ck0001511699-20221031
V-Shares MSCI World ESG Materiality and Carbon
Transition ETF
(Trading
Symbol: VMAT)
Listed
on the CBOE BZX Exchange, Inc.
V-Shares US Leadership Diversity
ETF
(Trading
Symbol: VDNI)
Listed
on the NYSE Arca, Inc. Exchange
Prospectus
February 28,
2023
Telephone:
+1 312-872-7281
https://www.v-shares.com
Neither
the U.S. Securities and Exchange Commission (“SEC”) nor any state securities
commission has 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.
V-Shares
MSCI World ESG Materiality and Carbon Transition ETF
V-Shares
US Leadership Diversity ETF
Fund
Summary
V-Shares
MSCI World ESG Materiality and Carbon Transition ETF
Investment Objective
The V-Shares MSCI World ESG
Materiality and Carbon Transition ETF (the “MSCI World ESG Materiality Fund” or
the “Fund”) seeks to track the investment results, before fees and expenses, of
the MSCI World ESG Materiality and Carbon Transition Select Index (the “MSCI
Index”).
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. You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and example
below.
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Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
0.39% |
Distribution
and Service (Rule 12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.39% |
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 hold or sell 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:
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 Fund shares are held in a taxable
account at the shareholder level. These costs, which are not reflected in annual
fund operating expenses or in the example above, affect the Fund’s performance.
During the most recent fiscal period from the Fund’s inception on June 8, 2022
through October 31, 2022, the Fund’s portfolio turnover rate was 0% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund seeks to track the investment results, before fees and expenses, of the
MSCI World ESG Materiality and Carbon Transition Select Index (the “MSCI
Index”), which was developed by MSCI Inc. (the “MSCI Index Provider” or “MSCI”).
V-Square Quantitative Management, LLC (the “Adviser”) uses a “passive” or
indexing approach to try to achieve the Fund’s investment objective. Under
normal market conditions, the Fund will invest at least 80% of its net assets
(plus borrowings for investment purposes) in companies included in the MSCI
Index. The MSCI Index is designed to represent the performance of the equity
securities of companies in developed markets, including the United States and
Canada, assessed to be sector leaders in the global transition to low carbon
emissions.
As
of the date of this prospectus, the MSCI Index consisted of securities of
companies in 23 different countries throughout the world, including the United
States and Canada. The MSCI Index includes all eleven sectors represented in its
parent index, the MSCI World Index. The relative sector weightings that are
represented in the MSCI Index are determined as a result of the portfolio
construction process described below. As of January 31, 2023, approximately 55%
the MSCI Index’s market capitalization (“market cap”) was allocated to companies
incorporated in the United States.
The
assessment to identify sector leaders in the global transition to low carbon
emissions is based on a set of environmental, social, and governance (“ESG”) key
issues, as determined by the MSCI Index Provider that are aligned with the
“Materiality Map” of the Sustainability Accounting Standard Board (“SASB”),
which attempts to identify ESG issues that are financially material to an issuer
based on its industry classification. The MSCI Index is comprised of a subset of
the constituents of the MSCI World Index (the “MSCI Index Universe”), which
captures large- and mid-cap companies in developed markets representing
approximately 85% of the free float-adjusted market cap in countries determined
to be developed markets by the MSCI Index Provider. As of January 31, 2023, the
MSCI Index included approximately 556 component securities.
MSCI
Index Construction Process
Step
1 – Exclusions
Companies
in the MSCI Index Universe are excluded from the MSCI Index if they meet any of
the following criteria:
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Controversial
Weapons |
All
companies involved in Controversial Weapons as defined by the methodology
of the MSCI Ex-Controversial Weapons Indexes. For example, companies are
excluded for involvement in cluster bombs, landmines, depleted uranium
weapons, chemical and biological weapons, blinding laser weapons,
non-detectable fragments, and incendiary weapons. |
Tobacco |
All
companies deriving 5% or more of their revenue from the production of
tobacco related products or 15% or more of their revenue from the
production, distribution, retail, supply, and licensing of tobacco-related
products. |
Thermal
Coal Mining |
All
companies deriving 5% or more of their revenue from the mining of thermal
coal (including lignite, bituminous, anthracite and steam coal) and its
sale to external parties, excluding revenue from metallurgical coal, coal
mined for internal power generation (e.g., in
the case of vertically integrated power producers), intracompany sales of
mined thermal coal, and revenue from coal trading (either reported or
estimated). |
Thermal
Coal Power |
All
companies deriving 5% or more of their revenue (either reported or
estimated) from thermal coal-based power generation. |
Unconventional
Oil & Gas |
All
companies deriving 5% or more of their revenue from unconventional oil
& gas, including revenue from oil sands, oil shale (kerogen-rich
deposits), shale gas, shale oil, coal seam gas, and coal bed
methane. |
Asset
Stranding |
All
companies classified in the Low Carbon Transition (LCT) category of Asset
Stranding. This represents the potential for companies to experience
“stranding,” referring to unanticipated or premature write-downs, of
physical/natural assets due to regulatory, market, or technological forces
arising from low carbon transition. For example, companies with assets
tied to fossil fuels that are facing the impact of changes associated with
decarbonizing the economy. |
United
Nations Global Compact Principles |
All
companies that fail to comply with the United Nations Global Compact
Principles, which includes fundamental responsibilities in four areas:
human rights, labor, environment, and anti-corruption.
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Step
2 – Ranking
Each
of the remaining companies in the MSCI Index Universe (collectively, the
“Eligible Companies”) is then ranked within its sector based on the company’s
“SASB-aligned ESG Score,” which is a proprietary scoring methodology maintained
by the MSCI Index Provider. The SASB-aligned ESG Score for a company reflects
the weighted average of a set of relevant “Key Issue Scores,” calculated by the
MSCI Index Provider, that are aligned with SASB’s Materiality Map. Key Issue
Scores applicable to a company are based on key issues relevant to the company’s
sub-industry. For example, a company in the airlines sub-industry is scored
based on the Key Issues of governance, carbon emissions, labor management, and
product safety and quality, while a company in the consumer finance sub-industry
is scored based on the key issues of consumer financial protection and privacy
and data security. If two companies have the same SASB-aligned ESG score, then
the company with the larger market cap receives the higher rank.
Step
3 – Selection
At
each annual reconstitution of the MSCI Index, companies are selected for
inclusion in the MSCI Index sector by sector based on their in-sector ranking
and on the following order of priority within each sector until the cumulative
market cap of a particular sector reaches 40% of the cumulative market cap of
Eligible Companies in that sector:
1.Eligible
Companies with market caps within the top 25% of the cumulative market cap of
the applicable sector are added in the order of in-sector rank;
2.Current
index constituents with market caps within the top 50% of the cumulative market
cap of the applicable sector are included in the order of in-sector rank;
and
3.The
remaining Eligible Companies in the applicable sector are added in the order of
in-sector rank.
Step
4 – Weighting
Companies
selected for inclusion in the MSCI Index are then weighted based on the product
of their market cap weight in the MSCI Index Universe and a “Tilt Score” based
on the company’s Low Carbon Transition (“LCT”) category. Low carbon transition
refers to the global transition to a low carbon economy. The LCT category for
each company is determined by MSCI ESG Research’s Low Carbon Transition Risk
assessment, which is designed to identify potential leaders and laggards by
holistically measuring companies’ exposure to and management of risks and
opportunities related to the low carbon transition. Specifically, the LCT
category groups companies into one of five categories that highlight the
predominant risks and opportunities they are most likely to face in the
transition. The table below lists the four categories that are used for the Tilt
Score (companies in the Asset Stranding category are excluded from the MSCI
Index). A higher Tilt Score results in a higher weighting in the MSCI Index.
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LCT
Category |
LCT
Risk/Opportunity |
Sample
industries |
Tilt
Score |
Product
Transition |
Reduced
demand for carbon-intensive products and services. Leaders and laggards
are defined by the ability to shift product portfolio to low-carbon
products. |
Oil
& gas exploration & production; Petrol/diesel based automobile
manufacturers, thermal power plant turbine manufacturers |
0.5 |
Operational
Transition |
Increased
operational and/or capital cost due to carbon taxes and/or investment in
carbon emission mitigation measures leading to lower profitability of the
companies. |
Fossil
fuel based power generation, cement, steel |
0.75 |
Neutral |
Limited
exposure to low carbon transition carbon risk, though companies could have
exposure to physical risk and/or, for instance in the case of financial
services companies, indirect exposure to low carbon transition risk via
lending or investment, for example. |
Financial
services, consumer staples, healthcare |
1 |
Solutions |
Potential
to benefit through the growth of low-carbon products and
services. |
Renewable
electricity, electric vehicles, solar cell manufacturers |
2 |
After
the application of the Tilt Score, the weights of securities in the MSCI Index
are normalized so that the sector weights in the MSCI Index are the same as they
would have been absent the application of the Tilt Score.
The
MSCI Index is reconstituted and rebalanced annually in May. At each
reconstitution of the MSCI Index, the weights of individual securities are
capped at 10%.
Unlike
many investment companies, the Fund does not try to “beat” the index it tracks
and does not seek temporary defensive positions when markets decline or appear
overvalued. Indexing may eliminate the chance that the Fund will substantially
outperform the MSCI Index but also may reduce some of the risks of active
management, such as poor security selection. Indexing seeks to achieve lower
costs and better after-tax performance by aiming to keep portfolio turnover low
in comparison to actively managed investment companies. The Fund uses a full
replication methodology when practical to manage the Fund. The Fund may lend
securities representing up to one-third of the value of the Fund’s total assets
(including the value of any collateral received).
The
MSCI Index is sponsored by MSCI, which is independent of the Fund and the
Adviser. The MSCI Index Provider determines the composition and relative
weightings of the securities in the MSCI Index and publishes information
regarding the market value of the MSCI Index. The Fund will not concentrate its
investments in an industry or group of industries (i.e., hold 25% or more of its
total assets in the securities of companies in a particular industry or group of
industries), except to the extent that the MSCI Index concentrates in a
particular industry or group of industries. No such concentration existed as of
January 31, 2023.
The Fund is classified as “non-diversified”
under the Investment Company Act of 1940, as amended, which means that it may
focus its investments in the securities of relatively few
issuers.
Principal Risks
As with all funds, a shareholder of the Fund is subject
to the risk that his or her investment could lose money. The
principal risks affecting shareholders’ investments in the Fund are set forth
below. An investment in the Fund is not a
bank deposit and is not insured or guaranteed by the FDIC or any government
agency.
Low
Carbon Transition Investment Strategy Risk.
The Fund’s strategy of investing in securities of companies participating in the
opportunities and the management of risks associated with the global transition
to low carbon emissions limits the type and number of investment opportunities
available to the Fund and, as a result, the Fund may underperform other funds
that do not seek to minimize carbon exposure. The Fund’s low carbon transition
investment strategy may result in the Fund investing in securities or industry
sectors that underperform the market.
General
Market Risk.
The Fund is subject to the risk that it will not achieve its investment
objective and that the value of an investment in its securities could decline
substantially and cause you to lose some or all of your investment. The Fund’s
net asset value (“NAV”) and investment return will fluctuate based upon changes
in the value of its portfolio securities. Certain securities in the Fund’s
portfolio may be worth less than the price originally paid for them, or less
than they were worth at an earlier time.
Equity
Securities 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 industries, sectors, geographic markets, or companies 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, recessions, rising inflation, or other events could have a
significant negative impact on the Fund and its investments.
ESG
Risk.
Applying ESG criteria to the investment process may exclude securities of
certain issuers for non-investment reasons and therefore the Fund may forgo some
market opportunities available to funds that do not use ESG criteria. In
addition, ESG information and scores across third-party data providers, indices,
and other funds may differ and/or be incomparable.
Non-U.S.
Securities Risk.
Investments in securities of non-U.S. issuers involve risks not ordinarily
associated with investments in securities and instruments of U.S. issuers,
including risks relating to political, social, and economic developments abroad,
differences between U.S. and foreign regulatory and accounting requirements, tax
risks, and market practices, as well as fluctuations in foreign currencies. To
the extent that the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region.
Newer
Fund Risk.
The Fund has a limited operating history and there can be no assurance that the
Fund will grow to, or maintain, an economically viable size, in which case the
Board of the Trust may determine to liquidate the Fund.
Mid-Cap
Companies Risk.
Companies defined as mid-cap securities may involve greater risk than is
normally associated with large cap companies, and as a result may be more
volatile and less liquid than the securities of large-cap companies, and may
have returns that vary substantially from the overall securities markets.
Large-Cap
Company Risk.
The Fund's investment in larger companies is subject to the risk that larger
companies are sometimes unable to attain the high growth rates of successful,
smaller companies, especially during extended periods of economic
expansion.
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.
•Cash
Redemption Risk.
The Fund’s investment strategy may require it to redeem shares for cash or to
otherwise include cash as part of its redemption proceeds. The Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used.
•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, there are likely to be deviations
between the current price of a security and the security’s last quoted price
from the closed foreign market. This may result in premiums and discounts that
are greater than those experienced by domestic ETFs.
•Trading.
Although shares are listed for trading on the CBOE BZX Exchange, Inc. (the “CBOE
Exchange”) and may be traded on U.S. exchanges other than the CBOE 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.
Passive
Investment Risk.
The Fund is not actively managed and therefore the Fund generally will not sell
a security due to current or projected underperformance of a security, industry
or sector, unless that security is removed from the MSCI Index or the selling of
the security is otherwise required upon a rebalancing of the MSCI Index.
New
Index Risk.
The MSCI Index is recently constituted and therefore there is uncertainty about
how the MSCI Index may operate in various market conditions in response to
financial, geopolitical or other shocks.
Tracking
Error Risk. There
is no guarantee that the Fund will achieve a high degree of correlation to the
MSCI Index and therefore achieve its investment objective. The Fund’s return may
not match the return of its MSCI Index for a number of reasons, including
differences between the securities held in the Fund’s portfolio and those
included in the MSCI Index, pricing differences, transaction costs, the Fund’s
holding of cash, differences in timing of the accrual of distributions, changes
to the MSCI Index or the need to meet various new or existing regulatory
requirements. This risk may be heightened during times of increased market
volatility or other unusual market conditions, or due to delays of the Fund in
purchasing and selling securities. Tracking error also may result because the
Fund incurs fees and expenses, while the MSCI Index does not.
Non-Diversification
Risk.
The Fund is classified as “non-diversified,”
which means the Fund may invest a larger percentage of its assets in the
securities of a smaller number of issuers than a diversified
fund.
Legal
and Regulatory Change Risks. The
regulatory environment for investment companies is evolving, and changes in
regulation may adversely affect the value of the Fund’s investments and its
ability to pursue its trading strategy. The effect of any future regulatory
change on the Fund could be substantial and adverse.
Methodology
Risks.
The MSCI Index Provider relies on various sources of information to assess the
criteria of issuers included in the MSCI Index, including information that may
be based on assumptions and estimates. Neither the Fund nor the MSCI Index
Provider can offer assurances that MSCI Index’s calculation methodology or
sources of information will provide an accurate assessment of included issuers
or that the included issuers will provide the Fund with the market exposure it
seeks. In addition, the MSCI Index’s methodology incorporates data and scores
provided by third-parties which may be unavailable or limited for certain
issuers, which could result in the MSCI Index not achieving its objective.
Developed
Markets Risk.
Developed market countries generally tend to rely on the services sectors (e.g.,
the financial services sector) as the primary source of economic growth and may
be susceptible to the risks of individual service sectors. Many developed market
countries have heavy indebtedness, which may lead downward pressure on the
economies of these countries. As a result, it is possible that interest rates on
debt of certain developed countries may rise to levels that make it difficult
for such countries to service high debt levels without significant help from
other countries or from a central bank. Developed market countries generally are
dependent on the economies of certain key trading partners. Changes in any one
economy may cause an adverse impact on several developed countries.
Epidemic
Risk.
Widespread disease, including pandemics and epidemics have been and can be
highly disruptive to economies and markets, adversely impacting individual
companies, sectors, industries, markets, currencies, interest and inflation
rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Given the increasing interdependence among global
economies and markets, conditions in one country, market, or region are
increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. These disruptions could
prevent the Fund from executing advantageous investment decisions in a timely
manner and negatively impact the Fund’s ability to achieve their investment
objectives. Any such event(s) could have a significant adverse impact on the
value and risk profile of the Fund.
Performance
Information
The Fund is new and therefore does not have a
performance history for a full calendar year. In the future,
performance information for the Fund will be present in this section. Updated
performance is also available on the Fund’s website at https://www.v-shares.com.
The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future.
Investment
Adviser and Sub-Adviser
V-Square
Quantitative Management, LLC (“V-Square” or the “Adviser”) serves as the
investment adviser to the Fund. Vident Investment Advisory, LLC (“VIA” or the
“Sub-Adviser”) serves as sub-adviser to the Fund.
Portfolio
Managers
The
Fund is managed by the Sub-Adviser’s portfolio management team. Austin Wen, CFA,
Portfolio Manager of VIA, and Rafael Zayas, CFA, SVP, Head of Portfolio
Management and Trading of VIA, have each been a portfolio manager of the Fund
since its inception in 2022.
Purchase
and Sale of Fund Shares
The
Fund will issue (or redeem) shares to certain institutional investors (typically
market makers or other broker-dealers) only in blocks of shares known as
“Creation Units.” Creation Unit transactions are typically conducted in exchange
for the deposit or delivery of in-kind securities and/or cash constituting a
substantial replication, or a representation, of the securities included in the
relevant benchmark index. Individual shares may only be purchased and sold on a
national securities exchange through a broker-dealer. You can purchase and sell
individual shares of the Fund throughout the trading day like any publicly
traded security. The Fund’s shares are listed on the CBOE Exchange. The price of
the Fund’s shares is based on market price, and because exchange-traded fund
shares trade at market prices rather than NAV, the Fund’s shares may trade at a
price greater than NAV (premium) or less than NAV (discount). Except
when aggregated in Creation Units, the Fund’s shares are not redeemable
securities.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase shares of the Fund (bid) and the lowest price a
seller is willing to accept for shares of the Fund (ask) when buying or selling
shares of the Fund 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
https://www.v-shares.com.
Tax
Information
Distributions
made by the Fund may be taxable as ordinary income, or capital gains, unless you
are a tax-exempt organization or are investing through a tax-advantaged
arrangement, such as a 401(k) plan or individual retirement account. Any
withdrawals made from such tax-advantaged arrangement generally will be taxable
to you as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Adviser and its related companies may pay the
intermediary for the sale of shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your financial intermediary’s web site for more
information.
V-Shares
US Leadership Diversity ETF
Investment Objective
The V-Shares US Leadership
Diversity ETF (the “US Leadership Diversity Fund” or the “Fund”) seeks to track
the investment results of the ISS ESG U.S. Diversity Index (the “ISS Index”),
which is composed of U.S. large, mid, and small capitalization stocks of
companies exhibiting broad ethnic and gender representation for Directors and
Named Executive Officers (NEO), as determined by Institutional Shareholder
Services, Inc. (the “ISS Index Provider” or “ISS”).
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. You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and example
below.
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Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
0.29% |
Distribution
and Service (Rule 12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.29% |
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 sell 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 |
$30 |
$93 |
$163 |
$368 |
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 Fund shares are held in a taxable
account at the shareholder level. These costs, which are not reflected in annual
fund operating expenses or in the example above, affect the Fund’s performance.
During the most recent fiscal period from the Fund’s inception on December 21,
2021, through October 31, 2022, the Fund’s portfolio turnover rate was
13% of the average value of its
portfolio.
Principal Investment
Strategies
The Fund seeks to track the
investment results of the ISS Index.
The
ISS Index is a free float-adjusted market capitalization weighted equity index
designed to reflect the equity performance of U.S. companies exhibiting broad
ethnic and gender representation for Directors and Named Executive Officers
(NEO), as determined by the ISS Index Provider. The ISS Index is calculated,
administered, and published by Solactive AG (“Solactive”) assuming the role as
administrator (the “Index Administrator”). From time to time, the Index, and as
a result the Fund, may focus its investments in securities of companies in the
same economic sector, including the Information Technology sector. As of
December 31, 2022, approximately 33% of the Fund consists of companies in the
Information Technology sector.
The
ISS Index is calculated as a price return, net total return and gross total
return index. A price return index reflects the market price movements
disregarding any payments made in respect of the index components, such as
ordinary cash dividends. A net total return index calculation considers
payments, such as dividends, after the deduction of any withholding tax, and a
gross total return index considers payments made in respect of the index
components without the deduction of any withholding tax.
The
index universe is comprised of U.S. large, mid, and small capitalization
companies’ stocks listed on an exchange in the U.S. The index universe is
described in detail in the guideline of the Solactive Global Benchmark Series
(https://solactive.com/downloads/Guideline-Solactive-GBS-Benchmark-Series.pdf).
The determination of the index universe is fully rule-based, and the Index
Administrator cannot make any discretionary decisions.
As
of December 31, 2022, the ISS Index includes approximately 624 component
securities. V-Square Quantitative Management (the “Adviser”) uses a “passive” or
indexing approach to try to achieve the Fund’s investment objective.
Unlike
many investment companies, the Fund does not try to “beat” the index it tracks
and does not seek temporary defensive positions when markets decline or appear
overvalued. Indexing may eliminate the chance that the Fund will substantially
outperform the ISS Index but also may reduce some of the risks of active
management, such as poor security selection. Indexing seeks to achieve lower
costs and better after-tax performance by aiming to keep portfolio turnover low
in comparison to actively managed investment companies. The Fund uses a full
replication methodology when practical to manage the Fund. The Fund seeks to
track the investment results of the ISS Index before fees and expenses of the
Fund. The Fund may lend securities representing up to one-third of the value of
the Fund’s total assets (including the value of any collateral received). The
ISS Index is sponsored by ISS, which is independent of the Fund and of the
Adviser. The Index Administrator determines the composition and relative
weightings of the securities in the ISS Index and publishes information
regarding the market value of the ISS Index.
Based
on the index universe, the initial composition of the index as well as any
selection for an ordinary rebalance is determined on the selection day and based
on the ISS ESG Director & Executive Diversity dataset provided by ISS. All
companies for which an evaluation based on the dataset is not possible due to
insufficient and/or missing information or data are excluded. The index includes
securities from the index universe that are issued by companies that meet all
four of the below criteria:
1.Company
is a U.S. Company.
2.Company’s
Board has a 35% combined minimum of women or ethnically diverse Directors.
3.Company
has a combined minimum of three distinct ethnically diverse individuals among
Directors or Named Executive Officers, or a minimum of two such individuals if
the CEO or Board Chair is ethnically diverse.
4.Company
has a combined minimum of three distinct women among Directors or Named
Executive Officers, or a minimum of two women if the CEO or Board Chair is a
woman.
The
ISS Index is premised on the notion that general diversity among an
organization’s workforce is a matter that is effectively promoted and
implemented down the ranks of the company from the top, with the goal being to
achieve effective diversity and inclusion at the whole workforce level. The
research reported by ISS ESG and others has consistently confirmed that focusing
on diversity at the senior leadership level allows firms to effectively achieve
the outcome of diversity and inclusion in general.
The
selection of the index components is fully rule-based, and the Index
Administrator cannot make any discretionary decision. On each selection day,
each index component is assigned a weight according to its free float market
capitalization. Individual index component weights are capped at 9.5%. The
excess weight is distributed proportionally across the remaining constituents.
For example, if an individual index component weight is 10.5%, the excess weight
over the 9.5% cap is 1%. This excess weight is to be distributed to the
remaining index components representing a total of 89.5%. It is allocated
proportionally, in such a manner that the remaining index individual components’
weights are proportionally increased and sum to 90.5%.
The
ISS Index is adjusted on the rebalance day after close of business to reflect
the new selection of the index components determined on the selection day. The
selection day is the day when the index revised composition is determined. The
selection day is 20 calculation days before the actual rebalance days. A
calculation day is every weekday from Monday to Friday. The rebalance day is the
day when the index new composition (determined on the selection day) is
implemented. The rebalance day is the first Wednesday in May and November. If
that day is not an eligible rebalance day, the rebalance day will be the
immediately following eligible rebalance day. An eligible rebalance day is each
day that is a trading day at the New York Stock Exchange, the London Stock
Exchange, the EUREX Exchange, and the Tokyo Stock Exchange. As a summary, the
index new composition is determined approximately four weeks ahead of rebalance
day, and the index is adjusted on rebalance day. The components of the ISS Index
are likely to change over time.
The
Fund intends to be diversified in approximately the same proportion as the ISS
Index is diversified. The Fund may become “non-diversified,” as defined in the
1940 Act, solely as a result of a change in relative market capitalization or
index weighting of one or more constituents of the ISS Index. A
“non-diversified” fund generally invests a greater proportion of its assets in
the securities of one or more issuers and invests overall in a smaller number of
issuers than a diversified fund. Shareholder approval will not be sought if the
Fund becomes non-diversified due solely to a change in the relative market
capitalization or index weighting of one or more constituents of the ISS
Index.
Principal Risks
As with all funds, a shareholder of the Fund is subject
to the risk that his or her investment could lose money. The
principal risks affecting shareholders’ investments in the Fund are set forth
below. An investment in the Fund is not a
bank deposit and is not insured or guaranteed by the FDIC or any government
agency.
General
Market Risk. The
Fund is subject to the risk that it will not achieve its investment objective
and that the value of an investment in its securities could decline
substantially and cause you to lose some or all of your investment. The Fund’s
net asset value (“NAV”) and investment return will fluctuate based
upon
changes in the value of its portfolio securities. Certain securities in the
Fund’s portfolio may be worth less than the price originally paid for them, or
less than they were worth at an earlier time.
Equity
Securities 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 industries, sectors, geographic markets, or companies 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, recessions, rising inflation, or other events could have a
significant negative impact on the Fund and its investments.
Investment
Focus Risk.
Because the ISS Index is composed only of U.S. companies that exhibit broad
ethnic and gender representation, there is a risk that companies included in the
ISS Index may underperform companies that are not part of the ISS
Index.
Newer
Fund Risk.
The Fund has a limited operating history and there can be no assurance that the
Fund will grow to, or maintain, an economically viable size, in which case the
Board of the Trust may determine to liquidate the Fund
Mid-Cap
and Small-Cap Companies Risk. Companies
defined as small and mid-cap securities may involve greater risk than is
normally associated with large cap companies, and as a result may be more
volatile and less liquid than the securities of large-cap companies, and may
have returns that vary substantially from the overall securities markets.
Large-Cap
Company Risk. The
Fund's investment in larger companies is subject to the risk that larger
companies are sometimes unable to attain the high growth rates of successful,
smaller companies, especially during extended periods of economic
expansion.
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.
•Cash
Redemption Risk.
The Fund’s investment strategy may require it to redeem shares for cash or to
otherwise include cash as part of its redemption proceeds. The Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used.
•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, there are
likely to be deviations between the current price of a security and the
security’s last quoted price from the closed foreign market. This may result in
premiums and discounts that are greater than those experienced by domestic
ETFs.
•Trading.
Although shares are listed for trading on the NYSE Arca, Inc. Exchange. (the
“NYSE Exchange”) and may be traded on U.S. exchanges other than the NYSE
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.
Information
Technology Sector Risk.
Market or economic factors impacting technology companies and companies that
rely heavily on technological advances could have a major effect on the value of
the Fund's investments. The value of stocks of technology companies and
companies that rely heavily on technology is particularly vulnerable to rapid
changes in technology product cycles, rapid product obsolescence, government
regulation and competition, both domestically and internationally, including
competition from foreign competitors with lower production costs. Stocks of
technology companies and companies that rely heavily on technology, especially
those of smaller, less-seasoned companies, tend to be more volatile than the
overall market. Technology companies are heavily dependent on patent and
intellectual property rights, the loss or impairment of which may adversely
affect profitability. Additionally, companies in the technology sector may face
dramatic and often unpredictable changes in growth rates and competition for the
services of qualified personnel.
Passive
Investment Risk.
The Fund is not actively managed and therefore the Fund generally will not sell
a security due to current or projected underperformance of a security, industry
or sector, unless that security is removed from the ISS Index or the selling of
the security is otherwise required upon a rebalancing of the ISS Index.
Tracking
Error Risk. There
is no guarantee that the Fund will achieve a high degree of correlation to the
ISS Index and therefore achieve its investment objective. The Fund’s return may
not match the return of its ISS Index for a number of reasons, including
differences between the securities held in the Fund’s portfolio and those
included in the ISS Index, pricing differences, transaction costs, the Fund’s
holding of cash, differences in timing of the accrual of distributions, changes
to the ISS Index or the need to meet various new or existing regulatory
requirements. Consequently, the performance of the Fund may diverge from that of
its ISS Index. This risk may be heightened during times of increased market
volatility or
other
unusual market conditions, or due to delays of the Fund in purchasing and
selling securities. Tracking error also may result because the Fund incurs fees
and expenses, while the ISS Index does not.
Legal
and Regulatory Change Risks. The
regulatory environment for investment companies is evolving, and changes in
regulation may adversely affect the value of the Fund’s investments and its
ability to pursue its trading strategy. The effect of any future regulatory
change on the Fund could be substantial and adverse.
Methodology
Risks. The
ISS Index Provider relies on various sources of information to assess the
criteria of issuers included in the ISS Index, including information that may be
based on assumptions and estimates. Neither the Fund nor the ISS Index Provider
can offer assurances that ISS Index’s calculation methodology or sources of
information will provide an accurate assessment of included issuers or that the
included issuers will provide the Fund with the market exposure it seeks. In
addition, the ISS Index’s methodology incorporates data and scores provided by
third-parties which may be unavailable or limited for certain issuers, which
could result in the ISS Index not achieving its objective.
Epidemic
Risk.
Widespread disease, including pandemics and epidemics have been and can be
highly disruptive to economies and markets, adversely impacting individual
companies, sectors, industries, markets, currencies, interest and inflation
rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Given the increasing interdependence among global
economies and markets, conditions in one country, market, or region are
increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. These disruptions could
prevent the Fund from executing advantageous investment decisions in a timely
manner and negatively impact the Fund’s ability to achieve their investment
objectives. Any such event(s) could have a significant adverse impact on the
value and risk profile of the Fund.
Change
in Diversification Status.
In seeking to track its ISS Index, the Fund may become non-diversified as a
result of a change in relative market capitalization or index weighting of one
or more constituents of the ISS Index. In such circumstances, the Fund may be
more sensitive to economic, business, political or other changes affecting
individual issuers or investments than a diversified fund, which may negatively
impact the Fund’s performance and result in greater fluctuation in the value of
the Fund’s shares.
Performance
Information
The accompanying bar chart and table provide
some indication of the risks of investing in the Fund by showing how the Fund’s
total return has varied from year-to-year. Below the bar chart
are the Fund’s highest and lowest quarterly returns during the period shown in
the bar chart. The performance table that follows
shows the Fund’s average annual total returns over time compared with
broad-based securities market indices. Past performance (before and
after taxes) will not necessarily continue in the future.
Updated performance information is available on the Fund’s website at
https://www.v-shares.com.
Calendar Year Total Returns as of December
31:
|
|
|
|
|
|
|
|
|
|
| |
Best
Quarter |
Worst
Quarter |
Q4, 2022 |
8.38% |
Q2, 2022 |
-15.70% |
|
|
|
|
|
|
|
| |
Average Annual Total Returns for the
periods ended December 31, 2022 |
| One
Year |
Since
Inception
(12/21/2021) |
Institutional
Class |
| |
Return Before
Taxes |
-18.88% |
-14.97% |
Return After Taxes on
Distributions |
-19.15% |
-15.25% |
Return After Taxes on Distributions and
Sale of Fund Shares |
-10.98% |
-11.40% |
ISS
ESG U.S. Diversity Index
(reflects no deduction for
fees, expenses or taxes) |
-18.75% |
-14.82% |
S&P
500®
Index (reflects no deduction for fees, expenses or
taxes) |
-18.11% |
-14.13% |
After tax returns are
calculated using the historical highest individual federal marginal income tax
rates and do not reflect the impact of state and local taxes.
Actual after-tax returns depend on your situation and may differ from those
shown. In certain cases, the figure
representing Return After Taxes on Distributions and Sale of Fund Shares may be
higher than the other return figures for the same period. A higher after-tax
return results when a capital loss occurs upon redemption and provides an
assumed tax deduction that benefits the investor. Furthermore, the after-tax
returns shown are not relevant to those who hold their shares through
tax-advantaged arrangements such as 401(k) plans or individual retirement
accounts (“IRAs”).
Investment
Adviser and Sub-Adviser
V-Square
Quantitative Management, LLC (“V-Square” or the “Adviser”) serves as the
investment adviser to the Fund. Vident Investment Advisory, LLC (“VIA”, the
“Sub-Adviser”) serves as sub-adviser to the Fund.
Portfolio
Managers
The
Fund is managed by the Sub-Adviser’s portfolio management team. The individual
members of the team jointly and primarily responsible for the day-to-day
management of the Fund’s portfolio are described below. Primary responsibility
for the day-to-day management of the Fund’s portfolio is the joint
responsibility of a team of portfolio managers consisting of Austin Wen, CFA,
Portfolio Manager of VIA, and Rafael Zayas, CFA, SVP, Head of Portfolio
Management and Trading of VIA, and each has managed the Fund since its inception
in 2021.
Purchase
and Sale of Fund Shares
The
Fund will issue (or redeem) shares to certain institutional investors (typically
market makers or other broker-dealers) only in blocks of shares known as
“Creation Units.” Creation Unit transactions are typically conducted in exchange
for the deposit or delivery of in-kind securities and/or cash constituting a
substantial replication, or a representation, of the securities included in the
relevant benchmark index. Individual shares may only be purchased and sold on a
national securities exchange through a broker-dealer. You can purchase and sell
individual shares of the Fund throughout the trading day like any publicly
traded security. The Fund’s shares are listed on the NYSE Exchange. The price of
the Fund’s shares is based on market price, and because exchange-traded fund
shares trade at market prices rather than NAV, the Fund’s shares may trade at a
price greater than NAV (premium) or less than NAV (discount). Except
when aggregated in Creation Units, the Fund’s shares are not redeemable
securities.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase shares of the Fund (bid) and the lowest price a
seller is willing to accept for shares of the Fund (ask) when buying or selling
shares of the Fund 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
v-shares.com.
Tax
Information
Distributions
made by the Fund may be taxable as ordinary income, or capital gains, unless you
are a tax-exempt organization or are investing through a tax-advantaged
arrangement, such as a 401(k) plan or individual retirement account. Any
withdrawals made from such tax-advantaged arrangement generally will be taxable
to you as ordinary income.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Adviser and its related companies may pay the
intermediary for the sale of shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your financial intermediary’s web site for more
information.
Additional
Fund Information
Investment
Objectives
The
investment objective of the MSCI World ESG Materiality Fund
has
been adopted as a non-fundamental investment policy and may be changed without
shareholder approval upon written notice to shareholders.
The
investment objective of the US Leadership Diversity Fund is to seek to track the
investment results of an index composed of U.S. large, mid, and small
capitalization stocks of companies exhibiting broad ethnic and gender
representation for Directors and Named Executive Officers (NEO), as determined
by the index provider.
The
MSCI World ESG Materiality Fund and US Leadership Diversity Fund may be referred
to individually herein as a “Fund” or collectively herein as the
“Funds.”
Additional
Information About the Principal Investment Strategies
MSCI
World ESG Materiality Fund
The
MSCI Index may include companies in the following countries: Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel,
Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain,
Sweden, Switzerland, the United Kingdom, and the United States.
Under
normal market conditions, the Fund will invest at least 80% of its net assets
(plus borrowings for investment purposes) in companies included in the MSCI
Index. If the Fund changes this 80% policy, it will provide Fund shareholders
with 60 days’ notice in advance of such change.
As
of the date of this prospectus, the MSCI Index consisted of securities of
companies in 23 different countries throughout the world, including the United
States and Canada. The MSCI Index includes all eleven sectors represented in its
parent index, the MSCI World Index. The relative sector weightings that are
represented in the MSCI Index are determined as a result of the portfolio
construction process described below.
The
Fund, using an “indexing” investment approach, seeks to track the investment
results, before fees and expenses, of the MSCI Index. A number of factors may
affect the Fund’s ability to achieve a high correlation with the MSCI Index,
including Fund expenses, differences between the securities held in the Fund’s
portfolio and those included in the MSCI Index, the timing or magnitude of
changes to the composition of the MSCI Index, regulatory policies, and high
portfolio turnover rate. There can be no guarantee that the Fund will achieve a
high degree of correlation with the MSCI Index.
The
Adviser or Sub-Adviser may sell securities that are represented in the MSCI
Index or purchase securities not yet represented in the MSCI Index, in
anticipation of their removal from or addition to the MSCI Index. The Fund seeks
to achieve a correlation between its performance, before fees and expenses, and
its MSCI Index of 0.95 or better. A correlation of 1.00 would represent perfect
correlation. The Fund seeks to replicate the component securities of the MSCI
Index as closely as possible. However, under certain circumstances, it may not
be possible or practicable to replicate the MSCI Index. In these instances, the
Fund may purchase a representative sample of the component securities of the
MSCI Index. There may also be instances in which the Adviser or Sub-Adviser may
choose to overweight or underweight securities represented in the MSCI Index.
Additionally, the Adviser or Sub-Adviser may purchase or sell securities not in
the MSCI Index if the Adviser or Sub-Adviser believes such securities are
appropriate to substitute for certain securities in the Fund’s MSCI Index. The
Adviser or Sub-Adviser may utilize various combinations of other available
investment techniques in seeking to track the MSCI Index.
The
Fund is classified as “non-diversified” under the Investment Company Act of
1940, as amended, which means that it may focus its investments in the
securities of relatively few issuers.
US
Leadership Diversity Fund
The
Fund will normally invest at least 80% of its net assets, plus the amount of any
borrowings for investment purposes, in the types of securities suggested by its
name (i.e.,
V-Shares US Leadership Diversity ETF).
If the Fund changes this 80% policy, it will provide Fund shareholders with 60
days’ notice in advance of such change. The Fund anticipates meeting this 80%
policy because, under normal circumstances, at least 80% of the Fund’s total
assets will be invested in component securities of its ISS Index.
The
Fund, using an “indexing” investment approach, seeks to track the investment
results, before fees and expenses, of its ISS Index. A number of factors may
affect the Fund’s ability to achieve a high correlation with its ISS Index,
including Fund expenses, differences between the securities held in the Fund’s
portfolio and those included in the ISS Index, the timing or magnitude of
changes to the composition of its ISS Index, regulatory policies, and high
portfolio turnover rate. There can be no guarantee that the Fund will achieve a
high degree of correlation with the ISS Index.
The
Adviser or Sub-Adviser may sell securities that are represented in the ISS Index
or purchase securities not yet represented in the ISS Index, in anticipation of
their removal from or addition to the ISS Index. The Fund seeks to achieve a
correlation between its performance, before fees and expenses, and its ISS Index
of 0.95 or better. A correlation of 1.00 would represent perfect correlation.
The Fund seeks to replicate the component securities of their ISS Index as
closely as possible. However, under certain circumstances, it may not be
possible or practicable to replicate the ISS Index. In these instances, the Fund
may purchase a representative sample of the component securities of the ISS
Index. There may also be instances in which the Adviser or Sub-Adviser may
choose to overweight or underweight securities represented in the ISS Index.
Additionally, the Adviser or Sub-Adviser may purchase or sell securities not in
the ISS Index if the Adviser or Sub-Adviser believe such securities are
appropriate to substitute for certain securities in a Fund’s ISS Index. The
Adviser or Sub-Adviser may utilize various combinations of other available
investment techniques in seeking to track the ISS Index.
As
a result of its investments, the Fund’s distributions for any taxable year may
exceed its earnings and profits, as determined for U.S. federal income tax
purposes. For a given taxable year, fund distributions, if any, that exceed
earnings and profits may be treated as a return of capital to
shareholders.
The
Fund intends to be diversified in approximately the same proportion as its
corresponding ISS Index is diversified. The Fund may become “non-diversified,”
as defined in the 1940 Act, solely as a result of a change in relative market
capitalization or index weighting of one or more constituents of the ISS Index.
A “non-diversified” fund generally invests a greater proportion of its assets in
the securities of one or more issuers and invests overall in a smaller number of
issuers than a diversified fund. Shareholder approval will not be sought if the
Fund becomes non-diversified due solely to a change in the relative market
capitalization or index weighting of one or more constituents of the ISS
Index.
Additional
Principal Risk Information
The
following section provides additional information regarding certain of the
principal risks identified under “Principal Risks” in each Fund’s summary along
with additional risk information.
Low
Carbon Transition Investment Strategy Risk
(MSCI World ESG Materiality Fund).
The Fund’s strategy of investing in securities of companies participating in the
opportunities, and the management of risks, associated with the global
transition to low carbon emissions limits the type and number of investment
opportunities available to the Fund and, as a result, the Fund may underperform
other funds that do not seek to minimize carbon exposure. The Fund’s low carbon
transition investment strategy may result in the Fund investing in securities or
industry sectors that underperform the market. Investing in a portfolio of
securities of companies with low carbon exposure may affect the Fund’s exposure
to certain types of investments, particularly in the energy and transportation
sectors or related industries, and may impact the Fund’s relative investment
performance, depending on whether such investments are in or out of favor in the
market. In addition, the Fund’s focus on companies with low current carbon
emissions and limited exposure to fossil fuel reserves might result in certain
issuers being excluded from the Fund’s portfolio.
General
Market Risk
(both
Funds).
The Funds are subject to all of the business risks and uncertainties associated
with any business, including the risk that it will not achieve its investment
objective and that the value of an investment in its securities could decline
substantially and cause you to lose some or all of your investment. U.S. and
international markets have, and may continue to, experience volatility, which
may increase risks associated with an investment in the Funds. Certain social,
political, economic, environmental, and other conditions and events (such as
natural disasters and weather-related phenomena generally, epidemics and
pandemics, terrorism, conflicts and social unrest) may adversely interrupt the
global economy and result in prolonged periods of significant market volatility.
Changes in the value of a Fund’s portfolio securities may be rapid or
unpredictable and cause the NAV of the Fund and its investment return to
fluctuate. These fluctuations may cause a security to be worth less than the
price originally paid for it, or less than it was worth at an earlier time.
Market risk may affect a single issuer, industry, sector of the economy or the
market as a whole. The market value of securities in which a Fund invests is
based upon the market’s perception of value and is not necessarily an objective
measure of the securities’ value. In some cases, for example, the stock prices
of individual companies have been negatively impacted even though there may be
little or no apparent degradation in the financial condition or prospects of the
issuers.
Equity
Securities Risk
(both Funds).
Equity securities can be affected by macroeconomic and other factors affecting
the stock market in general, expectations about changes in interest rates,
investor sentiment towards equities, changes in a particular issuer’s or
industry’s financial condition, or unfavorable or unanticipated poor performance
of a particular issuer or industry. Prices of equity securities of individual
entities also can be affected by fundamentals unique to the company or
partnership, including earnings power and coverage ratios. An adverse event,
such as an unfavorable earnings report, may depress the value of a particular
common stock held by the Funds. In addition, prices of common stocks are
sensitive to general movements in the stock market and a drop in the stock
market may depress the price of common stocks to which a Fund has exposure.
Common stock prices may fluctuate for several reasons including changes in
investors’ perceptions of the financial condition of an issuer or the general
condition of the relevant stock market, regional or global events such as acts
of terrorism or war, including Russia’s invasion of Ukraine, or the occurrence
of political or economic events that affect the issuers. In addition, common
stock prices may be particularly sensitive to rising interest rates, which
increases borrowing costs and the costs of capital. Any of the foregoing risks
could substantially impact the ability of such an entity to grow its dividends
or distributions.
ESG
Risk
(MSCI
World ESG Materiality Fund).
Applying
ESG criteria to the investment process may exclude securities of certain issuers
for non-investment reasons and therefore the Fund may forgo some market
opportunities available to funds that do not use ESG criteria. In addition, ESG
information and scores across third-party data providers, indices and other
funds may differ and/or be incomparable.
Non-U.S.
Securities Risk
(MSCI
World ESG Materiality Fund).
Investments in securities of non-U.S. issuers involve risks not ordinarily
associated with investments in securities and instruments of U.S. issuers. For
example, non-U.S. companies are not generally subject to uniform accounting,
auditing and financial standards and requirements comparable to those applicable
to U.S. companies. Non-U.S. securities exchanges, brokers and companies may be
subject to less government supervision and regulation than exists in the U.S.
Dividend and interest income may be subject to withholding and other non-U.S.
taxes, which may adversely affect the net return on such investments. There may
be difficulty in obtaining or enforcing a court judgment abroad. In addition, it
may be difficult to effect repatriation of capital invested in certain
countries. In addition, with respect to certain countries, there are risks of
expropriation, confiscatory taxation, political or social instability or
diplomatic developments that could affect the Fund’s assets held in non-U.S.
countries. There may be less publicly available information about a non-U.S.
company than there is regarding a U.S. company. Non-U.S. securities markets may
have substantially less volume than U.S. securities markets and some non-U.S.
company securities are less liquid than securities of otherwise comparable U.S.
companies. Non-U.S. markets also have different clearance and settlement
procedures that could cause the Fund to encounter difficulties in purchasing and
selling securities on such markets and may result in the Fund missing attractive
investment opportunities or experiencing a loss. In addition, a portfolio that
includes securities issued by non-U.S. issuers can expect to have a higher
expense ratio because of the increased transaction costs in non-U.S. markets and
the increased costs of maintaining the custody of such non-U.S. securities. When
investing in securities issued by non-U.S. issuers, there is also the risk that
the value of such an investment, measured in U.S. dollars, will decrease because
of unfavorable changes in currency exchange rates. The Fund may, but do not
currently intend to, hedge their exposure to non-U.S. currencies.
Newer
Fund Risk
(both
Funds).
The Fund has a limited operating history and there can be no assurance that the
Fund will grow to, or maintain, an economically viable size, in which case the
Board of the Trust may determine to liquidate the Fund.
Investment
Focus Risk
(US Leadership Diversity Fund). Because
the ISS Index is composed only of U.S. companies that exhibit broad ethnic and
gender representation, there is a risk that companies included in the ISS Index
may underperform companies that are not part of the ISS Index.
Small-Cap
Companies Risk
(US Leadership Diversity Fund).
The Fund may invest in small-cap companies that may not have the management
experience, financial resources, product diversification and competitive
strengths of medium-cap or large-cap companies. Therefore, their securities may
be more volatile and less liquid than the securities of larger, more established
companies. Small-cap company stocks may also be bought and sold less often and
in smaller amounts than larger company stocks. Because of this, if the Adviser
or Sub-Adviser needs to sell a large quantity of a small-cap company stock, in
accordance with the ISS Index methodology, it may have to sell at a lower price
than it might prefer, or it may have to sell in smaller than desired quantities
over a period of time. Analysts and other investors may follow these companies
less actively and therefore information about these companies may not be as
readily available as that for medium-cap or large-cap companies.
Mid-Cap
Companies Risk
(both
Funds).
The
Funds may invest in mid-cap companies that may not have the management
experience, financial resources, product diversification and competitive
strengths of large-cap companies. Therefore, their securities may be more
volatile and less liquid than the securities of larger, more established
companies. Mid-cap company stocks may also be bought and sold less often and in
smaller amounts than larger company stocks. Because of this, if the Adviser or
Sub-Adviser needs to sell a large quantity of a mid-cap company stock, in
accordance with either the MSCI Index methodology or the ISS Index methodology,
as applicable, it may have to sell at a lower price than it might prefer, or it
may have to sell in smaller than desired quantities over a period of time.
Analysts and other investors may follow these companies less actively and
therefore information about these companies may not be as readily available as
that for large-cap companies.
Large-Cap
Company Risk
(both Funds).
A Fund’s investment in larger companies is subject to the risk that larger
companies are sometimes unable to attain the high growth rates of successful,
smaller companies, especially during extended periods of economic
expansion.
ETF
Risks
(both Funds).
The Funds are ETFs, and, as a result of an ETF’s structure, they are exposed to
the following risks:
•Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
The Funds have 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.
•Cash
Redemption Risk.
A Fund’s investment strategy may require it to redeem shares for cash or to
otherwise include cash as part of its redemption proceeds. The Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used.
•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 a Fund, asset swings in a 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
a 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 a Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, there are likely to be deviations
between the current price of a security and the security’s last quoted price
from the closed foreign market. This may result in premiums and discounts that
are greater than those experienced by domestic ETFs.
•Trading.
Although
shares are listed for trading on each Fund’s respective exchange (“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 a
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.
Information
Technology Sector Risk
(US Leadership Diversity Fund). Market
or economic factors impacting technology companies and companies that rely
heavily on technological advances could have a major effect on the value of the
Fund's investments. The value of stocks of technology companies and companies
that rely heavily on technology is particularly vulnerable to rapid changes in
technology product cycles, rapid product obsolescence, government regulation and
competition, both domestically and internationally, including competition from
foreign competitors with lower production costs. Stocks of technology companies
and companies that rely heavily on technology, especially those of smaller,
less-seasoned companies, tend to be more volatile than the overall market.
Technology companies are heavily dependent on patent and intellectual property
rights, the loss or impairment of which may adversely affect profitability.
Additionally, companies in the technology sector may face dramatic and often
unpredictable changes in growth rates and competition for the services of
qualified personnel.
Passive
Investment Risk
(both
Funds).
The Funds are not actively managed. Therefore, unless a specific security is
removed from a Fund’s underlying index, or the selling of shares of that
security is otherwise required upon a rebalancing of a Fund’s underlying index
as addressed in the MSCI Index and ISS Index methodologies, as applicable, the
Funds generally will not sell a security because the security’s issuer was in
financial trouble. If a specific security is removed from a Fund’s underlying
index, that Fund may be forced to sell such security at an inopportune time or
for a price discount to the security’s current market value. Each Fund
anticipates that the value of its shares will decline, more or less, in
correspondence with any decline in value of its respective underlying index.
Each Fund’s underlying index may not contain the appropriate mix of securities
for any particular point in the business cycle of the overall economy,
particular economic sectors, or narrow industries within which the commercial
activities of the companies comprising the portfolio securities holdings of each
Fund are conducted, and the timing of movements from one type of security to
another in seeking to replicate each Fund’s underlying index could have a
negative effect on each Fund. Unlike the manager of an actively managed fund,
the Adviser and Sub-Adviser do not use techniques or defensive strategies
designed to lessen the effects of market volatility or to reduce the impact of
periods of market decline. This means that, based on market and economic
conditions, a Fund’s performance could be lower than other types of funds that
may actively shift their portfolio assets to take advantage of market
opportunities or to lessen the impact of a market decline.
New
Index Risk
(MSCI
World ESG Materiality Fund).
The
MSCI Index is recently constituted and therefore there is uncertainty about how
the MSCI Index may operate in various market conditions in response to
financial, geopolitical or other shocks.
Tracking
Error Risk
(both
Funds).
There
is no guarantee that the Funds will achieve a high degree of correlation to
their respective underlying indices and therefore achieve their investment
objectives. The Funds’ returns may not match the return of their respective
underlying indices for a number of reasons. For example, the Funds may incur a
number of fees and operating expenses not applicable to their respective
underlying indices and incur costs associated with buying and selling
securities, especially when rebalancing the Funds’ securities holdings to
reflect changes in the composition of their respective underlying indices and if
they need to raise cash to meet redemptions or deploy cash in connection with
newly created Creation Units. Imperfect correlation between the Funds’ portfolio
securities and those in their respective underlying indices, changes to their
respective underlying indices and regulatory requirements may cause tracking
error, the divergence of the Funds’ performance from that of their respective
underlying indices. This risk may be heightened during times of increased market
volatility or other unusual market conditions. In addition, the Funds may not be
able to invest in certain securities and other instruments included in their
respective underlying indices, or invest in them in the exact proportions
represented in their respective underlying indices. To the extent the Funds use
a representative sampling approach, the Funds may not be as well-correlated with
the returns of their respective underlying indices as would be the case if the
Funds purchased all the securities in their respective underlying indices in the
proportions represented in their respective underlying indices. Moreover, the
Funds may be delayed in purchasing or selling securities and other instruments
included in their respective underlying indices. To the extent the Funds
calculate their NAV based on fair value prices, the Funds’ ability to track
their respective underlying indices may be adversely affected.
Non-Diversification
Risk
(MSCI
World ESG Materiality Fund).
The
Fund is classified as “non-diversified,” which means the Fund may invest a
larger percentage of its assets in the securities of a smaller number of issuers
than a diversified fund. Investments in securities of a limited number of
issuers exposes the Fund to greater market risk and potential losses than if its
assets were diversified among the securities of a greater number of
issuers.
Change
in Diversification Status
(US Leadership Diversity Fund).
In seeking to track the ISS Index, the Fund may become non-diversified as a
result of a change in relative market capitalization or index weighting of one
or more constituents of the ISS Index. A “non-diversified” fund generally
invests a greater portion of its assets in the securities of one or more issuers
and invests overall in a smaller number of issuers than a diversified fund. The
Fund may be more sensitive to a single economic, business, political, regulatory
or other occurrence than a more diversified fund might be, which may negatively
impact the Fund’s performance and result in greater fluctuation in the value of
the Fund’s shares.
Legal
and Regulatory Change Risks
(both Funds).
The regulatory environment for investment companies is evolving, and changes in
regulation may adversely affect the value of the Funds’ investments and their
ability to pursue their trading strategy. In addition, the securities markets
are subject to comprehensive statutes and regulations. The SEC, Commodity
Futures Trading Commission, other regulators and self-regulatory organizations
and exchanges are authorized to take extraordinary actions in the event of
market emergencies. The effect of any future regulatory change on the Funds
could be substantial and adverse.
Methodology
Risks
(both Funds).
There is no assurance that the MSCI Index Provider or the ISS Index Provider, as
applicable (the “Index Providers”), or any agents that act on their behalf, will
compile the MSCI Index or the ISS Index (the “Underlying Indices”), accurately,
or that the Underlying Indices will be determined, maintained, constructed,
reconstituted, rebalanced, composed, calculated or disseminated accurately. The
Adviser relies upon the Index Providers and their agents to compile, determine,
maintain, construct, reconstitute, rebalance, compose, calculate (or arrange for
an agent to calculate), and disseminate the Underlying Indices accurately. Any
losses or costs associated with errors made by the
Index
Providers or their agents generally will be borne by the Funds and their
shareholders. To correct any such error, the Index Providers or their agents may
carry out an unscheduled rebalance of the Underlying Indices or other
modifications of the Underlying Indices constituents or weightings. When the
Funds in turn rebalance their portfolios, any transaction costs and market
exposure arising from such portfolio rebalancing will be borne by the Funds and
their shareholders. Unscheduled rebalances also expose the Funds to additional
tracking error risk. Errors in respect of the quality, accuracy, and
completeness of the data used to compile the Underlying Indices may occur from
time to time and may not be identified and corrected by the Index Providers for
a period of time or at all, particularly where the Underlying Indices are less
commonly used as a benchmark by funds or advisers. For example, during a period
where an Underlying Index contains incorrect constituents, the Fund tracking
that index would have market exposure to such constituents and would be
underexposed to the index’s other constituents. Such errors may negatively
impact the Funds and their shareholders. The Index Providers and their agents
rely on various sources of information to assess the criteria of issuers
included in the Underlying Indices, including information that may be based on
assumptions and estimates. In addition, the Underlying Indices’ methodologies
incorporate data and scores provided by third-parties which may be unavailable
or limited for certain issuers, which could result in the Underlying Indices not
achieving their objective. Neither the Funds nor the Adviser can offer
assurances that the Underlying Indices calculation methodologies or sources of
information will provide an accurate assessment of included
issuers.
Developed
Markets Risk
(MSCI
World ESG Materiality Fund).
Developed market countries generally tend to rely on the services sectors (e.g.,
the financial services sector) as the primary source of economic growth and may
be susceptible to the risks of individual service sectors. Many developed market
countries have heavy indebtedness, which may lead downward pressure on the
economies of these countries. As a result, it is possible that interest rates on
debt of certain developed countries may rise to levels that make it difficult
for such countries to service high debt levels without significant help from
other countries or from a central bank. Developed market countries generally are
dependent on the economies of certain key trading partners. Changes in any one
economy may cause an adverse impact on several developed countries.
Epidemic
Risk
(both Funds).
Widespread
disease, including pandemics and epidemics have been and can be highly
disruptive to economies and markets, adversely impacting individual companies,
sectors, industries, markets, currencies, interest and inflation rates, credit
ratings, investor sentiment, and other factors affecting the value of a Fund’s
investments. Given the increasing interdependence among global economies and
markets, conditions in one country, market, or region are increasingly likely to
adversely affect markets, issuers, and/or foreign exchange rates in other
countries, including the U.S. These disruptions could prevent the Funds from
executing advantageous investment decisions in a timely manner and negatively
impact the Funds’ ability to achieve their respective investment objectives. Any
such event(s) could have a significant adverse impact on the value and risk
profile of the Funds.
Disclosure
of Portfolio Holdings
The
Funds’ entire portfolio holdings are publicly disseminated each day the Funds
are open for business through the Funds’ website and may be made available
through financial reporting and news services or any other medium, including
publicly available internet web sites. Additional information regarding the
Funds’ policies and procedures with respect to the disclosure of the Funds’
portfolio securities is available in the Funds’ SAI.
Investment
Management
Investment
Adviser
V-Square
Quantitative Management, LLC, located at 320 N. Sangamon Street, Suite 1250,
Chicago, Illinois 60607 serves as the investment adviser to the Funds. The
Adviser is a SEC-registered investment adviser, with approximately $179 million
in assets under management as of January 20, 2023, that provides investment
advice to high-net-worth individuals and ETFs, including the Funds.
Pursuant
to the Advisory Agreement, the Adviser provides each Fund with investment
research and advice and furnishes each Fund with an investment program
consistent with the Fund’s investment objective and policies, subject to the
supervision of the Board. The Adviser maintains books and records with respect
to the securities transactions, and reports to the Board on the Funds’
investments and performance. The Board will have sole responsibility for
selecting, evaluating the performance of, and replacing as necessary any of the
service providers to the Funds, including the Adviser.
After
an initial two-year period, the Advisory Agreement will continue in effect from
year to year, only if such continuance is specifically approved at least
annually by: (i) the Board or the vote of a majority of the outstanding voting
securities of a Fund; and (ii) the vote of a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement is terminable without penalty by the Trust, on
behalf of a Fund, upon 60 days’ written notice to the Adviser, when authorized
by either: (i) a majority vote of a Fund’s shareholders; or (ii) by a vote of a
majority of the Board. The Advisory Agreement is also terminable without penalty
by the Adviser upon 60 days’ written notice to the Trust. The Advisory Agreement
will automatically terminate in the event of its “assignment,” as defined under
the 1940 Act. The Advisory Agreement provides that the Adviser under such
agreement shall not be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission in the
execution of portfolio transactions for the Funds, except for willful
misfeasance, bad faith or negligence in the performance of its duties, or by
reason of reckless disregard of its obligations and duties
thereunder.
In
consideration of the services provided by the Adviser pursuant to the Advisory
Agreement, the MSCI World ESG Materiality Fund pays the Adviser a unified fee,
which is calculated daily and paid monthly, at the annual rate of 0.39% of the
average daily net assets of the Fund, and the US Leadership Diversity Fund pays
the Adviser a unified fee, which is calculated daily and paid monthly, at the
annual rate of 0.29% of the average daily net assets of the Fund. However, the
Adviser may voluntarily agree to reduce the management fees payable to it on a
month-to-month basis, including additional fees above and beyond any contractual
agreement the Adviser may have to reduce management fees and/or reimburse Fund
expenses. For the fiscal period ended October 31, 2022, the Adviser was paid a
management fee of 0.39% of the MSCI World ESG Materiality Fund’s average daily
net assets for that period and 0.29% of the US Leadership Diversity Fund’s
average daily net assets for that period.
Under
the Investment Advisory Agreement, the Adviser has agreed to pay all expenses of
each Fund, except for: (i) brokerage expenses and other fees, charges, taxes,
levies or expenses (such as stamp taxes) incurred in connection with the
execution of portfolio transactions or in connection with creation and
redemption transactions (including without limitation any fees, charges, taxes,
levies or expenses related to the purchase or sale of an amount of any currency,
or the patriation or repatriation of any security or other asset, related to the
execution of portfolio transactions or any creation or redemption transactions);
(ii) legal fees or expenses in connection with any arbitration, litigation or
pending or threatened arbitration or litigation, including any settlements in
connection therewith; (iii) extraordinary expenses (in each case as determined
by a majority of the independent trustees); (iv) distribution fees and expenses
paid by a Fund under any distribution plan adopted pursuant to Rule 12b-1 under
the 1940 Act; (v) interest and taxes of any kind or nature (including, but
not limited to, income, excise, transfer and withholding taxes); (vi) any fees
and expense related to the provision of securities lending services; and (vii)
the advisory fee payable to the Adviser.
Investment
Sub-Adviser
The
Adviser has retained Vident Investment Advisory, LLC (“VIA” or the
“Sub-Adviser”) to serve as sub-adviser for each Fund. VIA is responsible for the
day-to-day management of each Fund. VIA, a registered investment adviser, is a
wholly-owned subsidiary of Vident Financial, LLC. Its principal office is
located at 1125 Sanctuary Parkway, Suite 515, Alpharetta, Georgia 30009. VIA is
an SEC-registered investment adviser with assets over $6.54 billion under
management as of December 31, 2022. VIA was formed in 2014 and provides
investment advisory services to ETFs, including the Funds. VIA is responsible
for trading portfolio securities for each Fund, including selecting
broker-dealers to execute purchase and sale transactions or in connection with
any rebalancing or reconstitution of either the MSCI Index or the ISS Index,
subject to the supervision of the Adviser and the Board. For its services, the
Sub-Adviser is paid a fee by the Adviser and not the Funds.
A
discussion regarding the basis for the Board’s approval of the Advisory
Agreement and Sub-Advisory Agreement with respect to the MSCI World ESG
Materiality Fund is available in the Fund’s annual report to shareholders for
the period ended October 31, 2022.
A
discussion regarding the basis for the Board’s approval of the Advisory
Agreement and Sub-Advisory Agreement with respect to the US Leadership Diversity
Fund is available in the Fund’s semi-annual report to shareholders for the
period ended April 30, 2022.
Portfolio
Managers
Each
Fund is managed by the Sub-Adviser’s portfolio management team. The individual
members of the team jointly and primarily responsible for the day-to-day
management of each Fund’s portfolio are described below.
Austin
Wen, Portfolio Manager, CFA, of VIA. Mr. Wen has been Portfolio Manager of VIA
since 2016 and has eight years of investment management experience. His focus at
VIA is on portfolio management and trading, risk monitoring and investment
analysis. Previously, he was an analyst for Vident Financial beginning in 2014,
working on the development and review of investment solutions. He began his
career in 2011 as a State Examiner for the Georgia Department of Banking and
Finance. Mr. Wen obtained a B.A. in Finance from the University of Georgia and
holds the Chartered Financial Analyst designation.
Rafael
Zayas, Portfolio Manager, CFA, of VIA. Mr. Zayas has over 15 years of trading
and portfolio management experience in global equity products and ETFs. He is
SVP, Head of Portfolio Management and Trading for Vident Investment Advisory.
Mr. Zayas specializes in managing and trading of developed, emerging, and
frontier market portfolios. Prior to joining Vident Investment Advisory, he was
a Portfolio Manager at Russell Investments for over 5 billion in quantitative
strategies across global markets, including emerging, developed and frontier
markets and listed alternatives. Before that, he was an equity Portfolio Manager
at BNY Mellon Asset Management, where he was responsible for 150 million in
internationally listed global equity ETFs and assisted in managing 3 billion of
global ETF assets. Mr. Zayas holds a BS in Electrical Engineering from Cornell
University. He also holds the Chartered Financial Analyst
designation.
Additional
information about the portfolio managers’ compensation, other accounts managed
by the portfolio managers, and the portfolio managers’ ownership of securities
in the Funds is available in the SAI.
Index
Providers
Please
note that you cannot invest directly in an index, although you may invest in the
underlying securities represented in the index. Index returns are adjusted to
reflect the reinvestment of dividends on securities in the index, but do not
reflect the expenses of a Fund.
V-Shares
MSCI World ESG Materiality and Carbon Transition ETF
MSCI,
Inc. (“MSCI”) is the Index Provider to the V-Shares MSCI World ESG Materiality
and Carbon Transition ETF. Strictly in accordance with its guidelines and
mandated procedures, MSCI compiles, maintains and calculates the MSCI Index.
MSCI is not affiliated with the V-Shares MSCI World ESG Materiality and Carbon
Transition ETF, Adviser, Sub-Adviser or the Distributor.
THE
V-SHARES MSCI WORLD ESG MATERIALITY AND CARBON TRANSITION ETF IS NOT SPONSORED,
ENDORSED, SOLD OR PROMOTED BY MSCI, ANY OF ITS AFFILIATES, ANY OF ITS
INFORMATION PROVIDERS OR ANY OTHER THIRD PARTY INVOLVED IN, OR RELATED TO,
COMPILING, COMPUTING OR CREATING ANY MSCI INDEX (COLLECTIVELY, THE “MSCI
PARTIES”). THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE
MSCI INDEX NAMES ARE SERVICE MARK(S) OF MSCI OR ITS AFFILIATES AND HAVE BEEN
LICENSED FOR USE FOR CERTAIN PURPOSES BY LICENSEE. NONE OF THE MSCI PARTIES
MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE ISSUER OR
OWNERS OF THESE FUNDS OR ANY OTHER PERSON OR ENTITY REGARDING THE ADVISABILITY
OF INVESTING IN FUNDS GENERALLY OR IN THE V-SHARES MSCI WORLD ESG MATERIALITY
AND CARBON TRANSITION ETF PARTICULARLY OR THE ABILITY OF ANY MSCI INDEX TO TRACK
CORRESPONDING STOCK MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE THE LICENSORS
OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE MSCI INDEXES
WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO THE
V-SHARES MSCI WORLD ESG MATERIALITY AND CARBON TRANSITION ETF OR THE ISSUER OR
OWNERS OF THESE FUNDS OR ANY OTHER PERSON OR ENTITY. NONE OF THE MSCI PARTIES
HAS ANY OBLIGATION TO TAKE THE NEEDS OF THE ISSUER OR OWNERS OF THE V-SHARES
MSCI WORLD ESG MATERIALITY AND CARBON TRANSITION ETF OR ANY OTHER PERSON OR
ENTITY INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE MSCI
INDEXES. NONE OF THE MSCI PARTIES IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE
DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES OF THESE FUNDS TO BE
ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY OR THE
CONSIDERATION INTO WHICH THESE FUNDS ARE REDEEMABLE. FURTHER, NONE OF THE MSCI
PARTIES HAS ANY OBLIGATION OR LIABILITY TO THE ISSUER OR OWNERS OF THE V-SHARES
MSCI WORLD ESG MATERIALITY AND CARBON TRANSITION ETF OR ANY OTHER PERSON OR
ENTITY IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR OFFERING OF THE
V-SHARES MSCI WORLD ESG MATERIALITY AND CARBON TRANSITION ETF.
ALTHOUGH
MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF
THE MSCI INDEXES FROM SOURCES THAT MSCI CONSIDERS RELIABLE, NONE OF THE MSCI
PARTIES WARRANTS OR GUARANTEES THE ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS
OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES MAKES
ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ISSUER OF
THE FUND, OWNERS OF THE V-SHARES MSCI WORLD ESG MATERIALITY AND CARBON
TRANSITION ETF, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF ANY MSCI INDEX OR
ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES SHALL HAVE ANY LIABILITY FOR
ANY ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH ANY MSCI INDEX
OR ANY DATA INCLUDED THEREIN. FURTHER, NONE OF THE MSCI PARTIES MAKES ANY
EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, AND THE MSCI PARTIES HEREBY EXPRESSLY
DISCLAIM ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
WITH RESPECT TO EACH MSCI INDEX AND ANY DATA INCLUDED THEREIN. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL ANY OF THE MSCI PARTIES HAVE ANY
LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY
OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF
SUCH DAMAGES.
No
purchaser, seller, or holder of this security, product or fund, or any other
person or entity, should use or refer to any MSCI trade name, trademark or
service mark to sponsor, endorse, market or promote this security without first
contacting MSCI to determine whether MSCI’s permission is required. Under no
circumstances may any person or entity claim any affiliation with MSCI without
the prior written permission of MSCI.
V-Shares
US Leadership Diversity ETF
The
ISS Index is a free float-adjusted market capitalization weighted equity index
designed to reflect the equity performance of U.S. companies exhibit broad
ethnic and gender representation for Directors and Named Executive Officers
(NEO), as determined by the Index Provider. The index is calculated,
administered, and published by Solactive AG (“Solactive”) assuming the role as
administrator (the “Index Administrator”).
ISS
has retained Solactive AG to serve as the Index Administrator to calculate,
administer and publish the ISS ESG US Diversity Index Series (the “Indexes”).
Solactive AG publishes a guideline document with respect to the composition,
calculation and maintenance of the index services. We refer you to those
guideline documents which can be found at (https://solactive.com/downloads/Guideline-Solactive-ISSDIVUP.pdf)
for additional information regarding the Indexes.
Any
intellectual property rights in the index values and constituent list are the
intellectual property of ISS. The publication of the Indexes does not constitute
a recommendation by ISS to invest in any financial product nor does it in any
way represent an assurance, endorsement or opinion of ISS with regard to the
investment in or trading of any financial product.
The
index universe is comprised of all financial instruments which are component of
the Global Benchmark Series [GBS] Index Universe of the Solactive GBS US
Investable Universe Index PR on a selection day, as published on the Solactive
website: https://www.solactive.com. Selection day is 20 trading days before the
rebalance day. The rebalance day is the first Wednesday in May and November. If
that day is not a trading day, the rebalance day will be the immediately
following trading day.
The
index universe is described in detail in the guideline of the Solactive Global
Benchmark Series
(https://solactive.com/downloads/Guideline-Solactive-GBS-Benchmark-Series.pdf).
The
determination of the index universe is fully rule-based, and the Index
Administrator cannot make any discretionary decisions.
Based
on the index universe, the initial composition of the index as well as any
selection for an ordinary rebalance is determined on the selection day and based
on the ISS ESG Director & Executive Diversity dataset provided by ISS. All
companies for which an evaluation based on the dataset is not possible due to
insufficient and/or missing information or data are excluded. The index includes
securities from the index universe that are issued by companies that meet all
three of the below criteria:
•Company’s
Board has a 35% combined minimum of women or ethnically diverse Directors.
•Company
has a combined minimum of three distinct ethnically diverse individuals among
Directors or Named Executive Officers, or a minimum of two such individuals if
the CEO or Board Chair is ethnically diverse.
•Company
has a combined minimum of three distinct women among Directors or Named
Executive Officers, or a minimum of two women if the CEO or Board Chair is a
woman.
The
selection of the index components is fully rule-based, and the Index
Administrator cannot make any discretionary decision.
On
each selection day, each index component is assigned a weight according to its
free float market capitalization. Individual index component weights are capped
at 9.5%. The excess weight is distributed pro rata across the whole index in an
iterative manner.
The
index is adjusted on the rebalance day after close of business to reflect the
new selection of the index components determined on the selection day. This is
carried out by implementing the shares as determined on the selection day based
on the weights calculated on that day.
The
components of the ISS Index are likely to change over time. Changes to the
components of the ISS Index are implemented on rebalance day, which is the first
Wednesday in May and November. If that day is not a trading day, the rebalance
day will be the immediately following trading day.
The
index is calculated as a price return, net total return and gross total return
Index.
Buying
and Selling Fund Shares
Shares
of the MSCI World ESG Materiality Fund are listed on the CBOE BZX Exchange, Inc.
and shares of the US Leadership Diversity Fund are listed on the NYSE Arca, Inc.
Exchange. When you buy or sell shares on the secondary market, you will pay or
receive the market price. The Funds’ shares will trade on their respective
exchanges at prices that may differ to varying degrees from the daily NAV of the
Funds’ shares. A “Business Day” with respect to a Fund is any day on which its
exchange is open for business. The CBOE BZX Exchange, Inc. and the NYSE Arca,
Inc. Exchanges are generally open Monday through Friday and are closed weekends
and the following holidays: New Year’s Day, Martin Luther King, Jr. Day,
Presidents’ Day, Good Friday, Memorial Day, Juneteenth National Independence
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
NAV
per share for each Fund is computed by dividing the value of the net assets of
the Fund (i.e., the value of its total assets minus total liabilities) by the
total number of shares of that Fund’s outstanding. Expenses and fees, including
management and distribution fees, if any, are accrued daily and taken into
account for purposes of determining NAV. NAV is determined each business day,
normally as of the close of regular trading of the applicable Exchange
(ordinarily 4:00 p.m., Eastern time).
You
may incur customary brokerage commissions and charges and may pay some or all of
the spread between the bid and the offered price in the secondary market on each
leg of a round trip (purchase and sale) transaction. Investors buying or selling
shares in the secondary market will pay brokerage commissions or other charges
imposed by brokers as determined by that broker. Brokerage commissions are often
a fixed amount and may be a significant proportional cost for investors seeking
to buy or sell relatively small amounts of shares. In addition, secondary market
investors will also incur the cost of the difference between the price that an
investor is willing to pay for shares (the “bid” price) and the price at which
an investor is willing to sell shares (the “ask” price). This difference in bid
and ask prices is often referred to as the “spread” or “bid/ask spread.” The
bid/ask spread varies over time for shares based on trading volume and market
liquidity, and is generally lower if a Fund’s shares have more trading volume
and market liquidity and higher if a Fund’s shares have little trading volume
and market liquidity. Further, 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.
Each
Fund’s portfolio securities generally are valued at market price. The values of
non-U.S. dollar denominated securities for the MSCI World ESG Materiality Fund
are converted to U.S. dollars using foreign currency exchange rates generally
determined as of 4:00 p.m., London time. When market quotations are not readily
available, a security or other asset is valued at its fair value as determined
under fair value pricing procedures approved by the Board. The Board reviews, no
less frequently than annually, the adequacy of the policies and procedures of
the Funds and the effectiveness of their implementation. These fair value
pricing procedures will also be used to price a security when corporate events,
events in the securities market and/or world events cause the Adviser to believe
that a security’s last sale price may not reflect its actual market value. The
intended effect of using fair value pricing procedures is to ensure that each
Fund is accurately priced. The Board will regularly evaluate whether the Trust’s
fair value pricing procedures continue to be appropriate in light of the
specific circumstances of each Fund and the quality of prices obtained through
the application of such procedures.
In
certain circumstances, fair value pricing may be employed to ensure greater
accuracy in determining daily NAV. Fair value pricing may be applied to foreign
securities held by a Fund upon the occurrence of an event after the close of
trading on non-U.S. markets but before the close of trading on the applicable
Exchange when the Fund’s NAV is determined. If the event may result in a
material adjustment to the price of the Fund’s foreign securities once non-U.S.
markets open on the following business day (such as, for example, a significant
surge or decline in the U.S. market), the Fund may value such foreign securities
at fair value, taking into account the effect of such event, in order to
calculate the Fund’s NAV.
Other
types of portfolio securities that may be fair valued include, but are not
limited to: (1) investments that are illiquid or traded infrequently,
including “restricted” securities and private placements for which there is no
public market; (2) investments for which, in the judgment of the Adviser, the
market price is stale; and (3) securities for which trading has been halted or
suspended.
Fair
value pricing involves subjective judgments and it is possible that a fair value
determination for a security will materially differ from the value that could be
realized upon the sale of the security. In addition, fair value pricing could
result in a difference between the prices used to calculate each Fund’s NAV and
the prices used by each Fund’s underlying index. This may result in a difference
between each Fund’s performance and the performance of each Fund’s underlying
index.
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 Fund Shares
The
Funds do not impose any restrictions on the frequency of purchases and
redemptions of Creation Units; however, the Funds reserve the right to reject or
limit purchases at any time as described in the SAI. When considering that no
restriction or policy was necessary, the Board evaluated the risks posed by
arbitrage and market timing activities, such as whether frequent purchases and
redemptions would interfere with the efficient implementation of each Fund’s
investment strategy, or whether they would cause a Fund to experience increased
transaction costs. The Board considered that, unlike traditional mutual funds,
shares are issued and redeemed only in large quantities of shares known as
Creation Units available only from the Funds directly to a few institutional
investors (APs), and that most trading in the Funds occurs on the applicable
Exchange at prevailing market prices and does not involve the Funds directly.
Given this structure, the Board determined that it is unlikely that trading due
to arbitrage opportunities or market timing by shareholders would result in
negative impact to the Funds or their shareholders. In addition, frequent
trading of shares by APs and arbitrageurs is critical to helping the market
price remain at or close to NAV.
Other
Considerations
Distribution
and Service Plan.
Each Fund has adopted a Distribution and Service Plan in accordance with Rule
12b-1 under the 1940 Act pursuant to which payments of up to 0.25% per annum of
the Fund’s average daily net assets may be made for the sale and distribution of
the Fund’s shares or for providing or arranging for others to provide
shareholder services and for the maintenance of shareholder accounts. The Funds
do not presently intend to make any payments pursuant to the Distribution and
Service Plan for the fiscal period ending October 31, 2023. Thereafter, 12b-1
fees may only be imposed after approval by the Board. Any forgone 12b-1 fees
during the initial twelve months will not be recoverable during any subsequent
period. Because these fees would be paid out of a Fund’s assets on an on-going
basis, if payments are made in the future, these fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.
Payments
to Financial Intermediaries. The
Adviser, out of its own resources and without additional cost to the Funds or
their shareholders, may pay intermediaries, including affiliates of the Adviser,
for the sale of Fund shares and related services, including participation in
activities that are designed to make intermediaries more knowledgeable about
exchange traded products. Payments are generally made to intermediaries that
provide shareholder servicing, marketing and related sales support, educational
training or support, or access to sales meetings, sales representatives and
management representatives of the intermediary. Payments may also be made to
intermediaries for making shares of the Funds available to their customers
generally and in investment programs. The Adviser may also reimburse expenses or
make payments from its own resources to intermediaries in consideration of
services or other activities the Adviser believes may facilitate investment in
the Funds.
The
possibility of receiving, or the receipt of, the payments described above may
provide intermediaries or their salespersons with an incentive to favor sales of
shares of the Funds, and other funds whose affiliates make similar compensation
available, over other investments that do not make such payments. Investors may
wish to take such payment arrangements into account when considering and
evaluating any recommendations relating to the Funds and other ETFs.
Additional
Information.
The Funds may enter into contractual arrangements with various parties,
including among others the Funds’ investment adviser, who provides services to
the Funds. Shareholders are not parties to, or intended (or “third party”)
beneficiaries of, those contractual arrangements.
The
Prospectus and the SAI provide information concerning the Funds that you should
consider in determining whether to purchase shares of the Funds. The Funds may
make changes to this information from time to time. Neither this Prospectus nor
the SAI is intended to give rise to any contract rights or other rights in any
shareholder, other than any rights conferred explicitly by federal or state
securities laws that may not be waived.
Dividends,
Distributions and Taxes
Fund
Distributions
Each
Fund expects to pay out dividends from its net investment income semi-annually
and distribute its net capital gains, if any, to investors at least annually.
Dividend
Reinvestment Service
Brokers
may make the Depository Trust Company book-entry dividend reinvestment service
available to their customers who own shares. If this service is available and
used, dividend distributions of both income and capital gains will automatically
be reinvested in additional whole shares of the Funds purchased on the secondary
market. Without this service, investors would receive their distributions in
cash. In order to achieve the maximum total return on their investments,
investors are encouraged to use the dividend reinvestment service. To determine
whether the dividend reinvestment service is available and whether there is a
commission or other charge for using this service, consult your broker. Brokers
may require the Funds’ shareholders to adhere to specific procedures and
timetables.
Tax
Information
The
following is a summary of some important tax issues that affect the Funds and
their shareholders. The summary is based on current tax laws, which may be
changed by legislative, judicial or administrative action. You should not
consider this summary to be a comprehensive explanation of the tax treatment of
the Funds, or the tax consequences of an investment in the Funds. More
information about taxes is located in the SAI. You are urged to consult your tax
adviser regarding specific questions as to federal, state and local income
taxes.
Each
Fund has elected and intends to qualify each year as regulated investment
companies under the Internal Revenue Code of 1986, as amended. As regulated
investment companies, the Funds generally pay no federal income tax on the
income and gains they distribute to shareholders. Distributions may be
reinvested automatically in additional whole shares only if the broker through
whom you purchased shares makes such option available. The Funds expect, based
on their investment objective and strategies, that their distributions, if any,
will be taxable as ordinary income, capital gains, or some combination of both.
For federal income tax purposes, Fund distributions of short-term capital gains
are taxable to you as ordinary income. Fund distributions of long-term capital
gains are taxable to you as long-term capital gains no matter how long you have
owned your shares. To the extent that the Funds’ distributions are designated as
attributable to “qualified dividend” income, such income may be subject to tax
at the reduced rate of federal income tax applicable to non-corporate
shareholders for net long-term capital gains, if certain holding period
requirements have been met.
Each
year, you will receive an annual statement (Form 1099) of your account activity
to assist you in completing your federal, state and local tax returns.
Distributions declared in December to shareholders of record in such month, but
paid in January, are taxable as if they were paid in December. The Funds make
every effort to search for reclassified income to reduce the number of corrected
forms mailed to you. However, when necessary, you will receive a corrected Form
1099 to reflect reclassified information.
At
the time you purchase your Fund shares, the price of shares may reflect
undistributed income, undistributed capital gains, or net unrealized
appreciation in value of portfolio securities held by the Fund. For taxable
investors, a subsequent distribution to you of such amounts, although
constituting a return of your investment, would be taxable. Buying shares in a
Fund just before they declare an income dividend or capital gains distribution
is sometimes known as “buying a dividend.”
A
sale of Fund shares is a taxable event and, accordingly, a capital gain or loss
may be recognized. Currently, any capital gain or loss realized upon a sale of
Fund shares generally is treated as long-term capital gain or loss if the shares
have been held for more than one year and as short-term capital gain or loss if
the shares have been held for one year or less. The ability to deduct capital
losses may be limited.
A
3.8% Medicare tax on net investment income (including capital gains and
dividends) will also be imposed on individuals, estates and trusts, subject to
certain income thresholds.
By
law, if you do not provide your proper taxpayer identification number and
certain required certifications, you may be subject to backup withholding on any
distributions of income, capital gains or proceeds from the sale of your shares.
Withholding is also imposed if the IRS requires it. When withholding is
required, the amount will be 24% of any distributions or proceeds
paid.
Fund
distributions and gains from the sale of your Fund shares generally are subject
to state and local taxes.
Non-U.S.
investors may be subject to U.S. withholding tax at a 30% or lower treaty rate
and U.S. estate tax and are subject to special U.S. tax certification
requirements to avoid backup withholding and claim any treaty benefits.
Exemptions from U.S. withholding tax are provided for certain capital gain
dividends paid by the Funds from net long-term capital gains, interest-related
dividends and short-term capital gain dividends, if such amounts are reported by
the Funds. However, notwithstanding such exemptions from U.S. withholding at the
source, any such dividends and distributions of income and capital gains will be
subject to backup withholding at a rate of 24% if you fail to properly certify
that you are not a U.S. person.
Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is
imposed on income dividends paid by the Funds to certain foreign entities,
referred to as foreign financial institutions or nonfinancial foreign entities,
that fail to comply (or be deemed compliant) with extensive reporting and
withholding requirements designed to inform the U.S. Department of the Treasury
of U.S.-owned foreign investment accounts. After December 31, 2018, FATCA
withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Fund
shares; however, based on proposed regulations issued by the IRS, which can be
relied upon currently, such withholding is no longer required unless final
regulations provide otherwise (which is not expected). Information about a
shareholder in a Fund may be disclosed to the IRS, non-U.S. taxing authorities
or other parties as necessary to comply with FATCA. Withholding also may be
required if a foreign entity that is a shareholder of a Fund fails to provide
the appropriate certifications or other documentation concerning its status
under FATCA.
Creation
Units
An
AP who exchanges equity securities for Creation Units generally will recognize a
gain or a loss. The gain or loss will be equal to the difference between the
market value of the Creation Units at the time of purchase (plus any cash
received by the AP as part of the issue) and the AP’s aggregate basis in the
securities surrendered (plus any cash paid by the AP as part of the issue). An
AP who exchanges Creation Units for equity securities generally will recognize a
gain or loss equal to the difference between the AP’s basis in the Creation
Units (plus any cash paid by the AP as part of the redemption) and the aggregate
market value of the securities received (plus any cash paid by the AP as part of
the redemption). The IRS, however, may assert that a loss realized upon an
exchange of securities for Creation Units cannot be deducted currently under the
rules governing “wash sales,” or on the basis that there has been no significant
change in economic position. Persons exchanging securities should consult their
own tax advisor with respect to whether the wash sale rules apply and when a
loss might be deductible.
Under
current federal tax laws, any capital gain or loss realized upon redemption of
Creation Units is generally treated as long-term capital gain or loss if the
shares have been held for more than one year and as a short-term capital gain or
loss if the shares have been held for one year or less, assuming such Creation
Units are held as a capital asset.
If
a Fund redeems Creation Units in cash, it may recognize more capital gains than
if it redeems Creation Units in-kind.
Additional
Information
Other
Information
For
purposes of the 1940 Act, each Fund is treated as a registered investment
company. Section 12(d)(1) of the 1940 Act restricts investments by investment
companies in the securities of other investment companies, including shares of
the Funds. In October 2020, the SEC adopted regulatory changes related to the
ability of an investment company to invest in other investment companies in
excess of specified statutory limits. These changes include, among other things,
amendments to Rule 12d1-1, the rescission of Rule 12d1-2, the adoption of new
Rule 12d1-4, and the rescission of certain exemptive relief issued by the SEC
permitting certain fund of funds arrangements. Rule 12d1-4 permits the Funds to
invest in other investment companies, including money market funds, beyond the
statutory limits, subject to certain conditions.
Continuous
Offering
The
method by which Creation Units are purchased and traded may raise certain issues
under applicable securities laws. Because new Creation Units are issued and sold
by the Funds on an ongoing basis, at any point a “distribution,” as such term is
used in the Securities Act of 1933, as amended (the “Securities Act”), may
occur. Broker-dealers and other persons are cautioned that some activities on
their part may, depending on the circumstances, result in their being deemed
participants in a distribution in a manner which could render them statutory
underwriters and subject them to the Prospectus delivery and liability
provisions of the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing an order with the
Distributor, breaks them down into individual shares, and sells such shares
directly to customers, or if it chooses to couple the creation of a supply of
new shares with an active selling effort involving solicitation of secondary
market demand for shares. A determination of whether one is an underwriter for
purposes of the Securities Act must take into account all the facts and
circumstances pertaining to the activities of the broker-dealer or its client in
the particular case, and the examples mentioned above should not be considered a
complete description of all the activities that could lead to categorization as
an underwriter.
Broker-dealer
firms should also note that dealers who are not “underwriters” but are effecting
transactions in shares, whether or not participating in the distribution of
shares, are generally required to deliver a prospectus. This is because the
prospectus delivery exemption in Section 4(a)(3) of the Securities Act is not
available with respect to such transactions as a result of Section 24(d) of the
1940 Act. As a result, broker dealer-firms should note that dealers who are not
underwriters but are participating in a distribution (as contrasted with
ordinary secondary market transactions) and thus dealing with shares that are
part of an over-allotment within the meaning of Section 4(a)(3)(a) of the
Securities Act would be unable to take advantage of the prospectus delivery
exemption provided by Section 4(a)(3) of the Securities Act. Firms that incur a
prospectus delivery obligation with respect to shares of the Funds are reminded
that under Rule 153 of the Securities Act, a prospectus delivery obligation
under Section 5(b)(2) of the Securities Act owed to an exchange member in
connection with a sale on the CBOE BZX Exchange, Inc. or the NYSE Arca, Inc.
Exchange is satisfied by the fact that such Fund’s Prospectus is available on
the SEC’s electronic filing system. The prospectus delivery mechanism provided
in Rule 153 is only available with respect to transactions on an exchange.
Premium/Discount
Information
Information
regarding how often the shares of each Fund trade on their respective exchange
at a price above (i.e., at a premium) or below (i.e., at a discount) the NAV of
each Fund is available at https://www.v-shares.com.
Notices
Shares
are not sponsored, endorsed, or promoted by the CBOE BZX Exchange, Inc. or the
NYSE Arca, Inc. Exchange. The CBOE BZX Exchange, Inc. and the NYSE Arca, Inc.
Exchange make no representation or warranty, express or implied, to the owners
of shares or any member of the public regarding the ability of the Funds to
track the total return performance of the Underlying Indices or the ability of
each index identified herein to track the performance of its constituent
securities. The CBOE BZX Exchange, Inc. and the NYSE Arca, Inc. Exchange are not
responsible for, nor have they participated in, the determination of the
compilation or the calculation of the Underlying Indices, nor in the
determination of the timing, prices, or quantities of shares to be issued, nor
in the determination or calculation of the equation by which shares are
redeemable. The CBOE BZX Exchange, Inc. and the NYSE Arca, Inc. Exchange have no
obligation or liability to owners of shares in connection with the
administration, marketing, or trading of the shares.
The
CBOE BZX Exchange, Inc. and the NYSE Arca, Inc. Exchange do not guarantee the
accuracy and/or the completeness of the Underlying Indices or the data included
therein. The CBOE BZX Exchange, Inc. and the NYSE Arca, Inc. Exchange makes no
warranty, express or implied, as to results to be obtained by the Funds, owners
of shares, or any other person or entity from the use of the Underlying Indices
or the data included therein. The CBOE BZX Exchange, Inc. and the NYSE Arca,
Inc. Exchange make no express or implied warranties, and hereby expressly
disclaims all warranties of merchantability or fitness for a particular purpose
with respect to the Underlying Indices or the data included therein. Without
limiting any of the foregoing, in no event shall the CBOE BZX Exchange, Inc. or
the NYSE Arca, Inc. 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 CBOE BZX Exchange, Inc., the NYSE Arca, Inc. Exchange, and the
Funds 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 or the ability of the
Underlying Indices to track general stock market performance. The Funds and the
Adviser do not guarantee the accuracy, completeness, or performance of the
Underlying Indices or the data included therein and shall have no liability in
connection with the Underlying Indices or Underlying Indices calculation. The
index calculation agent maintains and calculates the Underlying Indices used by
the Funds. The index calculation agent shall have no liability for any errors or
omissions in calculating the Underlying Indices.
Financial
Highlights
The
financial highlights table is intended to help you understand the Funds’
financial performance for the fiscal years indicated. Certain information
reflects financial results for a single Fund share. The total returns in each
table represent the rate that an investor would have earned (or lost) on an
investment in a Fund (assuming reinvestment of all dividends and distributions).
The information for the fiscal years indicated has been audited by Cohen &
Company, Ltd., the Funds’ independent registered public accounting firm, whose
report, along with the Funds’ financial statements, is included in the Funds’
annual report, which is available upon request.
V-Shares
MSCI World ESG Materiality and Carbon Transition ETF
|
|
|
|
| |
For
a Fund share outstanding throughout the period. |
For
the Period Since Inception(1)
Through October 31, 2022 |
PER
SHARE DATA: |
|
Net
asset value, beginning of period |
$24.73 |
| |
INVESTMENT
OPERATIONS: |
|
Net
investment income |
0.12 |
Net
realized and unrealized loss on investments |
(2.80) |
Total
from investment operations |
(2.68) |
| |
LESS
DISTRIBUTIONS FROM: |
|
Net
investment income |
— |
Net
realized gains |
— |
Total
distributions |
— |
Net
asset value, end of period |
$22.05 |
| |
| |
TOTAL
RETURN, AT NAV(2) |
-10.83% |
TOTAL
RETURN, AT MARKET(2) |
-10.38% |
| |
SUPPLEMENTAL
DATA AND RATIOS: |
|
Net
assets, end of period (in 000’s) |
$2,205 |
Ratio
of expenses to average net assets(3) |
0.39% |
Ratio
of net investment income to average net assets(3) |
1.30% |
| |
Portfolio
turnover rate(2)(4) |
0% |
(1)Inception
date for the Fund was June 8, 2022.
(2)Not
annualized for period less than one year.
(3)Annualized
for period less than one year.
(4)Excludes
impact of in-kind transactions.
V-Shares
US Leadership Diversity ETF
|
|
|
|
| |
For
a Fund share outstanding throughout the period. |
For
the Period Since Inception(1)
Through October 31, 2022 |
PER
SHARE DATA: |
|
Net
asset value, beginning of period |
$24.71 |
| |
INVESTMENT
OPERATIONS: |
|
Net
investment income |
0.23 |
Net
realized and unrealized loss on investments |
(4.11) |
Total
from investment operations |
(3.88) |
| |
LESS
DISTRIBUTIONS FROM: |
|
Net
investment income |
(0.14) |
Net
realized gains |
— |
Total
distributions |
(0.14) |
Net
asset value, end of period |
$20.69 |
| |
| |
TOTAL
RETURN, AT NAV(2) |
-15.68% |
TOTAL
RETURN, AT MARKET(2) |
-15.66% |
| |
SUPPLEMENTAL
DATA AND RATIOS: |
|
Net
assets, end of period (in 000’s) |
$1,035 |
Ratio
of expenses to average net assets(3) |
0.29% |
Ratio
of net investment income to average net assets(3) |
1.24% |
| |
Portfolio
turnover rate(2)(4) |
13% |
(1)Inception
date for the Fund was December 21, 2021.
(2)Not
annualized for period less than one year.
(3)Annualized
for period less than one year.
(4)Excludes
impact of in-kind transactions.
INVESTMENT
ADVISER
V-Square
Quantitative Management, LLC
320
N. Sangamon Street, Suite 1250
Chicago,
IL 60607
INVESTMENT
SUB-ADVISER
Vident
Investment Advisory, LLC
1125
Sanctuary Parkway, Suite 515
Alpharetta,
Georgia 30009
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
Wisconsin 53202
LEGAL
COUNSEL
Stradley
Ronon Stevens & Young, LLP
2005
Market Street, Suite 2600
Philadelphia,
Pennsylvania 19103
CUSTODIAN
U.S.
Bank N.A.
Custody
Operations
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212
INDEX
PROVIDERS
MSCI
Inc.
7
World Trade Center
250
Greenwich Street, 49 Floor
New
York, New York 10007
ISS
ESG
(Responsible investment arm of Institutional Shareholders Service,
Inc.)
702 King Farm Boulevard, Suite 400
Rockville, MD 20850
TRANSFER
AGENT, FUND ACCOUNTANT AND FUND ADMINISTRATOR
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund
Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202
DISTRIBUTOR
Quasar
Distributors, LLC
111
East Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202
Privacy
Notice
The
Funds collect only relevant information about you that the law allows or
requires them to have in order to conduct their business and properly service
you. The Funds collect financial and personal information about you (“Personal
Information”) directly (e.g., information on account applications and other
forms, such as your name, address, and social security number, and information
provided to access account information or conduct account transactions online,
such as password, account number, e-mail address, and alternate telephone
number), and indirectly (e.g., information about your transactions with us, such
as transaction amounts, account balance and account holdings).
The
Funds do not disclose any non-public personal information about their
shareholders or former shareholders other than for everyday business purposes
such as to process a transaction, service an account, respond to court orders
and legal investigations or as otherwise permitted by law. Third parties that
may receive this information include companies that provide transfer agency,
technology and administrative services to the Funds, as well as the Funds’
investment adviser who is an affiliate of the Funds. If you maintain a
retirement/educational custodial account directly with the Funds, we may also
disclose your Personal Information to the custodian for that account for
shareholder servicing purposes. The Funds limit access to your Personal
Information provided to unaffiliated third parties to information necessary to
carry out their assigned responsibilities to the Funds. All shareholder records
will be disposed of in accordance with applicable law. The Funds maintain
physical, electronic and procedural safeguards to protect your Personal
Information and requires their third-party service providers with access to such
information to treat your Personal Information with the same high degree of
confidentiality.
In
the event that you hold shares of a Fund through a financial intermediary,
including, but not limited to, a broker-dealer, bank, credit union or trust
company, the privacy policy of your financial intermediary governs how your
non-public personal information is shared with unaffiliated third
parties.
With
respect to the Funds, issues and redemptions of their shares at net asset value
(“NAV”) occur only in large aggregations of a specified number of shares (e.g.,
50,000) called “Creation Units.” Only Authorized Participants (“APs”) may
acquire shares directly from an ETF, and only APs may tender their ETF shares
for redemption directly to the ETF, at NAV. APs must be (i) a broker-dealer or
other participant in the clearing process through the Continuous Net Settlement
System of the NSCC, a clearing agency that is registered with the SEC; or (ii) a
DTC participant. In addition, each AP must execute a Participant Agreement that
has been agreed to by the Funds’ distributor, and that has been accepted by the
Funds’ transfer agent, with respect to purchases and redemptions of Creation
Units.
Because
of this structure, the Funds do not have any information regarding any
“consumers” as defined in Rule 3 of Regulation S-P with respect to any ETFs, and
consequently is not required by Regulation S-P to deliver a notice of the Funds’
privacy policy to any ETF shareholders.
V-Shares
MSCI World ESG Materiality and Carbon Transition ETF
V-Shares
US Leadership Diversity ETF
FOR
MORE INFORMATION
You
can find more information about the Funds in the following
documents:
Statement
of Additional Information
Please
refer to the SAI for additional information on the Funds. The SAI provides
additional details about the investments and techniques of the Funds and certain
other additional information. A current SAI is on file with the SEC and is
incorporated into this Prospectus by reference. This means that the SAI is
legally considered a part of this Prospectus even though it is not physically
within this Prospectus.
Annual
and Semi-Annual Reports
The
Funds’ annual and semi-annual reports provide additional information about the
Funds’ investments. The annual reports contain a discussion of the market
conditions and investment strategies that affected the Funds’ performance during
the Funds’ prior fiscal period.
You
can obtain a free copy of these documents and the SAI, request other
information, or make general inquiries about the Funds by calling the Funds
(toll-free) at 1-800-617-0004, by visiting the Adviser’s website at
https://www.v-shares.com or by writing to:
V-Shares
MSCI World ESG Materiality and Carbon Transition ETF
V-Shares
US Leadership Diversity ETF
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
Wisconsin 53201-0701
You
can review and copy information, including the Funds’ reports and
SAI:
•Free
of charge from the SEC’s EDGAR database on the SEC’s Internet website at
http://www.sec.gov; or
•For
a fee, by electronic request at the following e-mail address:
[email protected].
(SEC
Investment Company Act of 1940 file number: 811-22525)