ck0001540305-20231031
PROSPECTUS
AAM BAHL & GAYNOR
SMALL/MID CAP INCOME GROWTH ETF
(SMIG)
Listed
on NYSE Arca, Inc.
February 28,
2024
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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| Temporary
Defensive Positions |
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| AAM
BAHL & GAYNOR SMALL/MID CAP INCOME GROWTH ETF
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Investment
Objective
The
AAM Bahl & Gaynor Small/Mid Cap Income Growth ETF (the “Fund”) seeks current
and growing dividend income, downside protection, and long-term capital
appreciation.
Fees and Expenses of the
Fund
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
| Management
Fees |
0.60% |
| Distribution
and/or Service (Rule 12b-1) Fees |
None |
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Other
Expenses |
0.00% |
| Total
Annual Fund Operating Expenses |
0.60% |
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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 continue
to hold or redeem all of your Shares at the end of those periods. The Example
also assumes that your investment has a 5% return each year and that the Fund’s
operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would
be:
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| 1
Year |
3
Years |
5
Years |
10
Years |
| $61 |
$192 |
$335 |
$750 |
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Shares are
held in a taxable account. These costs, which are not reflected in annual fund
operating expenses or in the Example, affect the Fund’s performance. For the
fiscal year ended October 31, 2023, the Fund’s portfolio turnover rate was
19% of the average
value of its portfolio.
Principal Investment
Strategies
The
Fund is an actively managed exchange-traded fund (“ETF”) that invests in
U.S.-listed equity securities of small- and mid-capitalization companies. Under
normal circumstances, the Fund will invest at least 80% of its net assets (plus
any borrowings for investment purposes) in small- and mid-capitalization
companies. The Fund defines a small- or mid-capitalization company as an issuer
whose market capitalization at the time of purchase is between $200 million and
the market capitalization of the largest company in the Russell 2500 Index (as
of December 31,
2023,
$19.5 billion). The equity securities held by the Fund must be listed on a U.S.
exchange and may include common stocks of U.S. companies, American Depositary
Receipts (“ADRs”) (i.e.,
receipts evidencing ownership of foreign equity securities), and real estate
investment trusts (“REITs”).
In
selecting securities, Bahl & Gaynor, Inc., the Fund’s sub-adviser (the
“Sub-Adviser”), employs a bottom‑up approach that considers, among other
factors, a company’s historical earnings and dividends growth, as well as its
balance sheet and cash flow generation, competitive position, and prospects for
future cash flow and dividend growth. Weightings of individual sectors are based
on the Sub-Adviser’s assessment of company fundamentals, valuations, and overall
economic conditions. The Sub-Adviser targets companies that, in its judgement,
have high-quality business models, strong competitive advantages, reasonable
valuations, and sound capital allocation policies or approaches. The Sub-Adviser
believes that the securities identified using such strategies have the potential
to provide improved downside protection relative to the broader equity
market.
The
Sub-Adviser generally sells a security when, in its opinion one or more of the
following occurs, among other reasons: 1) the security’s dividend is reduced to
what the Sub-Adviser believes is an unacceptable amount per share, 2) the
Sub-Adviser believes the company’s fundamentals deteriorate, 3) the Sub-Adviser
believes the company’s stock has become a greater weight of the Fund’s portfolio
than desired due to market appreciation or other factors, or 4) the Sub-Adviser
identifies a more attractive investment opportunity for the
Fund.
Principal Investment
Risks
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with other funds. Each risk summarized below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. As with any investment, there is a risk that you could lose all or
a portion of your investment in the Fund. Some or all of these
risks may adversely affect the Fund’s net asset value per share (“NAV”), trading
price, yield, total return and/or ability to meet its objectives. For more
information about the risks of investing in the Fund, see the section in the
Fund’s Prospectus titled “Additional Information About the Fund.”
•Depositary
Receipt Risk.
Depositary Receipts involve risks similar to those associated with
investments in foreign securities, such as changes in political or economic
conditions of other countries and changes in the exchange rates of foreign
currencies. 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.
•Dividend-Paying
Securities Risk. There is no guarantee that issuers of the securities held by the
Fund will declare dividends in the future or that, if declared, they will either
remain at current levels or increase over time.
•Equity
Market Risk.
The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests. Common
stocks are generally exposed to greater risk than other types of securities,
such as preferred stock and debt obligations, because common stockholders
generally have inferior rights to receive payment from issuers. In addition,
local, regional or global events such as war, including Russia’s invasion of
Ukraine, acts of terrorism, spread of infectious diseases or other public health
issues (such as the global pandemic caused by the COVID-19 virus), recessions,
rising inflation, or other events could have a significant negative impact on
the Fund and its investments. Such events may affect certain geographic regions,
countries, sectors and industries more significantly than others. Such events
could adversely affect the prices and liquidity of the Fund’s portfolio
securities or other instruments and could result in disruptions in the trading
markets.
•ETF
Risks.
The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The Fund has a limited number of financial institutions that may act
as Authorized Participants (“APs”). In addition, there may be a limited number
of market makers and/or liquidity providers in the marketplace. To the extent
either of the following events occur, Shares may trade at a material discount to
NAV and possibly face delisting: (i) APs exit the business or otherwise
become unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares. Due to the costs of buying or selling Shares, including brokerage
commissions imposed by brokers and bid-ask spreads, frequent trading of Shares
may significantly reduce investment results and an investment in Shares may not
be advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV. As with all ETFs, Shares may be bought and sold in the secondary
market at market prices. Although it is expected that the market price of Shares
will approximate the Fund’s NAV, there may be times when the market price of
Shares is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility, periods of
steep market declines, and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant.
◦Trading. Although
Shares are listed for trading on 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, and this could lead to differences between the market price of the
Shares and the underlying value of those
Shares.
•Foreign
Markets Risk.
Investments in ADRs that provide exposure to non-U.S. securities
involve certain risks that may not be present with investments in U.S.
securities. For example, the value of non-U.S. securities may be subject to risk
of decline due to foreign currency fluctuations or to political or economic
instability. Investments in ADRs also may be subject to withholding or other
taxes and may be indirectly subject to additional trading, settlement,
custodial, and operational risks. These and other factors can make investments
in the Fund more volatile and potentially less liquid than other types of
investments.
•Management
Risk. The Fund is actively managed and may not meet its investment
objective based on the Adviser’s success or failure to implement investment
strategies for the Fund.
•Market
Capitalization Risk. The
securities of small- and mid-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of small-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole.
•REIT
Investment Risk. Investments in REITs involve unique risks. REITs may have
limited financial resources, may trade less frequently and in limited volume,
and may be more volatile than other securities. REITs may be affected by changes
in the value of their underlying properties or mortgages or by defaults by their
borrowers or tenants. Furthermore, these entities depend upon specialized
management skills, have limited diversification and are, therefore, subject to
risks inherent in financing a limited number of projects. In addition, the
performance of a REIT may be affected by changes in the tax laws or by its
failure to qualify for tax-free pass-through of income.
•Sector
Risk. To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors. The Fund may invest a significant portion of its assets in
the following sectors and, therefore, the performance of the Fund could be
negatively impacted by events affecting each of these sectors.
◦Financials
Sector Risk. This
sector, which includes banks, insurance companies, and financial service firms,
can be significantly affected by changes in interest rates, government
regulation, the rate of defaults on corporate, consumer and government debt, the
availability and cost of capital, and fallout from the housing and sub-prime
mortgage crisis. Banks, in particular, are subject to volatile interest rates,
severe price competition, and extensive government oversight and regulation,
which may limit certain economic activities available to banks, impact their
fees and overall profitability, and establish capital maintenance requirements.
In addition, banks may have concentrated portfolios of loans or investments that
make them vulnerable to economic conditions that affect that industry. Insurance
companies are subject to similar risks as banks, including adverse economic
conditions, changes in interest rates, increased competition and government
regulation, but insurance companies are more at risk from changes in tax law,
government imposed premium rate caps, and catastrophic events, such as
earthquakes, floods, hurricanes and terrorist acts. This sector has experienced
significant losses in the recent past, and the impact of higher interest rates,
more stringent capital requirements, and of recent or future regulation on any
individual financial company, or on the sector as a whole, cannot be predicted.
In recent years, cyber attacks and technology malfunctions and failures have
become increasingly frequent in the financial sector and have caused significant
losses.
◦Industrials
Sector Risk. The
industrials sector can be significantly affected by, among other things,
worldwide economic growth, supply and demand for specific products and services,
rapid technological developments, international political and economic
developments, environmental issues, tariffs and trade barriers, and tax and
governmental regulatory policies. As the demand for, or prices of, industrials
increase, the value of the Fund’s investments generally would be expected to
also increase. Conversely, declines in the demand for, or prices of, industrials
generally would be expected to contribute to declines in the value of such
securities. Such declines may occur quickly and without warning and may
negatively impact the value of the Fund and your
investment.
Performance
The
following performance information indicates some of the risks of investing in
the Fund. The bar chart shows the Fund’s performance for calendar years ended
December 31. The table illustrates how the Fund’s average annual returns for the
1-year and since inception periods compare with those of a broad measure of
market performance. The Fund’s past performance, before and after taxes, does
not necessarily indicate how it will perform in the future. Updated performance
information is available on the Fund’s website at www.aamlive.com/ETF.
Calendar Year Total
Returns
During
the period of time shown in the bar chart, the Fund’s highest quarterly
return was 11.20% for the quarter ended December 31, 2023, and
the lowest quarterly return was
-9.05% for the quarter ended March 31,
2022.
Average
Annual Total Returns
For
the Period Ended December 31,
2023
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AAM
Bahl & Gaynor Small/Mid Cap Income Growth ETF |
1
Year |
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Since
Inception
(8/25/2021) |
| Return
Before Taxes |
13.39% |
| 2.07% |
| Return
After Taxes on Distributions |
12.83% |
| 1.61% |
| Return
After Taxes on Distributions and Sale of Fund
Shares |
8.26% |
| 1.55% |
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Russell
2500 Total Return Index
(reflects no deduction for
fees, expenses, or taxes) |
17.42% |
| -1.14% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. After-tax returns shown are
not relevant to investors who hold their Shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts. In
certain cases, the figure representing “Return After Taxes on Distributions and
Sale of Shares” may be higher than the other return figures for the same period.
A higher after-tax return results when a capital loss occurs upon redemption and
provides an assumed tax deduction that benefits the
investor.
Portfolio
Management
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Adviser |
Advisors
Asset Management, Inc. (“AAM” or the “Adviser”) |
| Sub-Adviser |
Bahl
& Gaynor, Inc. (“Bahl & Gaynor” or the
“Sub-Adviser”) |
| Portfolio
Managers |
Scott
D. Rodes, CFA, CIC, Principal of Bahl & Gaynor, and Robert S. Groenke,
President, CEO and Principal of Bahl & Gaynor, are jointly and
primarily responsible for the day-to-day management of the Fund and have
served as portfolio managers since the Fund’s inception in
2021. |
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.aamlive.com/ETF.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser, 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 FUND
Investment
Objectives
The
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed without shareholder approval upon written notice to
shareholders.
Principal
Investment Strategies
The
Fund has adopted a policy to comply with Rule 35d-1 under the Investment Company
Act of 1940 (the “1940 Act”). Such policies have been adopted as non-fundamental
investment policies and may be changed without shareholder approval upon 60
days’ written notice to shareholders. With respect to the policies below, the
Fund defines “equity securities” to mean common and preferred stocks, rights,
warrants, depositary receipts, equity interests in REITs, and master limited
partnerships. With respect to the policy below, the Fund defines a small- or
mid-capitalization company as an issuer whose market capitalization at the time
of purchase is between $200 million and the market capitalization of the largest
company in the Russell 2500 Index.
Under
normal circumstances, at least 80% of the net assets, plus any borrowings for
investment purposes, of the Fund will be invested in small- and
mid-capitalization companies.
Temporary
Defensive Positions
When
the Sub-Adviser believes that current market, economic, political or other
conditions are unsuitable and would impair the pursuit of the Fund’s investment
objectives, the Fund may invest some or all of its assets in cash or cash
equivalents, including but not limited to obligations of the U.S. government,
money market fund shares, commercial paper, certificates of deposit and/or
bankers acceptances, as well as other interest bearing or discount obligations
or debt instruments that carry an investment grade rating by a national rating
agency. When the Fund takes a temporary defensive position, the Fund may not
achieve its investment objectives.
Principal
Investment Risks
This
section provides additional information regarding the principal risks described
in the Fund Summary. As in the Fund Summary, the principal risks below are
presented in alphabetical order to facilitate finding particular risks and
comparing them with other funds. Each risk described below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. Each of the factors below could have a negative impact on the Fund’s
performance and trading prices.
•Depositary
Receipt Risk.
The Fund may hold the securities of non-U.S. companies in the form of American
Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”). ADRs are
negotiable certificates issued by a U.S. financial institution that represent a
specified number of shares in a foreign stock and trade on a U.S. national
securities exchange, such as the NYSE. Sponsored ADRs are issued with the
support of the issuer of the foreign stock underlying the ADRs and carry all of
the rights of common shares, including voting rights. GDRs are similar to ADRs
but may be issued in bearer form and are typically offered for sale globally and
held by a foreign branch of an international bank. The underlying issuers of
certain depositary receipts, particularly unsponsored or unregistered depositary
receipts, are under no obligation to distribute shareholder communications to
the holders of such receipts, or to pass through to them any voting rights with
respect to the deposited securities. Issuers of unsponsored depositary receipts
are not contractually obligated to disclose material information in the U.S.
and, therefore, such information may not correlate to the market value of the
unsponsored depositary receipt. The underlying securities of the ADRs and GDRs
in the Fund’s portfolio are usually denominated or quoted in currencies other
than the U.S. Dollar. As a result, changes in foreign currency exchange rates
may affect the value of the Fund’s portfolio. In addition, because the
underlying securities of ADRs and GDRs trade on foreign exchanges at times when
the U.S. markets are not open for trading, the value of the securities
underlying the ADRs and GDRs may change materially at times when the U.S.
markets are not open for trading, regardless of whether there is an active U.S.
market for Shares.
•Dividend-Paying
Securities Risk.
There is no guarantee that issuers of the securities held by the Fund will
declare dividends in the future or that, if declared, they will either remain at
current levels or increase over time. The Fund may also underperform similar
funds that invest without considering a company’s dividend payments. Companies
that pay dividends historically may not participate in a broad market advance to
the same extent as other companies that do not pay dividends. Such companies may
also be sensitive to a sharp rise in interest rates or an economic downturn that
leads to the elimination or reduction of dividend payments to
investors.
•Equity
Market Risk.
Equity securities, including common stocks and preferred stocks, and hybrid
securities that have equity characteristics are susceptible to general stock
market fluctuations and to volatile increases and decreases in value as market
confidence in and perceptions of their issuers change. These investor
perceptions are based on various and unpredictable factors including:
expectations regarding government, economic, monetary and fiscal policies;
inflation and interest rates; economic expansion or contraction; and global or
regional political, economic, public health, and banking crises.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and, in many cases, unprecedented volatility and
severe losses due to the global pandemic caused by COVID-19, a novel
coronavirus. The pandemic resulted in a wide range of social and economic
disruptions, including closed borders, voluntary or compelled quarantines of
large populations, stressed healthcare systems, reduced or prohibited domestic
or international travel, and supply chain disruptions affecting the United
States and many other countries. Some sectors of the economy and individual
issuers experienced particularly large losses as a result of these disruptions.
Although the immediate effects of the COVID-19 pandemic have begun to dissipate,
global markets and economies continue to contend with the ongoing and long-term
impact of the COVID-19 pandemic and the resultant market volatility and economic
disruptions. It is unknown how long circumstances related to the pandemic will
persist, whether they will reoccur in the future, whether efforts to support the
economy and financial markets will be successful, and what additional
implications may follow from the pandemic. The impact of these events and other
epidemics or pandemics in the future could adversely affect Fund performance.
•ETF
Risks.
The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦APs,
Market Makers, and Liquidity Providers Concentration Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid-ask spread.” The bid-ask spread varies over time for Shares
based on trading volume and market liquidity, and the spread is generally lower
if Shares have more trading volume and market liquidity and higher if Shares
have little trading volume and market liquidity. Further, a relatively small
investor base in the Fund, asset swings in the Fund, and/or increased market
volatility may cause increased bid-ask spreads. Due to the costs of buying or
selling Shares, including bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility or periods of
steep market declines. The market price of Fund 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 Fund shares. In times of severe market disruption, the bid-ask spread
can increase significantly. At those times, Fund shares are most likely to be
traded at a discount to NAV, and the discount is likely to be greatest when the
price of Fund shares is falling fastest, which may be the time that you most
want to sell your Fund 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, and this
could lead to differences between the market price of the Shares and the
underlying value of those Shares.
•Foreign
Markets Risk.
Investments
in non-U.S. companies or investments in depositary receipts that provide
exposure to non-U.S. companies involve certain risks that may not be present
with investments in U.S. companies. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. There
may
be less information publicly available about a non-U.S. issuer than a U.S.
issuer. Non-U.S. issuers may be subject to different accounting, auditing,
financial reporting and investor protection standards than U.S. issuers.
Investments in non-U.S. securities may be subject to withholding or other taxes
and may be subject to additional trading, settlement, custodial, and operational
risks. With respect to certain countries, there is the possibility of government
intervention and expropriation or nationalization of assets. Because legal
systems differ, there is also the possibility that it will be difficult to
obtain or enforce legal judgments in certain countries. Since foreign exchanges
may be open on days when the Fund does not price its Shares, the value of the
securities in the Fund’s portfolio may change on days when shareholders will not
be able to purchase or sell the Fund’s Shares. Conversely, Shares may trade on
days when foreign exchanges are closed. Each of these factors can make
investments in the Fund more volatile and potentially less liquid than other
types of investments.
•Management
Risk. The
Fund is actively managed and may not meet its investment objective based on the
Bahl & Gaynor’s success or failure to implement investment strategies for
the Fund.
•Market
Capitalization Risk.
◦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, but they may also be subject to slower growth
than small-capitalization companies during times of economic expansion. 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, but they may also be
nimbler and more responsive to new challenges than large-capitalization
companies. Some mid-capitalization companies have limited product lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization
companies.
◦Small-Capitalization
Investing. The
securities of small-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some 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.
•REIT
Investment Risk.
Investments
in REITs involve unique risks. REITs may have limited financial resources, may
trade less frequently and in limited volume, and may be more volatile than other
securities. In addition, to the extent the Fund holds interests in REITs, it is
expected that investors in the Fund will bear two layers of asset-based
management fees and expenses (directly at the Fund level and indirectly at the
REIT level). The risks of investing in REITs include certain risks associated
with the direct ownership of real estate and the real estate industry in
general. These include risks related to general, regional and local economic
conditions; fluctuations in interest rates and property tax rates; shifts in
zoning laws, environmental regulations and other governmental action such as the
exercise of eminent domain; cash flow dependency; increased operating expenses;
lack of availability of mortgage funds; losses due to natural disasters;
overbuilding; losses due to casualty or condemnation; changes in property values
and rental rates; and other factors.
In
addition to these risks, residential/diversified REITs and commercial equity
REITs may be affected by changes in the value of the underlying property owned
by the trusts, while mortgage REITs may be affected by the quality of any credit
extended. Further, REITs are dependent upon management skills and generally may
not be diversified. REITs are also subject to heavy cash flow dependency,
defaults by borrowers and self-liquidation. In addition, REITs could possibly
fail to qualify for the beneficial tax treatment available to REITs under the
U.S. Internal Revenue Code of 1986, as amended (the “Code”), or to maintain
their exemptions from registration under the Investment Company Act of 1940, as
amended (the “1940 Act”). The Fund expects that dividends received from a
REIT and distributed to Fund shareholders generally will be taxable to the
shareholder as ordinary income. The above factors may also adversely affect a
borrower’s or a lessee’s ability to meet its obligations to the REIT. In the
event of a default by a borrower or lessee, the REIT may experience delays in
enforcing its rights as a mortgagee or lessor and may incur substantial costs
associated with protecting investments.
•Sector
Risk.
The
Fund’s investing approach may result in an emphasis on certain sectors or
sub-sectors of the market at any given time. To the extent the Fund invests more
heavily in one sector or sub-sector of the market, it thereby presents a more
concentrated risk and its performance will be especially sensitive to
developments that significantly affect those sectors or sub-sectors. In
addition, the value of the Fund’s shares may change at different rates compared
to the value of shares of a fund with investments in a more diversified mix of
sectors and industries. An individual sector or sub-sector of the market may
have above-average performance during particular periods but may also move up
and down more than the broader market. The several industries that constitute a
sector may all react in the same way to economic, political or regulatory
events. The Fund’s
performance
could also be affected if the sectors or sub-sectors do not perform as expected.
Alternatively, the lack of exposure to one or more sectors or sub-sectors may
adversely affect performance.
◦Financial
Sector Risk. This
sector can be significantly affected by changes in interest rates, government
regulation, the rate of defaults on corporate, consumer and government debt, the
availability and cost of capital, and fallout from the housing and sub-prime
mortgage crisis. Insurance companies, in particular, may be significantly
affected by changes in interest rates, catastrophic events, price and market
competition, the imposition of premium rate caps, or other changes in government
regulation or tax law and/or rate regulation, which may have an adverse impact
on their profitability. This sector has experienced significant losses in the
recent past, and the impact of more stringent capital requirements and of recent
or future regulation on any individual financial company or on the sector as a
whole cannot be predicted. In recent years, cyber attacks and technology
malfunctions and failures have become increasingly frequent in this sector and
have caused significant losses.
◦Industrials
Sector Risk. The
industrials sector can be significantly affected by, among other things,
worldwide economic growth, supply and demand for specific products and services,
rapid technological developments, international political and economic
developments, environmental issues, tariffs and trade barriers, and tax and
governmental regulatory policies. As the demand for, or prices of, industrials
increase, the value of the Fund’s investments generally would be expected to
also increase. Conversely, declines in the demand for, or prices of, industrials
generally would be expected to contribute to declines in the value of such
securities. Such declines may occur quickly and without warning and may
negatively impact the value of the Fund and your investment.
PORTFOLIO
HOLDINGS INFORMATION
Information
about the Fund’s daily portfolio holdings is available at www.aamlive.com/ETF. A
complete description of the Fund’s policies and procedures with respect to the
disclosure of the Fund’s portfolio holdings is available in the Fund’s Statement
of Additional Information (“SAI”).
MANAGEMENT
Investment
Adviser
Advisors
Asset Management, Inc. (“AAM” or the “Adviser”) serves as the investment adviser
and has overall responsibility for the general management and administration of
the Fund. AAM also arranges for sub-advisory, transfer agency, custody, fund
administration, distribution and all other services necessary for the Fund to
operate. AAM provides oversight of the Sub-Adviser, monitoring of the
Sub-Adviser’s buying and selling of securities for the Fund, and review of the
Sub-Adviser’s performance. For the services it provides to the Fund, the Fund
pays AAM a unified management fee, which is calculated daily and paid monthly,
at an annual rate of 0.60% of the Fund’s average daily net assets.
Under
the Investment Advisory Agreement (the “Advisory Agreement”), AAM has agreed to
pay all expenses of the Fund, except for: the unified management fee paid to
AAM, 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, and distribution (12b‑1) fees and expenses. AAM, in
turn, compensates the Sub-Adviser from the management fee it
receives.
AAM
shall not be liable to the Trust or any shareholder for anything done or omitted
by it, except acts or omissions
arising
out of the Adviser’s willful misfeasance, bad faith, or gross negligence in the
performance of its duties under the Advisory Agreements or its reckless
disregard of its obligations and duties under the Advisory Agreements or for any
losses that may be sustained in the purchase, holding, or sale of any
security.
AAM’s
headquarters is located at 18925 Base Camp Road, Suite 203, Monument, Colorado
80132. AAM is a registered broker dealer, member FINRA and SIPC, and SEC
registered investment adviser. AAM provides portfolio supervisory and evaluation
services to AAM-sponsored unit investment trusts registered under the 1940 Act
and provides investment advisory services to separately managed accounts, mutual
funds, and the Fund.
The
basis for the Board of Trustees’ (the “Board”) approval of the Investment
Advisory Agreement is available in the Fund’s Annual
Report
to Shareholders for the period ending October 31, 2022.
Sub-Adviser
Bahl
& Gaynor, Inc.
The
Adviser has retained Bahl & Gaynor, Inc. to serve as sub-adviser for the
Fund. Bahl & Gaynor is responsible for the day-to-day management of the
Fund. Bahl & Gaynor is a registered investment adviser. Its principal office
is located at 255 East Fifth Street, Suite 2700, Cincinnati, Ohio 45202. Bahl
& Gaynor was formed in 1990 and provides investment advisory services to
institutional clients, high net worth individuals, mutual funds, and the Fund.
The Sub-Adviser is responsible for trading portfolio securities for the
Fund,
including selecting broker-dealers to execute purchase and sale transactions,
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. With respect to net assets of the Fund
excluding shares of the Fund held in accounts where the Sub-Adviser has an
investment management agreement directly with the owner of the account (the
“B&G Account Assets”), the Sub-Adviser is paid a fee by the Adviser at an
annual rate based on the average daily net assets of the Fund of 0.23% on the
first $300 million of net assets and 0.28% on net assets in excess of $300
million. With respect to the B&G Account Assets, in lieu of the foregoing
sub-advisory fee, the Sub-Adviser is paid a fee by the Adviser equal to (a)
0.60% (the management fee rate paid by the Fund to the Adviser) multiplied by
the average net asset value of the B&G Account Assets, minus (b) the
Fund’s total administration, accounting, transfer agency, custody, distributor,
and Rule 24f-2 costs, fees, or expenses paid by the Adviser pursuant to the
Advisory Agreement (collectively, the “Fund Expenses”), plus (c) the Fund
Expenses calculated as if the Fund’s average daily net asset value was reduced
by the average net asset value of the B&G Account Assets.
The
basis for the Board’s approval of the New Investment Sub-Advisory Agreement for
the Fund is available in the Fund’s Annual
Report
to Shareholders for the period ended October
31, 2022.
Manager
of Managers Structure
The
Fund and the Adviser have received exemptive relief from the SEC permitting the
Adviser (subject to certain conditions and the approval of the Board) to change
or select sub-advisers without obtaining shareholder approval. The relief also
permits the Adviser to materially amend the terms of agreements with a
sub-adviser (including an increase in the fee paid by the Adviser to the
sub-adviser (and not paid by the Fund)) or to continue the employment of a
sub-adviser after an event that would otherwise cause the automatic termination
of services with Board approval, but without shareholder approval. Shareholders
will be notified of any sub-adviser changes.
Portfolio
Managers
The
below individuals are the Fund’s Portfolio Managers and are jointly and
primarily responsible for day-to-day management of the Fund’s
portfolio.
Scott
D. Rodes, CFA, CIC is Principal and Portfolio Manager of Bahl & Gaynor. Mr.
Rodes is responsible for portfolio management, investment research, and client
service. Prior to joining Bahl & Gaynor in 2001, Mr. Rodes was a Vice
President and Senior Portfolio Manager for Northern Trust in Chicago. Prior to
joining Northern Trust in 1998, Mr. Rodes was a research analyst for Waddell
& Reed in Kansas City. From 1989 through 1997, Mr. Rodes was an Assistant
Vice President and Senior Portfolio Manager for Fifth Third Bank in Cincinnati.
Mr. Rodes earned an M.B.A. from Xavier University and a B.E.M.E. from Vanderbilt
University.
Robert
S. Groenke is President, CEO, Principal, and Portfolio Manager of Bahl &
Gaynor. Mr. Groenke is responsible for portfolio management, investment
research, and client service. Prior to joining Bahl & Gaynor in 2019, Mr.
Groenke was Vice President and Research Analyst with Franklin Templeton
Investments. Prior to joining Franklin Templeton in 2012, he served as Private
Equity Associate with Industrial Growth Partners. Prior to joining Industrial
Growth Partners in 2008, Mr. Groenke worked as an Investment Banking Analyst
within the Technology Group at Thomas Wiesel Partners in New York. Mr. Groenke
earned an M.B.A, with honors, from the University of Chicago and a B.A. from the
University of Michigan.
The
Fund’s SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by the Portfolio Managers, and
the Portfolio Managers’ ownership of Shares.
HOW
TO BUY AND SELL SHARES
The
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from the Fund, and only APs may tender their Shares for
redemption directly to the Fund, at NAV. APs must be a member or participant of
a clearing agency registered with the SEC and must execute a Participant
Agreement that has been agreed to by the Distributor (defined below), and that
has been accepted by the Fund’s transfer agent, with respect to purchases and
redemptions of Creation Units. Once created, Shares trade in the secondary
market in quantities less than a Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Shares are listed for trading on the secondary market on the Exchange and can be
bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the 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.
The Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, the Board has also
determined that frequent purchases and redemptions for cash may increase
tracking error and portfolio transaction costs and may lead to the realization
of capital gains. To minimize these potential consequences of frequent purchases
and redemptions, the Fund employs fair value pricing and may impose transaction
fees on purchases and redemptions of Creation Units to cover the custodial and
other costs incurred by the Fund in effecting trades. In addition, the Fund and
the Adviser reserve the right to reject any purchase order at any
time.
Determination
of NAV
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the
NYSE, generally 4:00 p.m. Eastern time, each day the NYSE is open for
business. The NAV for the Fund is calculated by dividing the Fund’s net assets
by its Shares outstanding.
In
calculating its NAV, the Fund generally values its assets on the basis of market
quotations, last sale prices, or estimates of value furnished by a pricing
service or brokers who make markets in such instruments. The values of non-U.S.
dollar denominated securities are converted to U.S. dollars using foreign
currency exchange rates generally determined as of 4:00 p.m., London time. If
such information is not available for a security held by the Fund or is
determined to be unreliable, the security will be valued at fair value estimates
under guidelines established by the Board (as described below).
Fair
Value Pricing
The
Adviser has been designated by the Board as the valuation designee for the Fund
pursuant to Rule 2a-5 under the 1940 Act. In its capacity as valuation designee,
the Adviser has adopted procedures and methodologies to fair value Fund
securities whose market prices are not “readily available” or are deemed to be
unreliable. For example, such circumstances may arise when: (i) a security has
been de-listed or has had its trading halted or suspended; (ii) a security’s
primary pricing source is unable or unwilling to provide a price; (iii) a
security’s primary trading market is closed during regular market hours; or (iv)
a security’s value is materially affected by events occurring after the close of
the security’s primary trading market. The Board has appointed the Adviser as
the Fund’s valuation designee to perform all fair valuations of the Fund’s
portfolio investments, subject to the Board’s oversight. Accordingly, the
Adviser has established procedures for its fair valuation of the Fund’s
portfolio investments. Generally, when fair valuing a security held by the Fund,
the Adviser will take into account all reasonably available information that may
be relevant to a particular valuation including, but not limited to, fundamental
analytical data regarding the issuer, information relating to the issuer’s
business, recent trades or offers of the security, general and/or specific
market conditions and the specific facts giving rise to the need to fair value
the security. Fair value determinations are made in good faith and in accordance
with the fair value methodologies established by the Adviser. Due to the
subjective and variable nature of determining the fair value of a security or
other investment, there can be no assurance that the Adviser’s fair value will
match or closely correlate to any market quotation that subsequently becomes
available or the price quoted or published by other sources. In addition, the
Fund may not be able to obtain the fair value assigned to the security upon the
sale of such security.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Fund. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Fund is available through certain broker-dealers. If
you are interested in enrolling in householding and receiving a single copy of
prospectuses and other shareholder documents, please contact your broker-dealer.
If you are currently enrolled in householding and wish to change your
householding status, please contact your broker-dealer.
Investments
by Registered Investment Companies
Section 12(d)(1)
of the 1940 Act restricts investments by registered investment companies in the
securities of other investment companies, including Shares. Registered
investment companies are permitted to invest in the Fund beyond the limits set
forth in section 12(d)(1) subject to certain terms and conditions set forth in
Rule 12d1-4 under the 1940 Act, including that such investment companies enter
into an agreement with the Fund.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
The
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. The Fund will declare and
pay capital gain distributions, if any, in cash. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to
you.
Taxes
The
following discussion is a summary of certain important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax advisor
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws. This summary does not apply
to Shares held in an IRA or other tax-qualified plans, which are generally not
subject to current tax. Transactions relating to Shares held in such accounts
may, however, be taxable at some time in the future. This summary is based on
current tax laws, which may change.
The
Fund has elected and intends to qualify each year for treatment as a regulated
investment company (“RIC”). If the Fund meets certain minimum distribution
requirements, a RIC is not subject to tax at the fund level on income and gains
from investments that are timely distributed to shareholders. However, the
Fund’s failure to qualify as a RIC or to meet minimum distribution requirements
would result (if certain relief provisions were not available) in fund-level
taxation and, consequently, a reduction in income available for distribution to
shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA, you need to be aware of the possible tax consequences
when the Fund makes distributions, when you sell your Shares listed on the
Exchange, and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions
The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long the Fund owned the investments that generated them,
rather than how long a shareholder has owned his or her Shares. Sales of assets
held by the Fund for more than one year generally result in long-term capital
gains and losses, and sales of assets held by the Fund for one year or less
generally result in short-term capital gains and losses. Distributions of the
Fund’s net capital gain (the excess of net long-term capital gains over net
short-term capital losses) that are reported by the Fund as capital gain
dividends (“Capital Gain Dividends”) will be taxable as long-term capital gains,
which for non-corporate shareholders are subject to tax at reduced rates of up
to 20% (lower rates apply to individuals in lower tax brackets). Distributions
of short-term capital gain will generally be taxable as ordinary income.
Dividends and distributions are generally taxable to you whether you receive
them in cash or reinvest them in additional Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that the Fund receives in respect of stock of certain
foreign corporations may be qualified dividend income if that stock is readily
tradable on an established U.S. securities market. Corporate shareholders may be
entitled to a dividends-received deduction for the portion of dividends they
receive from the Fund that are attributable to dividends received by the Fund
from U.S. corporations, subject to certain limitations. Dividends received by
the Fund from a REIT may be treated as qualified dividend income generally only
to the extent so reported by such REIT, however, dividends received by the Fund
from a REIT are generally not treated as qualified dividend income.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your investment.
If
the Fund’s distributions exceed its earnings and profits, all or a portion of
the distributions made for a taxable year may be recharacterized as a return of
capital to shareholders. A return of capital distribution will generally not be
taxable, but will reduce each shareholder’s cost basis in Shares and result in a
higher capital gain or lower capital loss when the Shares are sold. After a
shareholder’s basis in Shares has been reduced to zero, distributions in excess
of earnings and profits in respect of those Shares will be treated as gain from
the sale of the Shares.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
Shares by non-U.S. shareholders generally are not subject to U.S. taxation,
unless you are a nonresident alien individual who is physically present in the
U.S. for 183 days or more per year. The Fund may, under certain circumstances,
report all or a portion of a dividend as an “interest-related dividend” or a
“short-term capital gain dividend,” which would generally be exempt from this
30% U.S. withholding tax, provided certain other requirements are met.
Different tax consequences may result if you are a foreign shareholder engaged
in a trade or business within the United States or if a tax treaty applies.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage (currently 24%) of the taxable distributions and sale 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 the shareholder is not subject to such
withholding.
Taxes
When Shares are Sold on the Exchange
Provided
that a shareholder holds Shares as capital assets, any capital gain or loss
realized upon a sale of Shares generally is treated as a long-term capital gain
or loss if Shares have been held for more than one year and as a short-term
capital gain or loss if Shares have been held for one year or less. However, any
capital loss on a sale of Shares held for six months or less is treated as
long-term capital loss to the extent of Capital Gain Dividends paid with respect
to such Shares. Any loss realized on a sale will be disallowed to the extent
Shares of the Fund are acquired, including through reinvestment of dividends,
within a 61-day period beginning 30 days before and ending 30 days after the
disposition of Shares. The ability to deduct capital losses may be limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your account.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The 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 its holdings), or on the basis
that there has been no significant change in economic position. APs exchanging
securities should consult their own tax advisor with respect to whether the wash
sales rule applies and when a loss might be deductible.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Taxation
of REIT Investments
The
Fund may invest in REITs. “Qualified REIT dividends” (i.e.,
ordinary REIT dividends other than capital gain dividends and portions of REIT
dividends designated as qualified dividend income eligible for capital gain tax
rates) are eligible for a 20% deduction
by
non-corporate taxpayers. This deduction, if allowed in full, equates to a
maximum effective tax rate of 29.6% (37% top rate applied to income after 20%
deduction). Pursuant to proposed Treasury regulations on which the Fund may
rely, distributions by the Fund to its shareholders that are attributable to
qualified REIT dividends received by the Fund and which the Fund properly
reports as “section 199A dividends,” are treated as “qualified REIT dividends”
in the hands of non-corporate shareholders. A section 199A dividend is treated
as a qualified REIT dividend only if the shareholder receiving such dividend
holds the dividend-paying RIC shares for at least 46 days of the 91-day period
beginning 45 days before the shares become ex-dividend, and is not under an
obligation to make related payments with respect to a position in substantially
similar or related property. The Fund is permitted to report such part of its
dividends as section 199A dividends as are eligible, but the Fund is not
required to do so.
REITs
in which the Fund invests often do not provide complete and final tax
information to the Fund until after the time that the Fund issues a tax
reporting statement.
As
a result, the Fund may at times find it necessary to reclassify the amount and
character of its distributions to you after it issues your tax reporting
statement. When such reclassification is necessary, the Fund (or a financial
intermediary, such as a broker, through which a shareholder owns Shares) will
send you a corrected, final Form 1099-DIV to reflect the reclassified
information. If you receive a corrected Form 1099-DIV, use the information on
this corrected form, and not the information on the previously issued tax
reporting statement, in completing your tax returns.
Foreign
Investments by the Fund
Interest
and other income received by the Fund with respect to foreign securities may
give rise to withholding and other taxes imposed by foreign countries. Tax
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 the 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
foreign income and similar taxes (including withholding 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 the Fund does not so elect, the Fund will be entitled to claim a
deduction for certain foreign taxes incurred by the Fund. The Fund (or a
financial intermediary, such as a broker, through which a shareholder owns
Shares) 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 the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax advisor about the
potential tax consequences of an investment in Shares under all applicable tax
laws. For more information, please see the section entitled “Federal Income
Taxes” in the SAI.
DISTRIBUTION
The
Distributor, Quasar Distributors, LLC, a wholly-owned subsidiary of Foreside
Financial Group, LLC (d/b/a ACA Group), is a broker-dealer registered with the
SEC. The Distributor distributes Creation Units for the Fund on an agency basis
and does not maintain a secondary market in Shares. The Distributor has no role
in determining the policies of the Fund or the securities that are purchased or
sold by the Fund. The Distributor’s principal address is Three Canal Plaza,
Suite 100, Portland, Maine 04101.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year for certain
distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the future,
because the fees are paid out of the Fund’s assets, over time these fees will
increase the cost of your investment and may cost you more than certain other
types of sales charges.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often Shares are traded on the Exchange at a price above
(i.e.,
at a premium) or below (i.e.,
at a discount) the NAV per Share is available, free of charge, on the Fund’s
website at www.aamlive.com/ETF.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of the timing,
prices, or quantities of Shares to be issued, nor in the determination or
calculation of the equation by which Shares are redeemable. The Exchange has no
obligation or liability to owners of Shares in connection with the
administration, marketing, or trading of Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser and the Fund make no representation or warranty, express or implied, to
the owners of Shares or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly.
FINANCIAL
HIGHLIGHTS
The
financial highlights table is intended to help you understand the Fund’s
financial performance for the Fund’s five most recent fiscal years (or the life
of the Fund, if shorter). Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Cohen & Company, Ltd., the Fund’s independent registered public
accounting firm, whose report, along with the Fund’s financial statements, is
included in the Fund’s annual report, which is available upon request.
AAM
Bahl & Gaynor Small/Mid Cap Income Growth ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the year/period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
| Year
Ended October 31, |
|
Period
Ended October 31, 2021(1) |
|
|
|
|
| 2023 |
| 2022 |
| |
| Net
asset value, beginning of year/period |
|
| $ |
23.01 |
|
| $ |
24.96 |
|
| $ |
25.10 |
| |
|
|
|
|
|
|
|
|
| |
|
INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
|
|
|
|
|
|
| |
|
Net
investment income (loss)(2) |
|
| 0.49 |
|
| 0.48 |
|
| 0.08 |
| |
| Net
realized and unrealized gain (loss) on investments |
|
| (1.08) |
|
| (2.01) |
|
| (0.15) |
| |
|
Total
from investment operations |
|
| (0.59) |
|
| (1.53) |
|
| (0.07) |
| |
|
|
|
|
|
|
|
|
| |
|
DISTRIBUTIONS
TO SHAREHOLDERS: |
|
|
|
|
|
|
| |
| Distributions
from: |
|
|
|
|
|
|
| |
| Net
investment income |
|
| (0.47) |
|
| (0.42) |
|
| (0.07) |
| |
| Total
distributions to shareholders |
|
| (0.47) |
|
| (0.42) |
|
| (0.07) |
| |
|
|
|
|
|
|
|
|
| |
| Net
asset value, end of year/period |
|
| $ |
21.95 |
|
| $ |
23.01 |
|
| $ |
24.96 |
| |
|
|
|
|
|
|
|
|
| |
|
Total
return |
|
| -2.60 |
% |
| -6.16 |
% |
| -0.27 |
% |
(3) |
|
|
|
|
|
|
|
|
| |
|
SUPPLEMENTAL
DATA: |
|
|
|
|
|
|
| |
| Net
assets at end of year/period (000’s) |
|
| $ |
307,786 |
|
| $ |
141,490 |
|
| $ |
6,740 |
| |
|
|
|
|
|
|
|
|
| |
|
RATIOS
TO AVERAGE NET ASSETS: |
|
|
|
|
|
|
| |
|
Expenses
to average net assets |
|
| 0.60 |
% |
| 0.60 |
% |
| 0.60 |
% |
(4) |
|
Net
investment income (loss) to average net assets |
|
| 2.10 |
% |
| 2.08 |
% |
| 1.70 |
% |
(4) |
|
Portfolio
turnover rate(5) |
|
| 19 |
% |
| 31 |
% |
| 5 |
% |
(3) |
|
|
|
|
|
| |
|
(1) |
Commencement
of operations on August 25, 2021. |
|
(2) |
Calculated
based on average shares outstanding during the period. |
|
(3) |
Not
annualized. |
|
(4) |
Annualized. |
|
(5) |
Excludes
the impact of in-kind transactions. |
AAM
BAHL & GAYNOR SMALL/MID CAP INCOME GROWTH ETF
|
|
|
|
|
|
|
|
|
|
|
| |
|
Adviser |
Advisors
Asset Management, Inc.
18925
Base Camp Road, Suite 203
Monument,
Colorado 80132 |
Transfer
Agent, Fund Accountant and Fund Administrator |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
|
Sub-Adviser |
Bahl
& Gaynor, Inc.
255
East Fifth Street, Suite 2700
Cincinnati,
Ohio 45202 |
Distributor |
Quasar
Distributors, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
|
Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004-2541 |
|
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
Wisconsin 53202 |
|
|
Investors
may find more information about the Fund in the following documents:
Statement
of Additional Information: The
Fund’s SAI provides additional details about the investments of the Fund and
certain other additional information. A current SAI dated February 28,
2024, 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 the Fund’s investments is available in the Fund’s annual
and semi-annual
reports
to shareholders and in Form N-CSR. In the annual report you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund’s performance. In Form N-CSR, you will find the Fund’s annual
and semi-annual financial statements.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at c/o U.S. Bank Global
Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or by calling
1-800-617-0004.
Shareholder
reports and other information about the Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Fund’s Internet web site at https://www.aamlive.com/ETF; or
(SEC
Investment Company Act File No. 811-22668)
