ck0001742912-20220131
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AHOY |
Newday Ocean Health
ETF |
FAIR |
Newday Diversity, Equity & Inclusion
ETF |
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each
listed on NYSE Arca, Inc. |
PROSPECTUS
May 2,
2022
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.
Table
of Contents
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Newday
Ocean Health ETF - Fund Summary |
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Newday
Diversity, Equity & Inclusion ETF - Fund Summary |
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Additional
Information About the Funds |
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Portfolio
Holdings Information |
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Management |
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How
to Buy and Sell Shares |
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Dividends,
Distributions, and Taxes |
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Distribution |
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Premium/Discount
Information |
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Additional
Notices |
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Financial
Highlights |
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Newday
Ocean Health ETF – Fund Summary
Investment Objective
The Newday Ocean Health ETF
(the “Fund” or the “Ocean Health ETF”) seeks to capture long-term capital
appreciation.
Fees and Expenses of the
Fund
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares of the Fund
(“Shares”). You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the table and 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 |
0.75% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses(1) |
0.00% |
Total
Annual Fund Operating Expenses |
0.75% |
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(1)
Estimated for the current
fiscal year
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:
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in total annual fund operating expenses or
in the expense example above, affect the Fund’s performance. Because the Fund is
newly organized, portfolio turnover information is not yet
available.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective by investing primarily in equity securities of Ocean
Health Companies (defined below). Under normal market conditions, the Fund will
invest at least 80% of its net assets, plus any borrowings for investment
purposes, in Ocean Health Companies. The Fund categorizes an “Ocean Health
Company” as a company that is concerned with and attentive to discharge of
excess nutrients into bodies of water, end of lifecycle product waste,
commitments to environmental protectionism, and/or CO2 emissions.
Ocean
Health Criteria
In
order to identify investment candidates for the Fund, the Fund’s sub-adviser,
Newday Funds, Inc., doing business as Newday Impact (“Newday” or the
“Sub-Adviser”), analyzes the Fund’s investable universe utilizing a proprietary,
mathematically-driven screening methodology. The Sub-Adviser begins its analysis
by screening an initial universe of: (i) U.S.-listed companies whose securities
comprise approximately ninety-five percent of the market capitalization of
securities listed on U.S. stock exchanges; and (ii) companies whose securities
are listed on foreign stock exchanges and that are domiciled in one of the 22
developed markets or 24 emerging markets listed below that, in aggregate,
represent approximately 85% of the global equity opportunity set outside of the
U.S. The Fund may invest in the securities of foreign companies either directly
(via securities listed on foreign stock exchanges) or indirectly via American
Depositary Receipts (“ADRs”), which are listed on U.S. exchanges. The
Sub-Adviser considers specific key performance indicators (“KPI”) which are
indicators of corporate alignment within the Ocean Health theme, such as a
company’s water pollutant emissions,
CO2
emissions, and hazardous waste production to assign each company a score (an
“Ocean Health Impact Score”). Each KPI considered has a set of properties which
determine how it is scored and weighted as described below.
The
Sub-Adviser’s ocean health criteria are used to determine potential candidate
companies for investment by the Fund. A company’s financial returns are not
considered during this step. However, as noted below, once a universe of
potential candidates is selected based on ocean health criteria, the Sub-Adviser
selects securities for the Fund’s portfolio using a bottom-up approach that
takes into consideration a company’s financial return potential by analyzing,
among other factors, earnings expectations, earnings quality, and
profitability.
Peer
Group: Each KPI is assigned a peer group of either a specific “Sector” or the
entire “Universe,” which determines which group of companies will be evaluated
against each other with respect to a particular KPI. A “Sector” peer group is
one of eleven market sectors: Energy, Materials, Industrials, Consumer
Discretionary, Consumer Staples, Health Care, Financials, Information
Technology, Real Estate, Communication Services and Utilities. The “Universe”
peer group includes all eleven market sectors and addresses each company in the
screened universe after applying the exclusion criteria discussed below. Sorting
KPIs into appropriate peer groups ensures the Sub-Adviser’s analysis takes place
within proper context. Along with Polarity and Data Type (each described below),
this step in the Sub-Adviser’s methodology defines how each company’s KPI raw
value is pre-processed for scoring.
Data
type: The data type of a KPI is “boolean” or “float”. Boolean KPIs are typically
survey responses regarding policies or internal structures, and will take the
form of “true/false” or “yes/no”. Float KPIs are numeric values, such as
emissions data, resource use, or financial values.
Polarity:
The polarity of a KPI is “positive” or “negative.” A positive polarity KPI
reflects a desirable trait, and will result in a higher subscore for a “true”
value or a high numeric value. Conversely, a negative polarity KPI reflects a
negative indication, such as a controversy or a pollutant quantity, and will
result in a higher subscore for a “false” value or a low numeric
value.
Category:
Each KPI is sorted into thematic categories (“Categories”), representing
distinct subtopics within a theme. The thematic categories in the Ocean Health
model are “Emissions” (covering CO2 and other pollutant emissions),
“Involvement” (covering company involvement in environmentally favorable
activities, or indicating a company provides certain products and services with
benefits to ocean health), “Waste” (covering a company’s material footprint as
well as objectives, policies and procedures to reduce hazardous and total
waste), and “Water Discharge” (covering a company’s footprint specific to water
use). This piece of the model was added to increase the stability of the scoring
output. One of the challenges typically present in ESG (Environmental, Social,
and Governance) databases is that companies do not always supply data for every
field, which can cause issues in a scoring model if not treated with care. To
address that problem, in the Sub-Adviser’s model, each Category has a calculated
target weight. To improve the results of the scoring model, if a company has
missing KPI values, the weight assigned to the missing KPI values is
redistributed proportionally between the other KPIs in a Category
group.
Intensity:
The Intensity of each KPI reflects its relevance to the impact thesis for the
Fund’s portfolio. Within the Sub-Adviser’s database of ESG data, there are often
several KPIs that are centrally relevant to the impact thesis, as well as many
that are not quite as important, but still indicate alignment with a theme.
Simply put, the Sub-Adviser gives more relevant KPIs more weight in the
model.
The
Sub-Adviser utilizes publicly available information sourced from a third-party
data analysis platform when applying its ocean health criteria and determining a
company’s Ocean Health Impact Score. The third-party data analysis platform
assembles data from sources such as company websites, annual reports, and
corporate social responsibility reports, which are produced by either the
companies themselves or are contributed by third-party firms. The Sub-Adviser
reviews the source materials as well as standardized reports prepared by the
third-party data analysis platform.
Upon
completion of this analysis each company will be assigned an Ocean Health Impact
Score reflecting its relative alignment with the thematic topic considered by
the Sub-Adviser’s models. The Sub-Adviser’s internal ESG scoring model produces
a numerical Ocean Health Impact Score with a range of 0-100%, where higher
scoring companies are determined to be more thematically aligned, and therefore
favorable candidates for inclusion in the Fund’s portfolio. Generally, there
will not be companies close to a 0% or 100% score. For example, in order to
score 100%, a company would have to register a positive response to every
surveyed KPI, as well as being the top ranked company in its peer group on every
numerical data point, and in practice this is extremely unlikely to happen.
Excluded
Companies
There
are certain products and services the Sub-Adviser considers fundamentally
incompatible with sustainable development. While the factors considered may not
directly impact ocean health, the Sub-Adviser believes that companies with
significant
involvement
in the listed business categories are generally not strong candidates for
inclusion from an ESG perspective. The Sub-Adviser will exclude any companies
with meaningful exposure (e.g., 5% revenue where such data is available) in any
of the listed business categories. The Sub-Adviser will not make exclusions
based on a lack of available data. Generally, the 5% revenue threshold is
designed so that the Sub-Adviser’s model excludes the primary manufacturers or
sellers of such products, rather than resellers with marginal exposure. For
example, major online retailers would be screened out for sale of alcohol,
firearms, etc. if the Sub-Adviser did not set a revenue threshold.
Additionally,
the Sub-Adviser screens out companies involved in severe ESG controversies, the
occurrence of which typically indicates a company has a significant lack of
proper ESG policy implementation, which may be due to a significant structural
deficit in operations or oversight, unethical leadership, or some other cause.
Examples of ESG controversies that may cause the Sub-Adviser to exclude a
company from the Fund’s investable universe include controversies concerning:
environmental matters; wages & working conditions; bribery; corruption &
fraud; anti-competitive behavior; insider dealings; and child labor. The
Sub-Adviser will exclude any companies with meaningful exposure (as defined
above) in any of the following business categories:
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Armaments
- Companies that produce vehicles, planes, armaments or any combat materials
used by the military.
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Cluster
Bombs
- Companies that produce cluster bombs.
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Anti-Personnel Landmines
- Companies that produce anti-personnel landmines.
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Firearms
- Companies that produce or retail firearms or small arms ammunition intended
for civilian use.
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Gambling
- Companies that generate revenues from gambling.
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Tobacco 5% Revenues
- Companies that receive more than 5% of their total net revenues from tobacco
production.
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Alcohol 5% Revenues
- Companies that receive more than 5% of their total net revenues from alcohol
production.
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Child Labor Controversies
- Companies that have controversies regarding the use of child
labor.
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Fossil Fuels
- Companies that are included in the following Global Industry Classification
Standards (GICS) sub-industries: Oil & Gas Drilling, Oil & Gas Equipment
& Services, Integrated Oil & Gas, Oil & Gas Exploration &
Production, Oil & Gas Refining & Marketing, Oil & Gas Storage &
Transportation, and/or Coal & Consumable Fuels.
Portfolio
Selection
Once
a universe of Ocean Health Companies is established based on the Ocean Health
Impact Scores, the Sub-Adviser selects securities for the Fund’s portfolio using
a bottom-up approach that takes into consideration seven fundamental factors:
earnings expectations, earnings quality, profitability, operating efficiency,
valuation, governance and risk. The Sub-Adviser uses two key models to select
companies for the Fund’s portfolio, a buy/sell model and a macro model. The
buy/sell model identifies companies most at risk of underperforming the market
and the macro model identifies companies expected to outperform or underperform
in any given state of the economic/business cycle. Based on the output of these
models, the Sub-Adviser then selects its highest conviction securities and
determines weightings for inclusion in the Fund’s portfolio. The Sub-Adviser may
invest in companies of any market capitalization, region, or sector allowing it
to construct a portfolio that focuses on the most attractive security
opportunities regardless of the company’s size, location or its sector
orientation.
The
Fund’s portfolio will include approximately 40-60 companies. The portfolio is
actively managed by the Sub-Adviser and the weightings are adjusted regularly
with a focus on each company’s Ocean Health Impact Score and investment
fundamentals.
The Fund is considered to be
non-diversified, which means that it may invest a greater percentage of its
assets in the securities of a single issuer or a smaller number of issuers than
if it were a diversified fund. However, the Fund has a policy that it will
reduce its holding in a security if the position makes up more than 7.5% of the
Fund’s portfolio.
Principal Investment Risks
The principal risks of investing
in the Fund are summarized below. As with any investment, there is a risk that you could
lose all or a portion of your principal 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
objective. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Funds — Principal Risks of Investing in Each Fund.”
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 they appear.
Associated
Risk of Investing Using Ocean Health Metrics and ESG Principles. The
Fund’s investment strategy limits the types and number of investment
opportunities available to the Fund, and, as a result, the Fund may underperform
other funds that do not primarily seek to invest in companies based on Ocean
Health metrics or that are screened based on ESG principals. In addition, Ocean
Health and ESG investing may affect the Fund’s exposure to some companies or
industries, and the Fund will forgo some investment opportunities because they
are screened out based on the Fund’s investment strategy.
Currency
Risk. The
Fund’s exposure to foreign currencies subjects the Fund to the risk that those
currencies will decline in value relative to the U.S. Dollar. Currency rates in
foreign countries may fluctuate significantly over short periods of time for any
number of reasons, including changes in interest rates and the imposition of
currency controls or other political developments in the U.S. or
abroad.
Depositary
Receipt Risk.
Depositary receipts involve risks similar to those associated with investments
in foreign securities and certain additional risks. Depositary receipts listed
on U.S. exchanges are issued by banks or trust companies and entitle the holder
to all dividends and capital gains that are paid out on the underlying foreign
shares (“Underlying Shares”). When the Fund invests in depositary receipts as a
substitute for an investment directly in the Underlying Shares, the Fund is
exposed to the risk that the depositary receipts may not provide a return that
corresponds precisely with that of the Underlying Shares.
Emerging
Markets Risk. The
Fund may invest in securities issued by companies domiciled or headquartered in
emerging market nations. Investments in securities traded in developing or
emerging markets, or that provide exposure to such securities or markets, can
involve additional risks relating to political, economic, currency, or
regulatory conditions not associated with investments in U.S. securities and
investments in more developed international markets. Such conditions may impact
the ability of the Fund to buy, sell, or otherwise transfer securities,
adversely affect the trading market and price for Shares and cause the Fund to
decline in value.
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, such as those held by the Fund, 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.
ETF
Risks.
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration Risk.
The
Fund has a limited number of financial institutions that are authorized to
purchase and redeem Shares directly from the Fund (known as “Authorized
Participants” or “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. Because securities held by the Fund may trade on foreign exchanges
that are closed when the Fund’s primary listing exchange is open, the Fund is
likely to experience premiums and discounts greater than those of ETFs holding
only domestic securities.
◦Trading.
Although Shares are listed on a national securities exchange, such as NYSE Arca,
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.
Foreign
Securities Risk. Investments
in securities or other instruments of non-U.S. issuers involve certain risks not
involved in domestic investments and may experience more rapid and extreme
changes in value than investments in securities of U.S. companies. Financial
markets in foreign countries often are not as developed, efficient, or liquid as
financial markets in the United States, and therefore, the prices of non-U.S.
securities and instruments can be more volatile. In addition, the Fund will be
subject to risks associated with adverse political and economic developments in
foreign countries, which may include the imposition of economic sanctions.
Generally, there is less readily available and reliable information about
non-U.S. issuers due to less rigorous disclosure or accounting standards and
regulatory practices.
General
Market Risk.
Economies and financial markets throughout the world are becoming increasingly
interconnected, which increases the likelihood that events or conditions in one
country or region will adversely impact markets or issuers in other countries or
regions. Securities in the Fund’s portfolio may underperform in comparison to
securities in the general financial markets, a particular financial market, or
other asset classes, due to a number of factors, including inflation (or
expectations for inflation), interest rates, global demand for particular
products or resources, natural disasters or events, pandemic diseases,
terrorism, regulatory events, and government controls.
Management
Risk. The
Fund is actively-managed and may not meet its investment objective based on the
Sub-Adviser’s success or failure to implement investment strategies for the
Fund.
Market
Capitalization Risk.
◦Large-Capitalization
Investing. The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing. The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large-capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies.
Models
and Data Risk. The
composition of the Fund’s portfolio is dependent on proprietary quantitative
models as well as information and data supplied by third parties (“Models and
Data”). 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 Fund’s portfolio universe that would have been excluded or included had
the Models and Data been correct and complete.
New
Fund Risk. The
Fund is a recently organized management investment company with no operating
history. As a result, prospective investors do not have a track record or
history on which to base their investment decisions.
Non-Diversification
Risk.
Although the Fund intends to invest in a
variety of securities and instruments, the Fund is considered to be
non-diversified, which means that it may invest a greater percentage of its
assets in the securities of a single issuer or a smaller number of issuers than
if it were a diversified fund. As a result, the Fund may be more exposed to the
risks associated with and developments affecting an individual issuer or a
smaller number of issuers than a fund that invests more widely. This may
increase the Fund’s volatility and cause the performance of a relatively smaller
number of issuers to have a greater impact on the Fund’s
performance.
Recent
Market Events Risk.
U.S. and international markets have experienced significant periods of
volatility in recent years and months due to a number of economic, political and
global macro factors including the impact of COVID-19 as a global pandemic,
which has resulted in a public health crisis, disruptions to business operations
and supply chains, stress on the global healthcare system, growth concerns in
the U.S. and overseas, staffing shortages and the inability to meet consumer
demand, and widespread concern and uncertainty. The global recovery from
COVID-19 is proceeding at slower than
expected
rates due to the emergence of variant strains and may last for an extended
period of time. Continuing uncertainties regarding interest rates, rising
inflation, political events, rising government debt in the U.S. and trade
tensions also contribute to market volatility. As a result of continuing
political tensions and armed conflicts, including the war between Ukraine and
Russia, the U.S. and the European Union imposed sanctions on certain Russian
individuals and companies, including certain financial institutions, and have
limited certain exports and imports to and from Russia. The war has contributed
to recent market volatility and may continue to do so.
Sector
Risk.
At times the Fund may increase the relative emphasis of its investments in a
particular sector or group of industries. The prices of securities of issuers in
a particular sector may be more susceptible to fluctuations due to changes in
economic or business conditions, government regulations, availability of basic
resources or supplies, or other events that affect that industry or sector more
than securities of issuers in other industries and sectors. To the extent that
the Fund increases the relative emphasis of its investments in a particular
industry or sector, the value of Shares may fluctuate in response to events
affecting that industry or sector.
Performance
Performance information for the Fund is not
included because the Fund has not completed a full calendar year of operations
as of the date of this Prospectus. When such information is
included, this section will provide some indication of the risks of investing in
the Fund by showing changes in the Fund’s performance history from year to year
and showing how the Fund’s average annual total returns compare with those of a
broad measure of market performance. Although past performance of the
Fund is no guarantee of how it will perform in the future, historical
performance may give you some indication of the risks of investing in the
Fund. Updated performance information will be available on the
Fund’s website at www.newdayimpact.com/etfs.
Management
Investment
Adviser
Toroso
Investments, LLC (“Toroso” or the “Adviser”) serves
as investment adviser to the Fund.
Investment
Sub-Adviser
Newday
Funds, Inc., doing business as Newday Impact, serves
as investment sub-adviser to the Fund.
Portfolio
Managers
The
following individuals are jointly and primarily responsible for the day-to-day
management of the Fund.
Gordon
Telfer, Chief Investment Officer and Portfolio Manager for Newday, has been a
portfolio manager of the Fund since its inception in 2022.
Shireen
Eddleblute, Director of ESG Research, Co-Portfolio Manager, and Chief Diversity
Officer for Newday, has been a portfolio manager of the Fund since its inception
in 2022.
Michael
Venuto, Chief Investment Officer for Toroso, has been a portfolio manager
of the Fund since its inception in 2022.
Charles
A. Ragauss, CFA, Portfolio Manager for Toroso, has been a portfolio manager of
the Fund since its inception in 2022.
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities (the “Deposit Securities”) and/or a designated amount of U.S.
cash.
Shares
are listed on a national securities exchange, such as 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).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. This difference in bid and ask
prices is often referred to as the “bid-ask spread.”
When
available, information regarding the Fund’s NAV, market price, how often Shares
traded on the Exchange at a premium or discount, and bid-ask spreads can be
found on the Fund’s website at www.newdayimpact.com/etfs.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless an investment is in an
individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser, the Sub-Adviser, or their
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.
Newday
Diversity, Equity & Inclusion ETF – Fund Summary
Investment Objective
The Newday Diversity, Equity
& Inclusion ETF (the “Fund” or the “DEI ETF”) seeks to capture long-term
capital appreciation.
Fees and Expenses of the
Fund
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares of the Fund
(“Shares”). You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the table and 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 |
0.75% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses(1) |
0.00% |
Total
Annual Fund Operating Expenses |
0.75% |
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|
(1)
Estimated for the current
fiscal year.
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:
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in total annual fund operating expenses or
in the expense example above, affect the Fund’s performance. Because the Fund is
newly organized, portfolio turnover information is not yet
available.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective by investing primarily in equity securities of DEI
Companies (defined below). Under normal market conditions, the Fund will invest
at least 80% of its net assets, plus any borrowings for investment purposes, in
DEI Companies. The Fund categorizes a “DEI Company” as a company that
prioritizes hiring minority community members at all levels of its organization,
including, executive level and board membership and has disclosed evidence
through its internal programs and policies that all employees have equal
opportunities for advancement.
The
Fund prefers to invest in companies that demonstrate levels of hiring of
minority community members in their workforce, in their management, and on their
board roughly proportionate to overall demographic representations where such
companies are located and where such information is available.
Diversity,
Equity and Inclusion Criteria
In
order to identify investment candidates for the Fund, the Fund’s sub-adviser,
Newday Funds, Inc., doing business as Newday Impact (“Newday” or the
“Sub-Adviser”), analyzes the Fund’s investable universe utilizing a proprietary,
mathematically-driven screening methodology. The Sub-Adviser begins its analysis
by screening an initial universe of: (i) U.S.-listed companies whose securities
comprise approximately ninety-five percent of the market capitalization of
securities listed on U.S. stock exchanges; and (ii) companies whose securities
are listed on foreign stock exchanges and that are
domiciled
in one of the 22 developed markets or 24 emerging markets listed below that, in
aggregate, represent approximately 85% of the global equity opportunity set
outside of the U.S. The Fund may invest in the securities of foreign companies
either directly (via securities listed on foreign stock exchanges) or indirectly
via American Depositary Receipts (“ADRs”), which are listed on U.S. exchanges.
The
Sub-Adviser considers specific key performance indicators (“KPI”) which are
indicators of corporate alignment within the DEI theme, such as a company’s
actual practice of hiring minorities, a company’s diversity at the board level,
whether a company has hired a chief diversity officer and other minority
employee and manager metrics to assign each company a score (a “DEI Impact
Score”). Each KPI considered has a set of properties which determine how it is
scored and weighted as described below.
The
Sub-Adviser’s DEI criteria are used to determine potential candidate companies
for investment by the Fund. A company’s financial returns are not considered
during this step. However, as noted below, once a universe of potential
candidates is selected based on DEI criteria, the Sub-Adviser selects securities
for the Fund’s portfolio using a bottom-up approach that takes into
consideration a company’s financial return potential by analyzing, among other
factors, earnings expectations, earnings quality, and
profitability.
Peer
Group:
Each KPI is assigned a peer group of either a specific “Sector” or the entire
“Universe,” which determines which group of companies will be evaluated against
each other with respect to a particular KPI. A “Sector” peer group is one of
eleven market sectors: Energy, Materials, Industrials, Consumer Discretionary,
Consumer Staples, Health Care, Financials, Information Technology, Real Estate,
Communication Services and Utilities. The “Universe” peer group includes all
eleven market sectors and addresses each company in the screened universe after
applying the exclusion criteria discussed below. Sorting KPIs into appropriate
peer groups ensures the Sub-Adviser’s analysis takes place within proper
context. Along with Polarity and Data Type (each described below), this step in
the Sub-Adviser’s methodology defines how each company’s KPI’s raw value is
pre-processed for scoring.
Data
type:
The data type of a KPI is “boolean” or “float”. Boolean KPIs are typically
survey responses regarding policies or internal structures, and will take the
form of “true/false” or “yes/no”. Float KPIs are numeric values, such as
emissions data, resource use, or financial values.
Polarity:
The polarity of a KPI is “positive” or “negative”. A positive polarity KPI
reflects a desirable trait, and will result in a higher subscore for a “true”
value or a high numeric value. Conversely, a negative polarity KPI reflects a
negative indication, such as a controversy or a pollutant quantity, and will
result in a higher subscore for a “false” value or a low numeric
value.
Category:
Each KPI is sorted into thematic categories (“Categories”), representing
distinct subtopics within a theme. The thematic categories in the Diversity,
Equity & Inclusion model are ‘Workforce’ (e.g., company employees that do
not hold an officer title) and ‘Management’ (e.g., officers of the company).
This piece of the model was added to increase the stability of the scoring
output. One of the challenges typically present in ESG (Environmental, Social,
and Governance) databases is that companies do not always supply data for every
field, which can cause issues in a scoring model if not treated with care. To
address that problem, in the Sub-Adviser’s model, each Category has a calculated
target weight. To improve the results of the scoring model, if a company has
missing KPI values, the weight assigned to the missing KPI values is
redistributed proportionally between the other KPIs in a Category
group.
Intensity:
The Intensity of each KPI reflects its relevance to the impact thesis for the
Fund’s portfolio. Within the Sub-Adviser’s database of ESG data, there are often
several KPIs that are centrally relevant to the impact thesis, as well as many
that are not quite as important, but still indicate alignment with a theme.
Simply put, the Sub-Adviser gives more relevant KPIs more weight in the
model.
The
Sub-Adviser utilizes publicly available information sourced from a third-party
data analysis platform when applying its DEI criteria and determining a
company’s DEI Impact Score. The third-party data analysis platform assembles
data from sources such as company websites, annual reports, and corporate social
responsibility reports. The Sub-Adviser reviews the source materials as well as
standardized reports prepared by the third-party data analysis platform.
Upon
completion of this analysis each company will be assigned a DEI Impact Score
reflecting its relative alignment with the thematic topic considered by the
Sub-Adviser’s models. The Sub-Adviser’s internal ESG scoring model produces a
numerical DEI Impact Score with a range of 0-100%, where higher scoring
companies are determined to be more thematically aligned, and therefore
favorable candidates for inclusion in the Fund’s portfolio. Generally, there
will not be companies close to a 0% or 100% score. For example, in order to
score 100%, a company would have to register a positive response to every
surveyed KPI, as well as being the top ranked company in its peer group on every
numerical data point, and in practice this is extremely unlikely to
happen.
Excluded
Companies
There
are certain products and services the Sub-Adviser considers fundamentally
incompatible with diversity, equity and inclusion principles. While the factors
considered may not directly impact diversity, equity and inclusion, the
Sub-Adviser believes that companies with significant involvement in the listed
business categories are generally not strong candidates for inclusion from an
ESG perspective. The Sub-Adviser will exclude any companies with meaningful
exposure (e.g., 5% revenue where such data is available) in any of the listed
business categories. The Sub-Adviser will not make exclusions based on a lack of
available data. Generally, the 5% revenue threshold is designed so that the
Sub-Adviser’s model excludes the primary manufacturers or sellers of such
products, rather than resellers with marginal exposure. For example, major
online retailers would be screened out for sale of alcohol, firearms, etc. if
the Sub-Adviser did not set a revenue threshold.
Additionally,
the Sub-Adviser screens out companies involved in severe ESG controversies, the
occurrence of which typically indicates a company has a significant lack of
proper ESG policy implementation, which may be due to a significant structural
deficit in operations or oversight, unethical leadership, or some other cause.
Examples of ESG controversies that may cause the Sub-Adviser to exclude a
company from the Fund’s investable universe include controversies concerning
environmental matters; wages & working conditions; bribery; corruption &
fraud; anti-competitive behavior; insider dealings; and child
labor.
The
Sub-Adviser will exclude any companies with meaningful exposure (as defined
above) in any of the following business categories:
•
Armaments
- Companies that produce vehicles, planes, armaments or any combat materials
used by the military.
•
Cluster
Bombs
- Companies that produce cluster bombs.
•
Anti-Personnel Landmines
- Companies that produce anti-personnel landmines.
•
Firearms
- Companies that produce or retail firearms or small arms ammunition intended
for civilian use.
•
Gambling
- Companies that generate revenues from gambling.
•
Tobacco 5% Revenues
- Companies that receive more than 5% of their total net revenues from tobacco
production.
•
Alcohol 5% Revenues
- Companies that receive more than 5% of their total net revenues from alcohol
production.
•
Child Labor Controversies
- Companies that have controversies regarding the use of child
labor.
•
Fossil Fuels
- Companies that are included in the following Global Industry Classification
Standards (GICS) sub-industries: Oil & Gas Drilling, Oil & Gas Equipment
& Services, Integrated Oil & Gas, Oil & Gas Exploration &
Production, Oil & Gas Refining & Marketing, Oil & Gas Storage &
Transportation, and/or Coal & Consumable Fuels.
Portfolio
Selection
Once
a universe of DEI Companies is established based on the DEI Impact Scores, the
Sub-Adviser selects securities for the Fund’s portfolio using a bottom-up
approach that takes into consideration seven fundamental factors: earnings
expectations, earnings quality, profitability, operating efficiency, valuation,
governance and risk. The Sub-Adviser uses two key models to select companies for
the Fund’s portfolio, a buy/sell model and a macro model. The buy/sell model
targets companies most at risk of underperforming the market and the macro model
identifies which companies should outperform or underperform in any given state
of the economic/business cycle. Based on the output of these models, the
Sub-Adviser then selects its highest conviction securities and determines
weightings for inclusion in the Fund’s portfolio. The Sub-Adviser may invest in
companies of any market capitalization, region, or sector allowing it to
construct a portfolio that focuses on the most attractive security opportunities
regardless of the company’s size, location or its sector
orientation.
The
Fund’s portfolio will include approximately 40-60 companies. The portfolio is
actively managed by the Sub-Adviser and the weightings are adjusted regularly
with a focus on each company’s DEI Impact Score and investment fundamentals.
The Fund is considered to be
non-diversified, which means that it may invest a greater percentage of its
assets in the securities of a single issuer or a smaller number of issuers than
if it were a diversified fund. However, the Fund has a policy that it will
reduce its holding in a security if the position makes up more than 7.5% of the
Fund’s portfolio.
Principal Investment Risks
The principal risks of investing
in the Fund are summarized below. As with any investment, there is a risk that you could
lose all or a portion of your principal 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
objective. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Funds — Principal Risks of Investing in Each Fund.”
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 they appear.
Associated
Risk of Investing Using Diversity, Equity and Inclusion Metrics and ESG
Principles.
The Fund’s investment strategy limits the types and number of investment
opportunities available to the Fund, and, as a result, the Fund may underperform
other funds that do not primarily seek to invest in companies based on
Diversity, Equity and Inclusion metrics or that are screened based on ESG
principals. In addition, Diversity, Equity and Inclusion and ESG investing may
affect the Fund’s exposure to some companies or industries, and the Fund will
forgo some investment opportunities because they are screened out based on the
Fund’s investment strategy.
Currency
Risk. The
Fund’s exposure to foreign currencies subjects the Fund to the risk that those
currencies will decline in value relative to the U.S. Dollar. Currency rates in
foreign countries may fluctuate significantly over short periods of time for any
number of reasons, including changes in interest rates and the imposition of
currency controls or other political developments in the U.S. or
abroad.
Depositary
Receipt Risk.
Depositary receipts involve risks similar to those associated with investments
in foreign securities and certain additional risks. Depositary receipts listed
on U.S. exchanges are issued by banks or trust companies and entitle the holder
to all dividends and capital gains that are paid out on the underlying foreign
shares (“Underlying Shares”). When the Fund invests in depositary receipts as a
substitute for an investment directly in the Underlying Shares, the Fund is
exposed to the risk that the depositary receipts may not provide a return that
corresponds precisely with that of the Underlying Shares.
Emerging
Markets Risk. The
Fund may invest in securities issued by companies domiciled or headquartered in
emerging market nations. Investments in securities traded in developing or
emerging markets, or that provide exposure to such securities or markets, can
involve additional risks relating to political, economic, currency, or
regulatory conditions not associated with investments in U.S. securities and
investments in more developed international markets. Such conditions may impact
the ability of the Fund to buy, sell, or otherwise transfer securities,
adversely affect the trading market and price for Shares and cause the Fund to
decline in value.
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, such as those held by the Fund, 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.
ETF
Risks.
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration Risk.
The
Fund has a limited number of financial institutions that are authorized to
purchase and redeem Shares directly from the Fund (known as “Authorized
Participants” or “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. Because securities held by the Fund may trade on foreign exchanges
that are closed when the Fund’s primary listing
exchange
is open, the Fund is likely to experience premiums and discounts greater than
those of ETFs holding only domestic securities.
◦Trading.
Although Shares are listed on a national securities exchange, such as NYSE Arca,
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.
Foreign
Securities Risk. Investments
in securities or other instruments of non-U.S. issuers involve certain risks not
involved in domestic investments and may experience more rapid and extreme
changes in value than investments in securities of U.S. companies. Financial
markets in foreign countries often are not as developed, efficient, or liquid as
financial markets in the United States, and therefore, the prices of non-U.S.
securities and instruments can be more volatile. In addition, the Fund will be
subject to risks associated with adverse political and economic developments in
foreign countries, which may include the imposition of economic sanctions.
Generally, there is less readily available and reliable information about
non-U.S. issuers due to less rigorous disclosure or accounting standards and
regulatory practices.
General
Market Risk.
Economies and financial markets throughout the world are becoming increasingly
interconnected, which increases the likelihood that events or conditions in one
country or region will adversely impact markets or issuers in other countries or
regions. Securities in the Fund’s portfolio may underperform in comparison to
securities in the general financial markets, a particular financial market, or
other asset classes, due to a number of factors, including inflation (or
expectations for inflation), interest rates, global demand for particular
products or resources, natural disasters or events, pandemic diseases,
terrorism, regulatory events, and government controls.
Management
Risk. The
Fund is actively-managed and may not meet its investment objective based on the
Sub-Adviser’s success or failure to implement investment strategies for the
Fund.
Market
Capitalization Risk.
◦Large-Capitalization
Investing. The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing. The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large-capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies.
Models
and Data Risk.
The
composition of the Fund’s portfolio is dependent on proprietary quantitative
models as well as information and data supplied by third parties (“Models and
Data”). 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 Fund’s portfolio universe that would have been excluded or included had
the Models and Data been correct and complete.
New
Fund Risk. The
Fund is a recently organized management investment company with no operating
history. As a result, prospective investors do not have a track record or
history on which to base their investment decisions.
Non-Diversification
Risk.
Although the Fund intends to invest in a
variety of securities and instruments, the Fund is considered to be
non-diversified, which means that it may invest a greater percentage of its
assets in the securities of a single issuer or a smaller number of issuers than
if it were a diversified fund. As a result, the Fund may be more exposed to the
risks associated with and developments affecting an individual issuer or a
smaller number of issuers than a fund that invests more widely. This may
increase the Fund’s volatility and cause the performance of a relatively smaller
number of issuers to have a greater impact on the Fund’s
performance.
Recent
Market Events Risk.
U.S. and international markets have experienced significant periods of
volatility in recent years and months due to a number of economic, political and
global macro factors including the impact of COVID-19 as a global pandemic,
which has resulted in a public health crisis, disruptions to business operations
and supply chains, stress on the
global
healthcare system, growth concerns in the U.S. and overseas, staffing shortages
and the inability to meet consumer demand, and widespread concern and
uncertainty. The global recovery from COVID-19 is proceeding at slower than
expected rates due to the emergence of variant strains and may last for an
extended period of time. Continuing uncertainties regarding interest rates,
rising inflation, political events, rising government debt in the U.S. and trade
tensions also contribute to market volatility. As a result of continuing
political tensions and armed conflicts, including the war between Ukraine and
Russia, the U.S. and the European Union imposed sanctions on certain Russian
individuals and companies, including certain financial institutions, and have
limited certain exports and imports to and from Russia. The war has contributed
to recent market volatility and may continue to do so.
Sector
Risk.
At times the Fund may increase the relative emphasis of its investments in a
particular sector or group of industries. The prices of securities of issuers in
a particular sector may be more susceptible to fluctuations due to changes in
economic or business conditions, government regulations, availability of basic
resources or supplies, or other events that affect that industry or sector more
than securities of issuers in other industries and sectors. To the extent that
the Fund increases the relative emphasis of its investments in a particular
industry or sector, the value of Shares may fluctuate in response to events
affecting that industry or sector.
Performance
Performance information for the Fund is not
included because the Fund has not completed a full calendar year of operations
as of the date of this Prospectus. When such information is
included, this section will provide some indication of the risks of investing in
the Fund by showing changes in the Fund’s performance history from year to year
and showing how the Fund’s average annual total returns compare with those of a
broad measure of market performance. Although past performance of the
Fund is no guarantee of how it will perform in the future, historical
performance may give you some indication of the risks of investing in the
Fund. Updated performance information will be available on the
Fund’s website at www.newdayimpact.com/etfs.
Management
Investment
Adviser
Toroso
Investments, LLC (“Toroso” or the “Adviser”) serves
as investment adviser to the Fund.
Investment
Sub-Adviser
Newday
Funds, Inc. serves
as investment sub-adviser to the Fund.
Portfolio
Managers
The
following individuals are jointly and primarily responsible for the day-to-day
management of the Fund.
Gordon
Telfer, Chief Investment Officer and Portfolio Manager for Newday, has been a
portfolio manager of the Fund since its inception in 2022.
Shireen
Eddleblute, Director of ESG Research, Co-Portfolio Manager, and Chief Diversity
Officer for Newday, has been a portfolio manager of the Fund since its inception
in 2022.
Michael
Venuto, Chief Investment Officer for Toroso, has been a portfolio manager
of the Fund since its inception in 2022.
Charles
A. Ragauss, CFA, Portfolio Manager for Toroso, has been a portfolio manager of
the Fund since its inception in 2022.
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities (the “Deposit Securities”) and/or a designated amount of U.S.
cash.
Shares
are listed on a national securities exchange, such as 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).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. This difference in bid and ask
prices is often referred to as the “bid-ask spread.”
When
available, information regarding the Fund’s NAV, market price, how often Shares
traded on the Exchange at a premium or discount, and bid-ask spreads can be
found on the Fund’s website at www.newdayimpact.com/etfs.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless an investment is in an
individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser, the Sub-Adviser, or their
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 FUNDS
Investment
Objective
The
Newday Ocean Health ETF (the “Ocean Health ETF”) seeks to capture long-term
capital appreciation.
The
Newday Diversity, Equity & Inclusion ETF (the “DEI ETF”) seeks to capture
long-term capital appreciation. The Ocean Health ETF and the DEI ETF are each a
“Fund” and collectively referred to as the “Funds.”
An
investment objective is fundamental if it cannot be changed without the consent
of the holders of a majority of the outstanding Shares. Each Fund’s investment
objective has not been adopted as a fundamental investment policy and therefore
may be changed without the consent of a Fund’s shareholders upon approval by the
Board of Trustees (the “Board”) of Tidal ETF Trust (the “Trust”) and written
notice to shareholders.
Additional
Information About the Funds’ Principal Investment Strategies
The
following information is in addition to, and should be read along with, the
descriptions of the Funds’ principal investment strategies in the sections
titled “Fund Summary — Principal Investment Strategies” above.
As
noted above, the initial universe for each Fund includes: (i) U.S.-listed
companies whose securities comprise approximately ninety-five percent of the
market capitalization of securities listed on U.S. stock exchanges; and (ii)
companies whose securities are listed on foreign stock exchanges and that are
domiciled in one of the 22 developed markets or 24 emerging markets listed below
that, in aggregate, represent approximately 85% of the global equity opportunity
set outside of the U.S. The universe of foreign securities includes securities
of companies domiciled in the following developed market countries: Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland,
Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore,
Spain, Sweden, Switzerland, and the United Kingdom. Additionally, the initial
universe includes securities of companies domiciled in the following emerging
market countries: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece,
Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines,
Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, and the
United Arab Emirates.
The
Ocean Health ETF categorizes an “Ocean Health Company” as a company that is
concerned with and attentive to discharge of excess nutrients into bodies of
water, end of lifecycle product waste, commitments to environmental
protectionism, and/or CO2 emissions. The Sub-Adviser believes each of those
criteria is important in evaluating whether a company is an Ocean Health Company
as set forth in the rationale below.
•Discharge
of excess nutrients into bodies of water
can cause overgrowth of algal plants and bacteria, which can cause oxygen
depletion that, in turn, causes the death of fish populations.
•End-of-lifecycle
product waste and commitments to environmental protectionism
pertain to the presence of microplastics and pollutants in marine ecosystems.
Plastics are eventually broken down and become liable to being ingested or
respirated into living organisms. Robust end-of-lifecycle product waste policies
and initiatives help to reduce the amount of raw material entering marine
ecosystems. Likewise, companies may have environmental protection practices to
clean up existing pollutants in marine or coastal ecosystems, which can help
reduce the threat of microplastics and bioaccumulation.
•CO2
emissions
eventually dissolve into sea water over time and act as a weak acid that has a
direct effect on the ocean’s alkaline/acidic balance. Acidity levels have a
major impact on the viability of marine ecosystems to support life. CO2
concentrations have been responsible for a roughly 30% increase in ocean
acidity.
Temporary
Defensive Strategies
For
temporary defensive purposes during adverse market, economic, political or other
conditions, the Funds may invest in cash or cash equivalents or short-term
instruments such as commercial paper, money market mutual funds, or short-term
U.S. government securities. Taking a temporary defensive position may result in
a Fund not achieving its investment objective.
Principal
Risks of Investing in each Fund
The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Funds,
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 Funds. Some
or all of these risks may adversely affect a Fund’s NAV per share, trading
price, yield, total return and/or ability to meet its investment objectives. The
following risks could affect the value of your performance in each
Fund:
|
|
|
|
|
|
|
|
|
|
Newday
Ocean Health ETF |
Newday
Diversity, Equity & Inclusion ETF |
Associated
Risk of Investing Using Ocean Health Metrics and ESG Principles |
X |
|
Associated
Risk of Investing Using Diversity, Equity and Inclusion Metrics and ESG
Principles |
|
X |
Currency
Risk |
X |
X |
Depositary
Receipt Risk |
X |
X |
Emerging
Markets Risk |
X |
X |
Equity
Market Risk |
X |
X |
ETF
Risks |
X |
X |
—
Authorized Participants, Market Makers, and Liquidity Providers
Concentration Risk |
X |
X |
—
Costs of Buying or Selling Shares |
X |
X |
—
Shares May Trade at Prices Other Than NAV |
X |
X |
—
Trading |
X |
X |
Foreign
Securities Risks |
X |
X |
General
Market Risk |
X |
X |
Management
Risk |
X |
X |
Market
Capitalization Risk. |
X |
X |
—
Large-Capitalization Investing |
X |
X |
—
Mid-Capitalization Investing |
X |
X |
—
Small-Capitalization Investing |
X |
X |
Models
and Data Risk |
X |
X |
New
Fund Risk |
X |
X |
Non-Diversification
Risk |
X |
X |
Recent
Market Events Risk |
X |
X |
Sector
Risk |
X |
X |
Associated
Risk of Investing Using Ocean Health Metrics and ESG Principles. The
Fund’s investment strategy limits the types and number of investment
opportunities available to the Fund, and, as a result, the Fund may underperform
other funds that do not primarily seek to invest in companies based on Ocean
Health metrics or that are screened based on ESG principals. In addition, Ocean
Health and ESG investing may affect the Fund’s exposure to some companies or
industries, and the Fund will forgo some investment opportunities because they
are screened out based on the Fund’s investment strategy.
Associated
Risk of Investing in Using Diversity, Equity and Inclusion Metrics and ESG
Principles. The
Fund’s investment strategy limits the types and number of investment
opportunities available to the Fund, and, as a result, the Fund may underperform
other funds that do not primarily seek to invest in companies based on
Diversity, Equity and Inclusion metrics or that are screened based on ESG
principals. In addition, Diversity, Equity and Inclusion and ESG investing may
affect the Fund’s exposure to some companies or industries, and the Fund will
forgo some investment opportunities because they are screened out based on the
Fund’s investment strategy.
Currency
Risk. The
Fund’s exposure to foreign currencies subjects the Fund to the risk that those
currencies will decline in value relative to the U.S. Dollar. Currency rates in
foreign countries may fluctuate significantly over short periods of time for any
number of reasons, including changes in interest rates and the imposition of
currency controls or other political developments in the U.S. or
abroad.
Depositary
Receipt Risk. Depositary
receipts involve risks similar to those associated with investments in foreign
securities and certain additional risks. Depositary receipts listed on U.S.
exchanges are issued by banks or trust companies and entitle the holder to all
dividends and capital gains that are paid out on the underlying foreign shares
(“Underlying Shares”). When the Fund invests in depositary receipts as a
substitute for an investment directly in the Underlying Shares, the Fund is
exposed to the risk that the depositary receipts may not provide a return that
corresponds precisely with that of the Underlying Shares.
Emerging
Markets Risk. The
Fund’s investments in emerging market securities impose risks different from, or
greater than, risks of investing in foreign developed countries. These risks
include: smaller market capitalization of securities markets,
which
may suffer periods of relative illiquidity; significant price volatility; and
restrictions on foreign investment. Emerging market countries may have
relatively unstable governments and may present the risk of nationalization of
businesses, expropriation, and confiscatory taxation or, in certain instances,
reversion to closed market, centrally planned economies. Emerging market
economies may also experience more severe downturns. In addition, foreign
investors may be required to register or pay taxes or tariffs on the proceeds of
securities sales; future economic or political crises could lead to price
controls, forced mergers, expropriation or confiscatory taxation, seizure,
nationalization, or creation of government monopolies. The currencies of
emerging market countries may experience significant declines against the U.S.
dollar, and devaluation may occur subsequent to investments in these currencies
by the Fund. Inflation and rapid fluctuations in inflation rates have had, and
may continue to have, negative effects on the economies and securities markets
of certain emerging market countries.
Additional
risks of emerging markets securities may include: greater social, economic and
political uncertainty and instability; more substantial governmental involvement
in the economy; less governmental supervision and regulation; unavailability of
currency hedging techniques; companies that are newly organized and small;
differences in auditing and financial reporting standards, which may result in
unavailability of material information about issuers; and less developed legal
systems. Emerging securities markets may have different clearance and settlement
procedures, which may be unable to keep pace with the volume of securities
transactions or otherwise make it difficult to engage in such transactions.
Settlement problems may cause the Fund to miss attractive investment
opportunities, hold a portion of its assets in cash pending investment, or be
delayed in disposing of a portfolio security. Such a delay could result in
possible liability to a purchaser of the security. In addition, less information
may be available about companies in emerging markets than in developed markets
because such emerging markets companies may not be subject to accounting,
auditing and financial reporting standards or to other regulatory practices
required by U.S. companies which may lead to potential errors in index data,
index computation and/or index construction. Such conditions may impact the
ability of the Fund to buy, sell or otherwise transfer securities; adversely
affect the trading market and price for such securities; and/or cause the Fund
to decline in value.
Equity
Market Risk. Common
stocks, such as those held by the Fund, 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. 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.
ETF
Risks.
◦Authorized
Participants, 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 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, 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 the 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 the Shares or during periods of market
volatility. This risk is heightened in times of market volatility or periods of
steep market declines. The market price of Shares during the trading day, like
the price of any exchange-traded security, includes a “bid/ask” spread charged
by the exchange specialist, market makers or other participants that trade the
Shares. In times of severe market disruption, the bid/ask spread can increase
significantly. At those times, Shares are most likely to be traded at a discount
to
NAV,
and the discount is likely to be greatest when the price of Shares is falling
fastest, which may be the time that you most want to sell your Shares. The
Adviser believes that, under normal market conditions, large market price
discounts or premiums to NAV will not be sustained because of arbitrage
opportunities.
◦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.
Foreign
Securities Risks.
Securities of non-U.S. issuers, including ADRs, are subject to certain inherent
risks. Certain foreign countries may impose exchange control regulations,
restrictions on repatriation of profit on investments or of capital invested,
local taxes on investments, and restrictions on the ability of issuers of
non-U.S. securities, including ADRs, to make payments of principal and interest
to investors located outside the country, whether from currency blockage or
otherwise. In addition, the Fund will be subject to risks associated with
adverse political and economic developments in foreign countries, including
seizure or nationalization of foreign deposits, the imposition of economic
sanctions, different legal systems and laws relating to bankruptcy and
creditors’ rights and the potential inability to enforce legal judgments, all of
which could cause the Fund to lose money on its investments in non-U.S.
securities, including ADRs. The cost of servicing external debt will also
generally be adversely affected by rising international interest rates, as many
external debt obligations bear interest at rates which are adjusted based upon
international interest rates. Because non-U.S. securities, including ADRs, may
trade on days when the Fund’s shares are not priced, NAV may change at times
when the Fund’s shares cannot be sold.
Foreign
banks and securities depositories at which the Fund holds its foreign securities
and cash may be recently organized or new to the foreign custody business and
may be subject to only limited or no regulatory oversight. Additionally, many
foreign governments do not supervise and regulate stock exchanges, brokers and
the sale of securities to the same extent as does the United States and may not
have laws to protect investors that are comparable to U.S. securities laws.
Settlement and clearance procedures in certain foreign markets may result in
delays in payment for or delivery of securities not typically associated with
settlement and clearance of U.S. investments.
In
recent years, the European financial markets have experienced volatility and
adverse trends due to concerns about economic downturns in, or rising government
debt levels of, several European countries. These events may spread to other
countries in Europe, including countries that do not use the Euro. These events
may affect the value and liquidity of certain of the Fund’s
investments.
General
Market Risk.
Economies and financial markets throughout the world are becoming increasingly
interconnected, which increases the likelihood that events or conditions in one
country or region will adversely impact markets or issuers in other countries or
regions. Securities in the Fund’s portfolios may underperform in comparison to
securities in the general financial markets, a particular financial market or
other asset classes, due to a number of factors, including inflation (or
expectations for inflation), interest rates, global demand for particular
products or resources, natural disasters or events, pandemic diseases,
terrorism, regulatory events, and government controls.
Management
Risk. The
Fund is actively-managed and may not meet its investment objective based on the
Sub-Adviser’s success or failure to implement investment strategies for the
Fund.
Market
Capitalization Risk.
◦Large-Capitalization
Investing. The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing. The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole. Some medium 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.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. Some small capitalization companies have limited
product lines, markets, and financial and managerial resources and tend to
concentrate on fewer geographical markets relative to larger capitalization
companies. There is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and
earnings.
Models
and Data Risk. The
composition of the Fund’s portfolio is dependent on Models and Data. 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 Fund’s
portfolio universe that would have been excluded or included had the Models and
Data been correct and complete.
New
Fund Risk. The
Fund is a recently organized management investment company with no operating
history. As a result, prospective investors do not have a track record or
history on which to base their investment decision. There can be no assurance
that the Fund will grow to or maintain an economically viable size.
Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may invest a greater percentage of its
assets in the securities of a single issuer or a small number of issuers than if
it was a diversified fund. As a result, a decline in the value of an investment
in a single issuer or a small number of issuers could cause the Fund’s overall
value to decline to a greater degree than if the Fund held a more diversified
portfolio.
Recent
Market Events Risk.
U.S. and international markets have experienced significant periods of
volatility in recent years and months due to a number of economic, political and
global macro factors including the impact of COVID-19 as a global pandemic and
related public health crisis, growth concerns in the U.S. and overseas,
uncertainties regarding interest rates, rising inflation, trade tensions, and
the threat of tariffs imposed by the U.S. and other countries. In particular,
the global spread of COVID-19 has resulted in disruptions to business operations
and supply chains, stress on the global healthcare system, growth concerns in
the U.S. and overseas, staffing shortages and the inability to meet consumer
demand, and widespread concern and uncertainty. The global recovery from
COVID-19 is proceeding at slower than expected rates due to the emergence of
variant strains and may last for an extended period of time. Health crises and
related political, social and economic disruptions caused by the spread of
COVID-19 may also exacerbate other pre-existing political, social and economic
risks in certain countries. As a result of continuing political tensions and
armed conflicts, including the war between Ukraine and Russia, the U.S. and the
European Union imposed sanctions on certain Russian individuals and companies,
including certain financial institutions, and have limited certain exports and
imports to and from Russia. The war has contributed to recent market volatility
and may continue to do so. These developments, as well as other events, could
result in further market volatility and negatively affect financial asset
prices, the liquidity of certain securities and the normal operations of
securities exchanges and other markets, despite government efforts to address
market disruptions. As a result, the risk environment remains elevated. The
Adviser and the Sub-Adviser will monitor developments and seek to manage the
Fund in a manner consistent with achieving the Fund’s investment objective, but
there can be no assurance that they will be successful in doing so.
Sector
Risk.
At times the Fund may increase the relative emphasis of its investments in a
particular sector or group of industries. The prices of securities of issuers in
a particular sector may be more susceptible to fluctuations due to changes in
economic or business conditions, government regulations, availability of basic
resources or supplies, or other events that affect that industry or sector more
than securities of issuers in other industries and sectors. To the extent that
the Fund increases the relative emphasis of its investments in a particular
industry or sector, the value of Shares may fluctuate in response to events
affecting that industry or sector.
PORTFOLIO
HOLDINGS INFORMATION
Information
about the Funds’ daily portfolio holdings will be available on the Funds’
website at www.newdayimpact.com/etfs. A complete description of the Funds’
policies and procedures with respect to the disclosure of the Funds’ portfolio
holdings is available in the Funds’ Statement of Additional Information
(“SAI”).
MANAGEMENT
Investment
Adviser
Toroso
Investments, LLC, located at 898 N. Broadway, Suite 2, Massapequa, New York
11758, is an SEC-registered investment adviser and a Delaware limited liability
company. Toroso was founded in and has been managing investment companies since
March 2012 and is dedicated to understanding, researching and managing assets
within the expanding ETF universe. As of March 31, 2022, Toroso had assets under
management of approximately $7.9 billion and served as the investment adviser or
sub-adviser for 50 registered funds.
Toroso
serves as investment adviser to the Funds and has overall responsibility for the
general management and administration of the Funds pursuant to an investment
advisory agreement with the Trust, on behalf of the Funds (the “Advisory
Agreement”). The Adviser provides oversight of the Sub-Adviser and review of the
Sub-Adviser’s performance. The Adviser is also responsible for trading portfolio
securities for the Funds, including selecting broker-dealers to execute purchase
and sale transactions. The Adviser also arranges for sub-advisory, transfer
agency, custody, fund administration, and all other related services necessary
for the Funds to operate. For the services it provides to the Funds, each Fund
pays the Adviser a unitary management fee, which is calculated daily and paid
monthly, at an annual rate of 0.75% of the Ocean Health ETF’s average daily net
assets and at an annual rate of 0.75% of the DEI ETF’s average daily net assets.
Under
the Advisory Agreement, the Adviser has agreed to pay all expenses incurred by
each Fund except for interest charges on any borrowings, dividends and other
expenses on securities sold short, taxes, brokerage commissions and other
expenses incurred in placing orders for the purchase and sale of securities and
other investment instruments, acquired fund fees and expenses, accrued deferred
tax liability, extraordinary expenses, distribution fees and expenses paid by
the Funds under any distribution plan adopted pursuant to Rule 12b-1 under the
1940 Act (collectively, the “Excluded Expenses”).
Investment
Sub-Adviser
Newday
Funds, Inc., doing business as Newday Impact, located at 594 Blair Avenue,
Piedmont, California 94611, serves as investment sub-adviser to the Funds.
Newday Impact is a subsidiary of Newday Financial Technologies, Inc. The
Sub-Adviser is an SEC-registered investment adviser and a Delaware corporation
founded in February 2015. The Sub-Adviser, in the ordinary course of its
business, contributes 5% of its net revenues to nonprofits it identifies, in its
sole discretion, as working to affect positive environmental and social
change.
The
Sub-Adviser is responsible for the day-to-day management of each Fund’s
portfolio, including determining the securities purchased and sold by the Funds,
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 0.02% of the Ocean Health ETF’s average daily net
assets and at an annual rate of 0.02% of the DEI ETF’s average daily net assets.
The Sub-Adviser has agreed to assume the Adviser’s obligation to pay all
expenses incurred by each Fund, except for Excluded Expenses. For assuming the
payment obligations for each Fund, the Adviser has agreed to pay the Sub-Adviser
the profits, if any, generated by a Fund’s unitary management fee. Expenses
incurred by each Fund and paid by the Sub-Adviser include fees charged by Tidal
ETF Services, LLC, the Funds’ administrator and an affiliate of the Adviser. See
the section of the SAI titled “Administrator” for additional information about
the Funds’ administrator.
A
discussion regarding the basis for the Board’s approval of the Funds’ Advisory
Agreement and Sub-Advisory Agreement will be available in the Funds’ first
annual or semi‑annual report to shareholders.
Portfolio
Managers
The
following individuals (each, a “Portfolio Manager”) have served as portfolio
managers of each Fund since its inception in 2022. Gordon Telfer and Shireen
Eddleblute are primarily responsible for the day-to-day management of each Fund,
and Mr. Venuto and Mr. Ragauss oversee trading and execution for the
Funds.
Gordon
Telfer, Chief Investment Officer, Portfolio Manager for Newday
Mr.
Telfer is a distinguished investment leader with more than 35 year of investment
experience. He has been the Chief Investment Officer at Newday and Co-Portfolio
Manager of ESG Equities since June 2021. Mr. Telfer was a Managing Director and
Co-Portfolio Manager in Global Equities at Nuveen, LLC from June 2012 to March
2021. He was previously the Director of Global Equities and Head of Growth
Equities at RBC Global Asset Management and served in those positions for over
nine years. Mr. Telfer also served as Portfolio Manager at Alliance Bernstein,
Global Strategist and Portfolio Manager at Scudder Kemper Investments, and a
Portfolio Manager and Research Analyst for Murray Johnstone International Ltd.
He earned the Institute of Bankers Diploma in Finance, Economics, and Accounting
from Bell College of Technology, in
Hamilton,
Scotland. Mr. Telfer was awarded his Stock Exchange Clerks Diploma from
Heriot-Watt University in Edinburgh, Scotland.
Shireen
Eddleblute, Director of ESG Research, Co-Portfolio Manager, and Chief Diversity
Officer for Newday
Ms.
Eddleblute has over 20 years of investment management experience and a decade
long involvement in philanthropy and non-profit volunteerism. She has been the
Director of ESG Research, Co-Portfolio Manager, and Chief Diversity Officer at
Newday since August 2021. She was previously a Senior Equity Analyst and
Portfolio Manager at RBC Global Asset Management since September 1999. Ms.
Eddleblute also served as an Equity Research Analyst at US Bancorp Asset
Management, Inc. and an Institutional Analyst at Wellington Management Company
LLP. Prior to that, she was a Registered Sales Associate and Assistant Syndicate
Coordinator at Prudential Securities. Ms. Eddleblute is a graduate of the Fisher
School of Business at The Ohio State University and holds an MBA with honors
from the Sawyer School of Business at Suffolk University. She is DEI certified
from Stanford University’s Graduate School of Business and holds a certificate
in ESG Investing from Columbia Business School.
Michael
Venuto, Chief Investment Officer for the Adviser
Mr.
Venuto is a co-founder and has been the Chief Investment Officer of the Adviser
since 2012. Mr. Venuto is an ETF industry veteran with over a decade of
experience in the design and implementation of ETF-based investment strategies.
Previously, he was Head of Investments at Global X Funds where he provided
portfolio optimization services to institutional clients. Before that, he was
Senior Vice President at Horizon Kinetics where his responsibilities included
new business development, investment strategy and client and strategic
initiatives.
Charles
A. Ragauss, CFA, Portfolio Manager for the Adviser
Mr.
Ragauss serves as Portfolio Manager of the Adviser, having joined the Adviser in
September 2020. Mr. Ragauss previously served as Chief Operating Officer and in
other roles at CSat Investment Advisory, L.P. from April 2016 to September 2020.
Previously, Mr. Ragauss was Assistant Vice President at Huntington National Bank
(“Huntington”), where he was Product Manager for the Huntington Funds and
Huntington Strategy Shares ETFs, a combined fund complex of almost $4 billion in
assets under management. At Huntington, he led ETF development bringing to
market some of the first actively managed ETFs. Mr. Ragauss joined Huntington in
2010. Mr. Ragauss attended Grand Valley State University where he received his
Bachelor of Business Administration in Finance and International Business, as
well as a minor in French. He is a member of both the National and West Michigan
CFA societies and holds the CFA designation.
CFA®
is a registered trademark owned by the CFA Institute.
The
Funds’ SAI provides additional information about each Portfolio Manager’s
compensation structure, other accounts that each Portfolio Manager manages, and
each Portfolio Manager’s ownership of Shares.
HOW
TO BUY AND SELL SHARES
Each
Fund issues and redeems Shares only in Creation Units at the NAV per share next
determined after receipt of an order from an AP. Only APs may acquire Shares
directly from a Fund, and only APs may tender their Shares for redemption
directly to a 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 Funds’ 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.
Individual 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 spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. 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.
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
Funds impose 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 Funds, are an essential part of the ETF process and
help keep Share trading prices in line with the NAV. As such, the Funds
accommodate 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 Funds employ 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 Funds in effecting trades. In addition, the Funds
and the Adviser reserve the right to reject any purchase order at any
time.
Determination
of Net Asset Value
Each
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 for each Fund is calculated by dividing
the Fund’s net assets by its Shares outstanding.
In
calculating its NAV, each 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 a 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 investments
whose market prices are not “readily available” or are deemed to be unreliable.
For example, such circumstances may arise when: (i) an investment has been
delisted or has had its trading halted or suspended; (ii) an investment’s
primary pricing source is unable or unwilling to provide a price; (iii) an
investment’s primary trading market is closed during regular market hours; or
(iv) an investment’s value is materially affected by events occurring after the
close of the investment’s primary trading market. Generally, when fair valuing
an investment, the Funds will take into account all reasonably available
information that may be relevant to a particular valuation including, but not
limited to, fundamental analytical data regarding the issuer, information
relating to the issuer’s business, recent trades or offers of the investment,
general and/or specific market conditions, and the specific facts giving rise to
the need to fair value the investment. Fair value determinations are made in
good faith and in accordance with the fair value methodologies included in the
Board-adopted valuation procedures. Due to the subjective and variable nature of
fair value pricing, there can be no assurance that the Adviser or Sub-Adviser
will be able to obtain the fair value assigned to the security upon the sale of
such investment.
The
SEC has adopted Rule 2a-5 under the 1940 Act, which, among other things,
establishes an updated regulatory framework for registered investment company
valuation practices. The compliance date for Rule 2a-5 is September 8, 2022. The
Trust’s fair value policies and procedures and valuation practices may be
subject to change as a result of new Rule 2a-5.
Investments
by Other Registered Investment Companies in the Funds
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 Funds 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 Trust or rule under the 1940 Act, including
that such investment companies enter into an agreement with the
Funds.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Funds. 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 Funds 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
Each
Fund intends to pay out dividends and interest income, if any, annually and
distribute any net realized capital gains to its shareholders at least annually.
Each
Fund will declare and pay income and 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 Funds. Your investment
in a 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.
Each
Fund intends to qualify each year for treatment as a regulated investment
company (a “RIC”) under the Internal Revenue Code of 1986, as amended. 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, a 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 a Fund makes distributions, when you sell your Shares listed
on the Exchange, and when you purchase or redeem Creation Units (institutional
investors only).
The
following general discussion of certain U.S. federal income tax consequences is
based on provisions of the Code and the regulations issued thereunder as in
effect on the date of this Prospectus. New legislation, as well as
administrative changes or court decisions, may significantly change the
conclusions expressed herein, and may have a retroactive effect with respect to
the transactions contemplated herein.
Taxes
on Distributions
For
federal income tax purposes, distributions of net investment income are
generally taxable as ordinary income or qualified dividend income. Taxes on
distributions of net capital gains (if any) are determined by how long a Fund
owned the investments that generated them, rather than how long a shareholder
has owned their Shares. Sales of assets held by a Fund for more than one year
generally result in long-term capital gains and losses, and sales of assets held
by such Fund for one year or less generally result in short-term capital gains
and losses. Distributions of a Fund’s net capital gain (the excess of net
long-term capital gains over net short-term capital losses) that are reported by
such Fund as capital gain dividends (“Capital Gain Dividends”) will be taxable
as long-term capital gains. 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 a Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided certain 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 a Fund receives in respect of stock of
certain foreign corporations may be qualified dividend income if that stock is
readily tradable on an established U.S. securities market. Corporate
shareholders may be entitled to a dividends-received deduction for the portion
of dividends they receive from 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 character of
any distributions received from a Fund.
In
addition to the federal income tax, certain individuals, trusts, and estates may
be subject to a Net Investment Income (“NII”) tax of 3.8%. The NII tax is
imposed on the lesser of: (i) a taxpayer’s investment income, net of deductions
properly allocable to such income; or (ii) the amount by which such taxpayer’s
modified adjusted gross income exceeds certain thresholds ($250,000 for married
individuals filing jointly, $200,000 for unmarried individuals and $125,000 for
married individuals filing separately). A Fund’s distributions are
includable in a shareholder’s investment income for purposes of this NII
tax. In addition, any capital gain realized by a shareholder upon a sale or
redemption of Fund shares is includable in such shareholder’s investment income
for purposes of this NII tax.
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 a Fund before your
investment (and thus were included in the Shares’ NAV when you purchased your
Shares).
You
may wish to avoid investing in a 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
a Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. A Fund may, under certain circumstances,
report all or a portion of a dividend as an “interest-related dividend” or a
“short-term capital gain dividend,” which would generally be exempt from this
30% U.S. withholding tax, provided certain other requirements are
met.
Under
the Foreign Account Tax Compliance Act (“FATCA”), a Fund may be required to
withhold a generally nonrefundable 30% tax on (i) distributions of investment
company taxable income and (ii) distributions of net capital gain and the gross
proceeds of a sale or redemption of Fund shares paid to (A) certain “foreign
financial institutions” unless such foreign financial institution agrees to
verify, monitor, and report to the Internal Revenue Service (“IRS”) the identity
of certain of its account-holders, among other items (or unless such entity is
otherwise deemed compliant under the terms of an intergovernmental agreement
between the United States and the foreign financial institution’s country of
residence), and (B) certain “non-financial foreign entities” unless such entity
certifies to the Fund that it does not have any substantial U.S. owners or
provides the name, address, and taxpayer identification number of each
substantial U.S. owner, among other items. In December 2018, the IRS and
Treasury Department released proposed Treasury Regulations that would eliminate
FATCA withholding on Fund distributions of net capital gain and the gross
proceeds from a sale or redemption of Fund shares. Although taxpayers are
entitled to rely on these proposed Treasury Regulations until final Treasury
Regulations are issued, these proposed Treasury Regulations have not been
finalized, may not be finalized in their proposed form, and are potentially
subject to change. This FATCA withholding tax could also affect a Fund’s return
on its investments in foreign securities or affect a shareholder’s return if the
shareholder holds its Fund shares through a foreign intermediary. You are urged
to consult your tax adviser regarding the application of this FATCA withholding
tax to your investment in a Fund and the potential certification, compliance,
due diligence, reporting, and withholding obligations to which you may become
subject in order to avoid this withholding tax.
Each
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 they are 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 a Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the sale of substantially identical Shares.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The IRS may
assert, however, that a loss that is realized upon an exchange of securities for
Creation Units may not be currently deducted under the rules governing “wash
sales” (for an AP who does not mark-to-market their holdings) or on the basis
that there has been no significant change in economic position. Persons
exchanging securities should consult their own tax advisor with respect to
whether wash sale rules apply and when a loss might be deductible.
Any
capital gain or loss realized upon redemption of Creation Units is generally
treated as long-term capital gain or loss if Shares comprising the Creation
Units have been held for more than one year and as a short-term capital gain or
loss if such Shares have been held for one year or less.
A
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. A Fund may sell
portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause a 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, a Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Foreign
Investments by the Funds
Interest
and other income received by the Funds with respect to foreign securities may
give rise to withholding and other taxes imposed by foreign countries. Tax
treaties or conventions between certain countries and the United States may
reduce or eliminate such taxes. If, as of the close of a taxable year, more than
50% of the value of a Fund’s assets consists of certain foreign stock or
securities, the Fund will be eligible to elect to “pass through” to investors
the amount of certain qualifying foreign income and similar taxes paid by the
Fund during that taxable year. This means that investors would be considered to
have received as additional income their respective shares of such foreign
taxes, but may be entitled to either a corresponding tax deduction in
calculating taxable income, or, subject to certain limitations, a credit in
calculating federal income tax. If a Fund does not so elect, the Fund will be
entitled to claim a deduction for certain foreign taxes incurred by the Fund.
The Funds (or its administrative agent) will notify you if it makes such an
election and provide you with the information necessary to reflect foreign taxes
paid on your income tax return.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in each Fund. It is not a substitute for
personal tax advice. You also may be subject to foreign, 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
Foreside
Fund Services, LLC (the “Distributor”), the Funds’ distributor, is a
broker-dealer registered with the U.S. Securities and Exchange Commission. The
Distributor distributes Creation Units for the Funds on an agency basis and does
not maintain a secondary market in Shares. The Distributor has no role in
determining the policies of the Funds or the securities that are purchased or
sold by the Funds. The Distributor’s principal address is Three Canal Plaza,
Suite 100, Portland, Maine 04101.
The
Board has adopted a Distribution (Rule 12b-1) Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, each Fund is authorized
to pay an amount up to 0.25% of its average daily net assets each year to pay
distribution fees for the sale and distribution of its Shares.
No
Rule 12b-1 fees are currently paid by the Funds, and there are no plans to
impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because the fees are paid out of Fund assets on an ongoing basis, 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
When
available, 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
applicable Fund can be found on the Funds’ website at
www.newdayimpact.com/etfs.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of, the timing,
prices, or quantities of Shares to be issued, nor in the determination or
calculation of the equation by which Shares are redeemable. The Exchange has no
obligation or liability to owners of Shares in connection with the
administration, marketing, or trading of Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser, the Sub-Adviser, and each 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 Funds
particularly.
FINANCIAL
HIGHLIGHTS
This
section would ordinarily include Financial Highlights. The Financial Highlights
table is intended to help you understand each Fund’s performance for the
applicable Fund’s periods of operations. Because the Funds have not yet
commenced operations as of the date of this Prospectus, no Financial Highlights
are shown.
|
|
|
Newday
Ocean Health ETF |
Newday
Diversity, Equity & Inclusion ETF |
|
|
|
|
|
|
|
|
|
|
|
|
Adviser |
Toroso
Investments, LLC
898
N. Broadway, Suite 2
Massapequa,
New York 11758 |
Administrator |
Tidal
ETF Services LLC
898
N. Broadway, Suite 2
Massapequa,
New York 11758 |
Sub-Adviser |
Newday
Funds, Inc.
594
Blair Avenue
Piedmont,
California 94611 |
Sub-Administrator,
Fund Accountant, and Transfer Agent |
U.S.
Bancorp Fund Services, LLC,
doing
business as U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Distributor
|
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
Custodian
|
U.S.
Bank National Association
1555
N. Rivercenter Dr.
Milwaukee,
Wisconsin 53212 |
Legal
Counsel
|
Godfrey
& Kahn, S.C.
833
East Michigan Street, Suite 1800
Milwaukee,
Wisconsin 53202 |
Independent
Registered Public Accounting Firm
|
Cohen
& Company, Ltd.
342
N. Water St., Suite 830
Milwaukee,
Wisconsin 53202 |
Investors
may find more information about the Funds in the following documents:
Statement
of Additional Information: The
Funds’ SAI provides additional details about the investments and techniques of
the Funds and certain other additional information. A current SAI dated May 2,
2022, as supplemented from time to time, 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 each Fund’s investments will be available in the Funds’ 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 each Fund’s performance after the first fiscal year the Funds are in
operation.
When
available, you can obtain free copies of these documents, request other
information or make general inquiries about the Funds by contacting the Funds at
Newday ETFs, c/o U.S. Bank Global Fund Services, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701 or calling 833-486-7347.
Shareholder
reports, the Funds’ current Prospectus and SAI and other information about the
Funds 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 Funds’ Internet website at www.newdayimpact.com/etfs;
or
•For
a duplicating fee, by e-mail request to publicinfo@sec.gov.
(SEC
Investment Company Act File No. 811-23377)