s average daily net assets. The Adviser was founded in 2013, and Mr. Hal
Lambert owns a controlling interest in the Adviser.
Under
the Investment Advisory Agreement, the Adviser has agreed to pay all expenses of
the Fund, except for: the fee paid to the Adviser pursuant to the Investment
Advisory Agreement, interest charges on any borrowings, dividends and other
expenses on securities sold short, taxes, brokerage commissions and other
expenses incurred in placing orders for the purchase and sale of securities and
other investment instruments, acquired fund fees and expenses, accrued deferred
tax liability, extraordinary expenses, distribution (12b-1) fees and expenses.
The Adviser, in turn, compensates the Sub-Adviser from the management fee it
receives.
The
basis for the Board of Trustees’ approval of the Fund’s Investment Advisory
Agreement is available in the Fund’s Semi-Annual Report to Shareholders for the
period ended December 31, 2020.
Sub-Adviser
The
Adviser has retained Vident Investment Advisory, LLC to serve as sub-adviser for
the Fund. VIA is responsible for the day-to-day management of the Fund. VIA, a
registered investment adviser, is a wholly-owned subsidiary of Vident Financial,
LLC. Its principal office is located at 1125 Sanctuary Parkway, Suite 515,
Alpharetta, Georgia 30009. VIA was formed in 2014 and provides investment
advisory services to ETFs, including the Fund. 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
any rebalancing or reconstitution of the Index, subject to the supervision of
the Adviser and the Board. For its services, the Sub-Adviser is paid a fee by
the Adviser, which fee is calculated daily and paid monthly, at an annual rate
of the Fund’s average daily net assets of 0.03% on the first $500 million and
0.02% on amounts greater than $500 million, subject to a minimum annual fee of
$15,000.
The
basis for the Board of Trustees’ approval of the Fund’s Sub-Advisory Agreement
is available in the Fund’s Annual Report to Shareholders for the period ended
June 30, 2021.
Portfolio
Managers
The
below individuals are the Fund’s Portfolio Managers and are jointly and
primarily responsible for the day-to-day management of the Fund’s
portfolio.
Austin
Wen, CFA, has been a Portfolio Manager for the Sub-Adviser since 2016 and has
seven years of investment management experience. His focus at VIA is on
portfolio management and trading, risk monitoring and investment analysis.
Previously, he was an analyst for Vident Financial beginning in 2014, working on
the development and review of investment solutions. He began his career in 2011
as a State Examiner for the Georgia Department of Banking and Finance. Mr. Wen
obtained a BA in Finance from the University of Georgia and holds the Chartered
Financial Analyst designation.
Rafael
Zayas, CFA, is a Portfolio Manager for the Sub-Adviser and has over 15 years of
investment management experience. Mr. Zayas became SVP, Head of Portfolio
Management and Trading ETF at VIA in June 2020. From 2017 to 2020, he was Senior
Portfolio Manager – International Equity at VIA and his investment management
experience includes managing international equity portfolios, including in
emerging and frontier markets. Prior to joining VIA, he was a Portfolio Manager
– Direct Investments for seven years at Russell Investments, a global asset
manager, where he co-managed more than $4 billion in quantitative strategies
across global markets, including the Russell Strategic Call Overwriting Fund, a
mutual fund. Mr. Zayas also helped Russell Investments launch its sponsored ETF
initiative and advised on index methodologies. Prior to joining Russell
Investments, Mr. Zayas was a Portfolio Manager – Equity Indexing at Mellon
Capital Management, where he managed assets for internationally listed global
equity ETFs. Mr. Zayas graduated with a B.S. in Electrical Engineering from
Cornell University and obtained a Certificate in Computational Finance and Risk
Management from the University of Washington. He also attained the Chartered
Financial Analyst designation in 2010.
The
Fund’s SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by the Portfolio Managers, and
the Portfolio Managers’ ownership of Shares.
HOW
TO
BUY
AND
SELL
SHARES
The
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from the Fund, and only APs may tender their Shares for
redemption directly to the Fund, at NAV. 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.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to 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.
Determination
of NAV
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 Board (as described below).
Fair
Value Pricing
The
Board has adopted procedures and methodologies to fair value Fund securities
whose market prices are not “readily available” or are deemed to be unreliable.
For example, such circumstances may arise when: (i) a security has been
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 Board-adopted valuation
procedures. Due to the subjective and variable nature of fair value pricing,
there can be no assurance that the Adviser or Sub-Adviser will be able to obtain
the fair value assigned to the security upon the sale of such
security.
Investments
by Registered Investment Companies
Section 12(d)(1)
of the 1940 Act restricts investments by registered investment companies in the
securities of other investment companies, including Shares. Registered
investment companies are permitted to invest in the Fund beyond the limits set
forth in section 12(d)(1) subject to certain terms and conditions set forth in
an SEC exemptive order issued to the Adviser or rule under the 1940 Act,
including that such investment companies enter into an agreement with the
Fund.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Fund. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same
address,
even if their accounts are registered under different names. Householding for
the Fund is available through certain broker-dealers. If you are interested in
enrolling in householding and receiving a single copy of prospectuses and other
shareholder documents, please contact your broker-dealer. If you are currently
enrolled in householding and wish to change your householding status, please
contact your broker-dealer.
DIVIDENDS,
DISTRIBUTIONS,
AND
TAXES
Dividends
and Distributions
The
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains 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.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax advisor
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Fund intends to 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
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 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.
Taxation
of REIT Investments
The
Fund may invest in REITs. “Qualified REIT dividends” (i.e.,
ordinary REIT dividends other than capital gain dividends and portions of REIT
dividends designated as qualified dividend income eligible for capital gain tax
rates) are eligible for a 20% deduction by non-corporate taxpayers. This
deduction, if allowed in full, equates to a maximum effective tax rate of 29.6%
(37% top rate applied to income after 20% deduction). Pursuant to proposed
Treasury regulations on which the Fund may rely, distributions by the Fund to
its shareholders that are attributable to qualified REIT dividends received by
the Fund and which the Fund properly reports as “section 199A dividends,” are
treated as “qualified REIT dividends” in the hands of non-corporate
shareholders. A section 199A dividend is
treated
as a qualified REIT dividend only if the shareholder receiving such dividend
holds the dividend-paying RIC shares for at least 46 days of the 91-day period
beginning 45 days before the shares become ex-dividend, and is not under an
obligation to make related payments with respect to a position in substantially
similar or related property. The Fund is permitted to report such part of its
dividends as section 199A dividends as are eligible, but is not required to do
so.
REITs
in which the Fund invests often do not provide complete and final tax
information to the Fund until after the time that the Fund issues a tax
reporting statement.
As
a result, the Fund may at times find it necessary to reclassify the amount and
character of its distributions to you after it issues your tax reporting
statement. When such reclassification is necessary, the Fund (or a financial
intermediary, such as a broker, through which a shareholder owns Shares) will
send you a corrected, final Form 1099-DIV to reflect the reclassified
information. If you receive a corrected Form 1099-DIV, use the information on
this corrected form, and not the information on the previously issued tax
reporting statement, in completing your tax returns.
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, Foreside Fund Services, 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 Three Canal Plaza,
3rd
Floor, Portland, Maine 04101.
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.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often Shares traded on the Exchange at a price above (i.e.,
at a premium) or below (i.e.,
at a discount) the NAV of the Fund is available on the Fund’s website at
www.investpolitically.com.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange makes no
representation or warranty, express or implied, to the owners of Shares or any
member of the public regarding the ability of the Fund to track the total return
performance of the Index or the ability of the Index identified herein to track
the performance of its constituent securities. The Exchange is not responsible
for, nor has it participated in, the determination of the compilation or the
calculation of the Index, nor 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.
The
Exchange does not guarantee the accuracy and/or the completeness of the Index or
the data included therein. The Exchange makes no warranty, express or implied,
as to results to be obtained by the Fund, owners of Shares, or any other person
or entity from the use of the Index or the data included therein. The Exchange
makes no express or implied warranties, and hereby expressly disclaims all
warranties of merchantability or fitness for a particular purpose with respect
to the Index or the data included therein. 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, the Sub-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 Fund does not guarantee the accuracy, completeness, or
performance of the Index or the data included therein and shall have no
liability in connection with the Index or Index calculation. The Adviser owns
the Index and the Index methodology and is a licensor of the Index to the index
receipt agent. The Adviser has contracted with the Index Calculation Agent to
maintain and calculate the Index used by the Fund. The Index Calculation Agent
shall have no liability for any errors or omissions in calculating the
Index.
FINANCIAL
HIGHLIGHTS
The
financial highlights table is intended to help you understand the Fund’s
financial performance for the Fund’s five most recent fiscal years (or the life
of the Fund, if shorter). Certain information reflects financial results for a
single 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 Cohen & Company, Ltd., the Fund’s 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.
For
a capital share outstanding throughout each year/period
|
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Year
Ended June 30, 2021 |
|
Year
Ended June 30, 2020 |
|
Year
Ended June 30, 2019 |
|
Period
Ended
June
30, 2018(1) |
|
|
|
|
|
|
|
|
|
|
Net
asset value, beginning of year/period |
$ |
24.01 |
|
|
$ |
27.39 |
|
|
$ |
27.35 |
|
|
$ |
25.00 |
|
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INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income (loss)(2) |
0.47 |
|
|
0.48 |
|
|
0.52 |
|
|
0.34 |
|
|
|
|
|
|
|
|
|
|
|
Net
realized and unrealized gain (loss) on investments |
12.51 |
|
|
(3.23) |
|
|
0.02 |
|
|
2.13 |
|
|
|
|
|
|
|
|
|
|
|
Total
from investment operations |
12.98 |
|
|
(2.75) |
|
|
0.54 |
|
|
2.47 |
|
|
|
|
|
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DISTRIBUTIONS
TO SHAREHOLDERS: |
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|
|
|
Distributions
from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income |
(0.77) |
|
|
(0.63) |
|
|
(0.50) |
|
|
(0.11) |
|
|
|
|
|
|
|
|
|
|
|
Net
realized gains |
— |
|
|
— |
|
|
— |
|
|
(0.01) |
|
|
|
|
|
|
|
|
|
|
|
Total
distributions |
(0.77) |
|
|
(0.63) |
|
|
(0.50) |
|
|
(0.12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value, end of year/period |
$ |
36.22 |
|
|
$ |
24.01 |
|
|
$ |
27.39 |
|
|
$ |
27.35 |
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
return |
54.82% |
|
-10.44% |
|
2.26 |
% |
|
9.88 |
% |
(3) |
|
|
|
|
|
|
|
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|
SUPPLEMENTAL
DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets at end of year/period (000’s) |
$ |
12,679 |
|
|
$ |
8,402 |
|
|
$ |
16,433 |
|
|
$ |
38,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
RATIOS
TO AVERAGE NET ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
to average net assets |
0.72 |
% |
|
0.72 |
% |
|
0.72 |
% |
|
0.72 |
% |
(4) |
|
|
|
|
|
|
|
|
|
Net
investment income (loss) to average net assets |
1.54 |
% |
|
1.83 |
% |
|
1.95 |
% |
|
1.50 |
% |
(4) |
|
|
|
|
|
|
|
|
|
Portfolio
turnover rate(5) |
68 |
% |
|
27 |
% |
|
37 |
% |
|
14 |
% |
(3) |
|
|
|
|
|
|
|
|
|
(1)
Commencement of operations on September 6, 2017.
(2)
Calculated based on average shares outstanding during
the period.
(3)
Not annualized.
(4)
Annualized.
(5)
Excludes the impact of in-kind transactions.
Point
Bridge GOP Stock Tracker ETF
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|
|
Adviser
and Index Provider |
Point
Bridge Capital, LLC
300
Throckmorton Street, Suite 1550
Fort
Worth, Texas 76102 |
Transfer
Agent and Index Receipt Agent |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Sub-Adviser |
Vident
Investment Advisory, LLC
1125
Sanctuary Parkway, Suite 515
Alpharetta,
Georgia 30009 |
Administrator |
U.S.
Bancorp Fund Services, LLC
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Dr., Suite 302
Milwaukee,
Wisconsin 53212 |
Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza, 3rd
Floor,
Portland,
Maine 04101 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
Wisconsin 53202 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue NW
Washington,
DC 20004-2541 |
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 dated October
31, 2021 is on file with the SEC and is herein incorporated by reference into
this Prospectus. It is legally considered a part of this
Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments is available in the Fund’s annual and
semi-annual reports to shareholders. In the annual
report
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at Point Bridge GOP
Stock Tracker ETF, c/o U.S. Bank Global Fund Services, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701 or by 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.investpolitically.com;
or
(SEC
Investment Company Act File No. 811-22668)