Convergence
Long/Short Equity ETF (CLSE)
Listed
on Cboe BZX Exchange, Inc.
Prospectus
February
11, 2022
The
U.S. Securities and Exchange Commission (the “SEC”) has not approved or
disapproved of these securities or determined if this Prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
Convergence
Long/Short Equity ETF
A
series of Trust for Professional Managers (the “Trust”)
TABLE
OF CONTENTS
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| How
to Buy & Sell Shares |
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| Book
Entry |
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| Frequent
Purchases and Redemptions of Shares |
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| Determination
of Net Asset Value |
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| Fair
Value Pricing |
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Dividends
and Distributions |
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| Taxes
on Purchases and Redemptions of Creation Units |
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| Taxes
on Distributions |
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| Taxes
When Shares are Sold on the Exchange |
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| Tax
Considerations |
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| PREMIUM/DISCOUNT
INFORMATION |
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| ADDITIONAL
NOTICES |
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| DERIVATIVE
ACTIONS |
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Investment
Objective
The
investment objective of the Convergence Long/Short Equity ETF (the “Fund”) is to
seek long-term capital growth.
Fees
and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold and sell
shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
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Management
Fees(1) |
0.95% |
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Other
Expenses(1) |
0.00% |
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Dividends
and Interest on Short Positions(2) |
0.61% |
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| Total
Annual Fund Operating Expenses |
1.56% |
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(1)Restated
to reflect current fees and expenses.
(2)“Dividends
and Interest on Short Positions” reflect interest expense and dividends paid on
borrowed securities. Interest expenses result from the Fund’s use of prime
brokerage arrangements to execute short sales. Dividends paid on borrowed
securities are an expense of short sales. These expenses are required to be
treated as a Fund expense for accounting purposes and are not payable to
Convergence Investment Partners, LLC (the “Adviser”). Any interest expense
amount or dividends paid on securities sold short will vary based on the Fund’s
use of those investments as an investment strategy best suited to seek the
investment objective of the Fund.
Example
This
Example is intended to help you compare the costs 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 redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
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| 1
Year |
3
Years |
5
Years |
10
Years |
| $159 |
$493 |
$850 |
$1,856 |
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. These transaction costs and potentially
higher taxes, which are not reflected in the Total Annual Fund Operating
Expenses or in the Example, affect the Fund’s performance. During the most
recent fiscal year, the Fund’s portfolio turnover rate was 303.76% of the
average value of its portfolio.
Principal
Investment Strategies
The
Fund seeks to achieve its investment objective by investing, under normal market
conditions, at least 80% of its net assets (plus any borrowings for investment
purposes) in long and short positions in equity securities of domestic
companies. The Fund focuses primarily on companies with medium and large market
capitalizations, although the Fund may establish long and short positions in
companies of any market capitalization. The Fund will hold long (purchase)
securities that the Adviser believes will outperform the market, and will sell
short securities expected to underperform the market.
The
Fund intends to maintain a net long exposure (the market value of long positions
minus the market value of short positions) of approximately 50% to 100%. Under
normal market conditions, the Fund’s long positions may range from approximately
90% to 150% and its short positions may range from approximately 20% to 70%.
In
making investment decisions for the Fund, the Adviser utilizes a proprietary
stock ranking process. This stock ranking process is based on the philosophy
that fundamentally sound companies are rewarded while fundamentally inferior
companies are punished. Additionally, this process was designed to capture the
best attributes of both quantitative and fundamental methods. Unlike traditional
fundamental stock picking, quantitative management allows for broader coverage
and increased data utilization. The Adviser seeks to maximize return while
minimizing the risk assumed by the Fund through a stock ranking process that
measures what market participants are rewarding or punishing. The Adviser
systematically measures both current factor exposures for company stocks and the
market’s factor preferences and tilts the Fund’s investment portfolio towards
stocks that are ranked highly by the Adviser from a fundamental perspective. The
factors the Adviser evaluates as part of its stock ranking process include, but
are not limited to, valuation, growth, momentum, and quality.
•Valuation
factors help to identify stocks that appear inexpensive relative to other
companies based on fundamental measures. The Adviser evaluates valuation factors
such as price-to-value ratios, earnings, enterprise value, cash flow, revenues,
and yield.
•Growth
factors seek to identify stocks that exhibit signs of higher-than-average growth
metrics. The Adviser evaluates growth factors such as the growth rates in
company earnings, revenue, and cash flow, in addition to assessing the rate of
change of these growth rates.
•Momentum
factors quantify trends in both price and fundamentals. The Adviser evaluates
momentum factors such as the strength and duration of stock price movements, as
well as fundamental trends in a company’s cash flow, earnings, and
sales.
•Quality
factors differentiate companies based on a variety of corporate health and
stability measures. The Adviser evaluates quality factors such as the stability
of a company’s earnings and cash flow, the strength of the balance sheet, and
profit margins.
The
Adviser aggregates similar measures into factors and each measure is equally
weighted. The Adviser’s buy and sell decisions are primarily driven by this
investment process. Applying these indicators, the Adviser takes long or short
positions in stocks that it believes are favorably ranked. The Fund targets a
monthly rebalance during which all holdings are reviewed using the stock ranking
process.
Principal
Risks
Before
investing in the Fund, you should carefully consider your own investment goals,
the amount of time you are willing to leave your money invested, and the amount
of risk you are willing to take. Remember, in addition to possibly not achieving
your investment goals, you
could lose all or a portion of your investment in the Fund over long or even
short periods of time.
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The principal risks of investing in the Fund are:
•General
Market Risk. Certain
securities selected for 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.
•Short
Sales Risk. The
value of a security sold short may increase prior to the scheduled delivery
date, and because the market price of the security sold short could increase
without limit, the Fund could be subject to a theoretically unlimited
loss.
•Management
Risk. Investment
strategies employed by the Adviser in selecting investments and asset
allocations for the Fund may not result in an increase in the value of your
investment or in overall performance equal to other investments.
•ETF
Risk.
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 realize a capital
gain that it might not have realized 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. To the extent that the transaction fees
charged for redemptions of creation units is insufficient to cover the Fund’s
transaction costs of selling portfolio securities, the Fund’s performance equal
to other investments could be negatively impacted.
•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. As a result, investors in the Fund may pay significantly more or
receive significantly less for Shares than the Fund’s NAV. 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. Such conditions may also cause
the bid/ask spreads for an ETF to widen.
•Trading.
Although Shares are listed for trading on the Cboe BZX Exchange, Inc. (the
“Exchange”) and may be traded on U.S. exchanges other than the Exchange, there
can be no assurance that Shares will trade with any volume, or at all, on any
stock exchange. In stressed market conditions, the liquidity of Shares may begin
to mirror the liquidity of the Fund’s underlying portfolio holdings, which can
be significantly less liquid than Shares. This could lead to an increase in the
bid/ask spread for the Shares or the shares trading at a price that is higher or
lower than the Fund’s NAV.
•Recent
Market Events Risk.
U.S. and international markets have experienced significant periods of
volatility in recent months and years due to a number of economic, political and
global macro factors including the impact of the coronavirus (COVID-19) global
pandemic which has resulted in a public health crisis, business interruptions,
growth concerns in the U.S. and overseas, travel restrictions, changed social
behaviors, rising inflation, and reduced consumer spending. While U.S. and
global
economies
are recovering from the effects of COVID-19, the recovery is proceeding at
slower than expected rates and may last for a prolonged period of time.
•Common
Stock Risk. Common
stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of
their issuers change.
•Large-Capitalization
Company Risk.
Larger, more established companies may be unable to respond quickly to new
competitive challenges such as changes in consumer tastes or innovative smaller
competitors. Also, large-capitalization companies are sometimes unable to attain
the high growth rates of successful, smaller companies, especially during
extended periods of economic expansion.
•Medium-Capitalization
Company Risk.
Medium-capitalization companies in which the Fund may invest may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these mid-sized companies may pose additional risks,
including liquidity risk, because these companies tend to have limited product
lines, markets and financial resources, and may depend upon a relatively small
management group. Therefore, mid-cap stocks may be more volatile than those of
larger companies.
•Small-
and Micro-Capitalization Company Risk.
Generally, small- and micro-capitalization companies have more potential for
rapid growth. They also often involve greater risk than larger companies, and
these risks are passed on to the Fund. These smaller-capitalization companies
may not have the management experience, financial resources, product
diversification and competitive strengths of larger companies, and, therefore,
their securities tend to be more volatile than the securities of larger, more
established companies, making them less liquid than other securities.
•High
Portfolio Turnover Rate Risk.
The Fund may have a relatively high turnover rate compared to many registered
funds. A high portfolio turnover rate (100% or more) has the potential to result
in increased brokerage transaction costs which may lower the Fund’s returns.
Furthermore, a high portfolio turnover rate may result in the realization by the
Fund, and distribution to shareholders, of a greater amount of capital gains,
including short-term capital gains, than if the Fund had a low portfolio
turnover rate. Distributions to shareholders of short-term capital gains are
taxed as ordinary income under federal income tax laws. This could result in a
higher tax liability and may lower an investor’s after-tax return.
•Cybersecurity
Risk.
With the increased use of technologies such as the Internet to conduct business,
the Fund is susceptible to operational, information security, and related risks.
Cyber incidents affecting the Fund or its service providers may cause
disruptions and impact business operations, potentially resulting in financial
losses, interference with the Fund’s ability to calculate its NAV, impediments
to trading, the inability of shareholders to transact business, violations of
applicable privacy and other laws, regulatory fines, penalties, reputational
damage, reimbursement or other compensation costs, or additional compliance
costs.
Performance
The
Fund is the successor to the Convergence Long/Short Equity Fund, a series of the
Trust (the “Predecessor Fund”), as a result of the reorganization of the
Predecessor Fund into the Fund on February 18, 2022 (the “Reorganization”).
Accordingly, the performance shown in the bar chart and performance table for
periods from the Fund’s inception to December 31, 2021 represents the
performance of the Predecessor Fund, which operated as a mutual fund. The
Predecessor Fund was also advised by the Adviser and had the same investment
objective and substantially similar strategies as the Fund. Prior to the
Reorganization, the Fund had not yet commenced operations.
The
performance information demonstrates the risks of investing in the Fund by
showing changes in the Predecessor Fund’s performance from year to year and by
showing how the Predecessor Fund’s average annual returns for the one-year,
five-year and ten-year periods compare with those of a broad measure of
market
performance. Remember, the Predecessor Fund’s past performance, before and after
taxes, is not necessarily an indication of how the Fund will perform in the
future. Updated performance information is available on the Fund’s website at
www.investcip.com or by calling the Fund toll-free at 877-677-9414.
Calendar
Year Returns as of December 31
During
the period shown in the bar chart, the best performance for the Predecessor Fund
for a quarter was 15.83% (for the quarter ended March 31, 2012). The worst
performance for the Predecessor Fund was -18.08%% (for the quarter ended March
31, 2020).
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Average
Annual Total Returns
(Periods
Ended December 31, 2021) |
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One
Year |
Five
Years |
Ten
Years |
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| Return
Before Taxes |
32.93% |
10.35% |
12.44% |
| Return
After Taxes on Distributions |
26.74% |
6.60% |
9.82% |
| Return
After Taxes on Distributions and Sale of Fund Shares |
21.63% |
7.05% |
9.45% |
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Russell
3000®
Total Return Index
(reflects
no deduction for fees, expenses or taxes) |
25.66% |
17.97% |
16.30% |
Actual
after-tax returns depend on an investor’s tax situation and may differ from
those shown. After-tax returns are calculated using the historical highest
individual federal marginal income tax rates in effect and do not reflect the
effect of state and local taxes. The after-tax returns shown are not relevant to
investors who hold their shares through tax-deferred or other tax-advantaged
arrangements such as 401(k) plans or individual retirement accounts
(“IRA”).
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 benefit to the investor.
Management
Investment
Adviser
Convergence
Investment Partners, LLC is the Fund’s investment adviser.
Portfolio
Managers
David
J. Abitz, CFA, President and Chief Investment Officer of the Adviser, has served
as a portfolio manager for the Fund since its inception in February 2022 and the
Predecessor Fund since it commenced operations in December 2009. Mr. Justin
Neuberg, CFA, has served as a portfolio manager for the Fund since its inception
in February 2022 and the Predecessor Fund since March 2016. Mr. Abitz and Mr.
Neuberg are jointly and primarily responsible for the day-to-day management of
the Fund’s investment portfolio.
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities closely approximating the holdings of the Fund (the “Deposit
Securities”) and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be purchased and sold
in the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. This difference in bid and
asked prices is often referred to as the “bid-ask spread”. Because the Fund has
not commenced operations, the Fund does not have a sufficient trading history to
report trading information and related costs.
Recent
information about the Fund, including its NAV, market price, premiums and
discounts, and bid-ask spreads, when available, can also be found on the Fund’s
website at www.investcip.com.
Tax
Information
The
Fund’s distributions will be taxed as ordinary income or long-term capital
gains, unless you are investing through a tax-deferred or other tax-advantaged
arrangement, such as a 401(k) plan or an IRA. You may be taxed later upon
withdrawal of monies from such tax-deferred or other tax-advantaged
arrangements.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (a “Financial Intermediary”), the Adviser or its affiliates may
pay Financial Intermediaries for certain activities related to the Fund,
including participation in activities that are designed to make Financial
Intermediaries more knowledgeable about exchange traded products, including the
Fund, or for other activities, such as marketing, educational training or other
initiatives related to the sale or promotion of Shares. These payments may
create a conflict of interest by influencing the Financial Intermediary and your
salesperson to recommend the Fund over another investment. Any such arrangements
do not result in increased Fund expenses. Ask your salesperson or visit the
Financial Intermediary’s website for more information.
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| Investment
Strategies, Related Risks and Disclosure of Portfolio
Holdings |
Investment
Objective.
The investment objective of the Fund is to seek long-term capital
growth.
Principal
Investment Strategies. The
Fund seeks to achieve its investment objective by investing, under normal market
conditions, at least 80% of its net assets (plus any borrowings for investment
purposes) in long and short positions in equity securities of domestic
companies. The Fund focuses primarily on companies with medium and large market
capitalizations, although the Fund may establish long and short positions in
companies of any market capitalization. The Fund generally considers companies
with medium and large market capitalizations to be those companies that comprise
the upper half of the Russell 3000®
Total Return Index. As of December 31, 2021, the market capitalization range of
the upper half of the Russell 3000®
Total Return Index was between $2,737.82 billion and $2.02 billion. The Fund
will hold long (purchase) securities that the Adviser believes will outperform
the market, and will sell short securities expected to underperform the
market.
The
Fund intends to maintain a net long exposure (the market value of long positions
minus the market value of short positions) of approximately 50% to 100% of the
Fund’s total assets. Under normal market conditions, the Fund’s long positions
may range from approximately 90% to 150% of the Fund’s total assets and its
short positions may range from approximately 20% to 70% of the Fund’s total
assets. With a long position, the Fund purchases a security outright, while with
a short position, the Fund sells a security that it has borrowed. When the Fund
sells a security short, it borrows the security from a third party and sells it
at the then-current market price. The Fund is then obligated to buy the security
on a later date so that it can return the security to the lender. Short
positions may be used either to hedge long positions or may be used
speculatively to seek positive returns in instances where the Adviser believes a
security’s price will decline. The Fund will either realize a profit or incur a
loss from a short position, depending on whether the value of the underlying
stock decreases or increases, respectively, between the time it is sold and when
the Fund replaces the borrowed security. The Fund may reinvest the proceeds of
its short sales by taking additional long positions, thus allowing the Fund to
maintain long positions in excess of 100% of its net assets.
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| Investment
Selection Process |
In
making investment decisions for the Fund, the Adviser utilizes a proprietary
stock ranking process. This stock ranking process is based on the philosophy
that fundamentally sound companies are rewarded while fundamentally inferior
companies are punished. Additionally, this process was designed to capture the
best attributes of both quantitative and fundamental methods. Unlike traditional
fundamental stock picking, quantitative management allows for broader coverage
and increased data utilization. The Adviser seeks to maximize return while
minimizing the risk assumed by the Fund through a stock ranking process that
measures what market participants are rewarding or punishing. The Adviser
systematically measures both current factor exposures for company stocks and the
market’s factor preferences and tilts the Fund’s investment portfolio towards
stocks that are ranked highly by the Adviser from a fundamental perspective. The
factors the Adviser evaluates as part of its stock ranking process include, but
are not limited to, valuation, growth, momentum, and quality.
•Valuation
factors help to identify stocks that appear inexpensive relative to other
companies based on fundamental measures. The Adviser evaluates valuation factors
such as price-to-value ratios, earnings, enterprise value, cash flow, revenues,
and yield.
•Growth
factors seek to identify stocks that exhibit signs of higher-than-average growth
metrics. The Adviser evaluates growth factors such as the growth rates in
company earnings, revenue, and cash flow, in addition to assessing the rate of
change of these growth rates.
•Momentum
factors quantify trends in both price and fundamentals. The Adviser evaluates
momentum factors such as the strength and duration of stock price movements, as
well as fundamental trends in a company’s cash flow, earnings, and
sales.
•Quality
factors differentiate companies based on a variety of corporate health and
stability measures. The Adviser evaluates quality factors such as the stability
of a company’s earnings and cash flow, the strength of the balance sheet, and
profit margins.
The
Adviser aggregates similar measures into factors and each measure is equally
weighted. The Adviser’s buy and sell decisions are primarily driven by this
investment process. Applying these indicators, the Adviser takes long or short
positions in stocks that it believes are favorably ranked. The Fund targets a
monthly rebalance during which all holdings are reviewed using the stock ranking
process.
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| General
Investment Policies of the Fund |
Change
in Investment Objective and Strategies.
The Fund’s investment objective and principal investment strategies may be
changed without the approval of the Fund’s shareholders upon 60 days’ written
notice to shareholders. The Fund will not make any changes in its investment
policy of investing at least 80% of net assets (plus borrowings for investment
purposes) in long and short positions in equity securities of domestic companies
without providing shareholders with at least 60 days’ prior written notice of
the change in its investment policy.
Non-Principal
Investment Strategies; Securities Lending.
The Fund may lend securities from its portfolio to brokers, dealers and
financial institutions in order to increase the return on its portfolio,
primarily through the receipt of borrowing fees and earnings on invested
collateral. Any such loan must be continuously secured by collateral in cash or
cash equivalents maintained on a current basis in an amount at least equal to
the market value of the securities loaned by the Fund. During the time
securities are on loan, the borrower will pay the Fund any accrued income on
those securities, and the Fund may invest the cash collateral and earn income or
receive an agreed-upon fee from a borrower that has delivered cash-equivalent
collateral.
Non-Principal
Investment Strategies; Investments in Foreign Securities. The
Fund may invest in foreign companies, typically through the sale and purchase of
American Depositary Receipts (“ADRs”). ADRs are certificates evidencing
ownership of shares of a foreign-based issuer held by a U.S. bank or similar
financial institution as depository. ADRs are denominated in U.S.
dollars.
Temporary
Strategies; Cash or Similar Investments.
For temporary defensive purposes, the Adviser may invest up to 100% of the
Fund’s total assets in high-quality, short-term debt securities and money market
instruments. These short-term debt securities and money market instruments
include shares of mutual funds or ETFs, commercial paper, certificates of
deposit, bankers’ acceptances, U.S. Government securities and repurchase
agreements. Taking a temporary defensive position may result in the Fund not
achieving its investment objective. Furthermore, to the extent that the Fund
invests in money market mutual funds for its cash position, there will be some
duplication of expenses because the Fund would bear its pro rata portion of such
money market funds’ management fees and operational expenses.
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| Principal
Risks of Investing in the Fund |
Before
investing in the Fund, you should carefully consider your own investment goals,
the amount of time you are willing to leave your money invested, and the amount
of risk you are willing to take. Remember, in addition to possibly not achieving
your investment goals, you
could lose money by investing in the Fund.
The Fund’s principal risks are presented in alphabetical order to facilitate
finding particular risks and comparing them with other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
unless stated otherwise, regardless of the order in which it appears. The
principal risks of investing in the Fund are:
•Cybersecurity
Risk.
With the increased use of technologies such as the Internet to conduct business,
the Fund is susceptible to operational, information security, and related risks.
In general, cyber incidents can result from deliberate attacks or unintentional
events. Cyber attacks include, but are not limited to, gaining unauthorized
access to digital systems (e.g.,
through “hacking” or malicious software coding) for
purposes
of misappropriating assets or sensitive information, corrupting data, or causing
operational disruption. Cyber attacks may also be carried out in a manner that
does not require gaining unauthorized access, such as causing denial-of-service
attacks on websites (i.e.,
efforts to make network services unavailable to intended users). Cyber incidents
affecting the Fund or its service providers have the ability to cause
disruptions and impact business operations, potentially resulting in financial
losses, interference with the Fund’s ability to calculate their NAV, impediments
to trading, the inability of shareholders to transact business, violations of
applicable privacy and other laws, regulatory fines, penalties, reputational
damage, reimbursement or other compensation costs, or additional compliance
costs. Similar adverse consequences could result from cyber incidents affecting
issuers of securities in which the Fund invests, counterparties with which the
Fund engages in transactions, governmental and other regulatory authorities,
exchange and other financial market operators, banks, brokers, dealers,
insurance companies and other financial institutions (including financial
intermediaries and service providers for shareholders) and other parties. In
addition, substantial costs may be incurred in order to prevent any cyber
incidents in the future. While the Fund’s service providers have established
business continuity plans in the event of, and risk management systems to
prevent, such cyber incidents, there are inherent limitations in such plans and
systems including the possibility that certain risks have not been identified.
Furthermore, the Fund cannot control the cyber security plans and systems put in
place by their service providers or any other third parties whose operations may
affect the Fund or its shareholders. As a result, the Fund and its shareholders
could be negatively impacted.
•Common
Stock Risk.
Common stocks are susceptible to general stock market fluctuations and to
volatile increases and decreases in value as market confidence in, and
perceptions of, their issuers change. These investor perceptions are based on
various and unpredictable factors including: expectations regarding government,
economic, monetary and fiscal policies; inflation and interest rates; economic
expansion or contraction; and global or regional political, economic and banking
crises. Common stock, or common stock equivalents, of any given issuer, are
generally exposed to greater risk than preferred stocks and debt obligations of
the issuer because common stock, or equivalent interests, generally have
inferior rights to receive payments from issuers in comparison with the rights
of preferred stock, bonds and other creditors of such issuers.
•ETF
Risk.
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 realize a capital
gain that it might not have realized 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. To the extent that the transaction fees
charged for redemptions of creation units is insufficient to cover the Fund’s
transaction costs of selling portfolio securities, the Fund’s performance could
be negatively impacted.
◦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. As a result, investors in the Fund may pay significantly more or
receive significantly less for Shares than the Fund’s NAV. 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. Such conditions may also cause
the bid/ask spreads for an ETF to widen.
◦Trading.
Although Shares are listed for trading on the
Exchange
and may be traded on U.S. exchanges other than the Exchange, there can be no
assurance that Shares will trade with any volume, or at all, on any stock
exchange. In stressed market conditions, the liquidity of Shares may begin to
mirror the liquidity of the Fund’s underlying portfolio holdings, which can be
significantly less liquid than Shares. This could lead to an increase in the
bid/ask spread for the Shares or the shares trading at a price that is higher or
lower than the Fund’s NAV.
•Foreign
Securities Risk.
As a non-principal strategy, the Fund may invest in foreign securities,
typically through the purchase and sale of ADRs, which are traded on U.S.
exchanges and represent an ownership in a foreign security. Investing in foreign
securities poses additional risks since political and economic events unique to
a country or region will affect those markets and their issuers. Income earned
on foreign securities may be subject to foreign withholding taxes. These risks
will not necessarily affect the U.S. economy or similar issuers located in the
United States. In addition, investments in foreign securities are generally
denominated in a foreign currency. As a result, changes in the value of a
currency compared to the U.S. dollar may affect (positively or negatively) the
value of the Fund’s investments. These currency movements may occur separately
from, and in response to, events that do not otherwise affect the value of the
security in the issuer’s home country. While ADRs provide an alternative to
directly purchasing the underlying foreign securities in their respective
national markets and currencies, investments in ADRs continue to be subject to
many of the risks associated with investing directly in foreign
securities.
•General
Market Risk.
The market value of a security may move up or down, sometimes rapidly and
unpredictably. 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, or sector of the economy or
the market as a whole. Global economies and financial markets are increasingly
interconnected, which increases the probabilities that conditions in one country
or region might adversely impact issues in a different country or region. In
some cases, 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 that company. As a result of this
volatility, many of the following risks associated with an investment in the
Fund may be increased. Continuing market problems may have adverse effects on
the Fund. Political and diplomatic events within the U.S. may affect investor
and consumer confidence and may adversely impact financial markets and the
broader economy. Additionally, geopolitical conflicts, continue to be ongoing
risks to future growth. Markets may react strongly to changes in these policies,
which could increase volatility.
•High
Portfolio Turnover Rate Risk.
High portfolio turnover rates could generate capital gains, including short-term
capital gains taxable to shareholders at ordinary income rates and could
increase brokerage commission costs. To the extent that the Fund experiences an
increase in brokerage commissions due to a higher turnover rate, the performance
of the Fund could be negatively impacted by the increased
expenses
incurred by the Fund. These potentially higher taxes and increased brokerage
commission costs may reduce a shareholder’s after-tax return on an investment in
the Fund.
•Large-Capitalization
Company Risk.
Larger, more established companies may be unable to respond quickly to new
competitive challenges such as changes in consumer tastes or innovative smaller
competitors. Also, large-capitalization companies are sometimes unable to attain
the high growth rates of successful, smaller companies, especially during
extended periods of economic expansion.
•Management
Risk.
The ability of the Fund to meet its investment objective is directly related to
the Adviser’s investment strategies for the Fund. The value of your investment
in the Fund may vary with the effectiveness of the Adviser’s research, analysis
and asset allocation among portfolio securities. If the Adviser’s investment
strategies do not produce the expected results, your investment could be
diminished or even lost.
•Medium-Capitalization
Company Risk.
The medium-capitalization companies in which the Fund may invest may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these mid-sized companies may pose additional risks,
including liquidity risk, because these companies tend to have limited product
lines, markets and financial resources, and may depend upon a relatively small
management group. Therefore, mid-cap stocks may be more volatile than those of
larger companies. These securities may be traded over-the-counter or listed on
an exchange.
•Recent
Market Events Risk.
U.S. and international markets have experienced volatility in recent months and
years due to a number of economic, political and global macro factors, including
the impact of the coronavirus (COVID-19) global pandemic, which has resulted in
a public health crisis, business interruptions, growth concerns in the U.S. and
overseas, travel restrictions, changed social behaviors, rising inflation and
reduced consumer spending. While several countries, including the U.S. have
begun to lift public health restrictions in efforts to reopen their respective
economies, the outbreak of new variants has led to the renewal of health
mandates by local governments and businesses, event cancellations and additional
travel restrictions, supply chain shortages, cessation of return-to-office plans
and overall economic slowdown. While U.S. and global economies are recovering
from the effects of COVID-19, the recovery is proceeding at slower than expected
rates and may last for a prolonged period of time. Uncertainties regarding
interest rates, political events, rising government debt in the U.S. and trade
tensions have also contributed to market volatility. Global economies and
financial markets are increasingly interconnected, which increases the
possibility that conditions in one country or region might adversely impact
issuers in a different country or region. In particular, a rise in protectionist
trade policies, slowing global economic growth, risks associated with epidemic
and pandemic diseases, risks associated with the United Kingdom’s departure from
the European Union, the risk of trade disputes, and the possibility of changes
to some international trade agreements, could affect the economies of many
nations, including the United States, in ways that cannot necessarily be
foreseen at the present time. Continuing market volatility as a result of recent
market conditions or other events may have adverse effects on your
account.
•Securities
Lending Risk.
The Fund may lend securities from its portfolio as a non-principal strategy.
Securities lending involves the risk of a default or insolvency of the borrower.
In either of these cases, the Fund could experience delays in recovering
securities or collateral or could lose all or part of the value of the loaned
securities. The Fund also could lose money in the event of a decline in the
value of the collateral provided for loaned securities. Additionally, the loaned
portfolio securities may not be available to the Fund on a timely basis and the
Fund may therefore lose the opportunity to sell the securities at a desirable
price. Any decline in the value of a security that occurs while the security is
out on loan would continue to be borne by the Fund.
•Short
Sales Risk.
Short sales are transactions in which the Fund sells a security it does not own.
The Fund must borrow the security to make delivery to the buyer. The Fund is
then obligated to replace the security borrowed by purchasing the security at
the market price at the time of replacement. The price at
such
time may be higher or lower than the price at which the security was sold by the
Fund. If the underlying security goes down in price between the time the Fund
sells the security and buys it back, the Fund will realize a gain on the
transaction. Conversely, if the underlying security goes up in price during the
period, the Fund will realize a loss on the transaction. Because the market
price of the security sold short could increase without limit, the Fund could be
subject to a theoretically unlimited loss. The risk of such price increases is
the principal risk of engaging in short sales. In addition, the Fund’s
investment performance may suffer if the Fund is required to close out a short
position earlier than it had intended. This would occur if the securities lender
required the Fund to deliver the securities the Fund borrowed at the
commencement of the short sale and the Fund was unable to borrow the securities
from another securities lender or otherwise obtain the security by other means
or if the borrowed securities appreciated in value from the date that the Fund
first borrowed them. Moreover, the Fund may be subject to expenses related to
short sales that are not typically associated with investing in securities
directly, such as costs of borrowing and margin account maintenance costs
associated with the Fund’s open short positions. These expenses negatively
impact the performance of the Fund. For example, when the Fund short sells an
equity security that pays a dividend, it is obligated to pay the dividend on the
security it has sold. However, a dividend paid on a security sold short
generally reduces the market value of the shorted security and thus, increases
the Fund’s unrealized gain or reduces the Fund’s unrealized loss on its short
sale transaction. To the extent that the dividend that the Fund is obligated to
pay is greater than the return earned by the Fund on investments, the
performance of the Fund will be negatively impacted. Furthermore, the Fund may
be required to pay a premium or interest to the lender of the security. The
foregoing types of short sale expenses are sometimes referred to as the
“negative cost of carry,” and will tend to cause the Fund to lose money on a
short sale even in instances where the price of the underlying security sold
short does not change over the duration of the short sale. The Fund is also
required to segregate other assets on its books to cover its obligation to
return the security to the lender which means that those other assets may not be
available to meet the Fund’s needs for immediate cash or other
liquidity.
•Small-
and Micro-Capitalization Company Risk.
Generally, small- and micro-capitalization companies have more potential for
rapid growth. They also often involve greater risk than larger companies, and
these risks are passed on to the Fund. These smaller-capitalization companies
may not have the management experience, financial resources, product
diversification and competitive strengths of larger companies, and, therefore,
their securities tend to be more volatile than the securities of larger, more
established companies, making them less liquid than other securities. Small-cap
company stocks tend to be bought and sold less often and in smaller amounts than
larger company stocks. Because of this, if the Fund wants to sell a large
quantity of a small-cap company’s stock, it may have to sell at a lower price
than the Adviser might prefer, or it may have to sell in smaller than desired
quantities over a period of time. Given these risks, an investment in the Fund
may be more suitable for long-term investors who are willing to bear the risk of
these fluctuations.
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| Portfolio
Holdings Information |
Information
about the Fund’s daily portfolio holdings is available at www.investcip.com. A
complete description of the Fund’s policies and procedures with respect to the
disclosure of the Fund’s portfolio holdings is available in the Statement of
Additional Information (“SAI”).
The
Fund has entered into an investment advisory agreement (the “Advisory
Agreement”) with Convergence Investment Partners, LLC, a Delaware limited
liability company located at 3801 PGA Boulevard, Suite 1001, Palm Beach Gardens,
Florida 33410. For the services it provides the Fund, the Fund pays the Adviser
a unified management fee at an annual rate of 0.95% of the Fund’s average daily
net assets. Under the Advisory
Agreement,
the Adviser manages the Fund’s investments subject to the supervision of the
Board of Trustees. Prior to the Reorganization, the Adviser entered into an
advisory agreement with the Trust, on behalf of the Predecessor Fund, pursuant
to which the Predecessor Fund paid the Adviser 1.00% of the Fund’s average daily
net assets. The management fee paid by the Predecessor Fund was not a unified
management fee. For the fiscal year ended November 30, 2021, the Adviser
received management fees of 0.55% (net of fee waivers) of the Predecessor Fund’s
average daily net assets. Under the Advisory Agreement, the Adviser has agreed
to pay all expenses of the Fund except interest charges on any borrowings,
dividends, and other expenses on securities sold short, taxes, brokerage
commissions and other expenses incurred in placing orders for the purchase and
sale of securities and other investment instruments, acquired fund fees and
expenses, accrued deferred tax liability, extraordinary expenses, distribution
fees and expenses paid by the Fund under any distribution plan adopted pursuant
to Rule 12b-1 under the 1940 Act, and the unified management fee payable to the
Adviser.
The
Adviser is a registered investment adviser founded in November 2004 as QIS
Advisors, LLC (“QIS Advisors”). On December 16, 2008, the name of the Adviser
was changed to Mariner Quantitative Solutions, LLC. On January 27, 2011, the
name of the Adviser was changed to Convergence Investment Partners, LLC. Since
February 2005, the Adviser has managed separate accounts and other pooled
investment vehicles using a long/short investment strategy similar to the
strategy implemented with the Fund. As of December 31, 2021, the Adviser had
approximately $220 million in assets under management. The Adviser is
majority-owned by Nile Capital Group, LLC, a Delaware limited liability
company.
A
discussion regarding the basis of the Board of Trustees’ approval of the
Advisory Agreement will be included in the Fund’s next annual or semi-annual
report to shareholders.
The
Fund, as a series of the Trust, does not hold itself out as related to any other
series of the Trust for purposes of investment and investor services, nor does
it share the same investment adviser with any other series of the
Trust.
Mr.
David J. Abitz and Mr. Justin Neuberg are each a portfolio manager of the Fund
and are jointly and primarily responsible for the day-to-day management of the
Fund’s investment portfolio.
David
J. Abitz,
CFA,
founded QIS Advisors, the predecessor firm to the Adviser, in 2004. Mr. Abitz
has more than two decades of investment experience and is the President and
Chief Investment Officer of the Adviser. Prior to founding the Adviser, Mr.
Abitz was Chief Investment Officer of the Custom Quantitative Solutions Group at
M&I Investment Management Corporation from 2000 to 2004, where he managed
the Marshall Equity Income Fund, Tax Efficient Portfolios, M&I High Dividend
Income Portfolios and the M&I Long/Short Fund. Mr. Abitz began his career at
M&I Investment Management Corporation as a fundamental equity research
analyst and an equity trader. Mr. Abitz is a Chartered Financial Analyst with a
BBA in Finance from the University of Wisconsin – Oshkosh and an MBA from the
University of Wisconsin – Madison. He is a member of the Society of Quantitative
Analysts, the Chicago Quantitative Alliance group, and the Chartered
Financial Analyst (“CFA”) Society
of South Florida.
Justin
Neuberg,
CFA,
Portfolio Manager, joined the Adviser in 2014. Mr. Neuberg has
worked in the financial services industry since 2002 and has an extensive
background in investment analytics. Prior
to joining the firm, Mr. Neuberg was an analyst and portfolio strategist at
Mariner Wealth Advisors from 2009 to 2013, where he was a member of the Mariner
Assets Allocation Committee. Mr. Neuberg has a bachelor’s degree in physics from
the University of Virginia and a Master of Business Administration degree with a
concentration in finance from Georgetown University. Mr. Neuberg is a Chartered
Financial Analyst with a professional certificate in finance from the University
of California at San Diego. Mr. Neuberg is a member of the CFA Society of South
Florida.
CFA®
and Chartered Financial Analyst®
are registered trademarks owned by the CFA Institute.
The
SAI provides additional information about the Portfolio Managers’ compensation,
other accounts managed and ownership of securities in the Fund.
The
Fund issues and redeems Shares at net asset value (“NAV”) only in Creation
Units. Only APs may acquire Shares directly from the Fund, and only APs may
tender their Shares for redemption directly to the Fund, at NAV. APs must be a
member or participant of a clearing agency registered with the SEC and must
execute a Participant Agreement that has been agreed to by Foreside Fund
Services, LLC (the “Distributor”), the Fund’s distributor, and that has been
accepted by the Fund’s transfer agent, with respect to purchases and redemptions
of Creation Units. Once created, Shares trade in the secondary market in
quantities less than a Creation Unit.
Most
investors buy and sell individual Shares in secondary market transactions
through brokers. Shares are listed for trading on the secondary market on the
Exchange and can be bought and sold throughout the trading day like other
publicly traded securities. In addition, because secondary market transactions
occur at market prices, you may pay more than NAV when you buy Shares, and
receive less than NAV when you sell those Shares.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. The commission is frequently a fixed amount and
may be a significant proportional cost for investors seeking to buy or sell
small amounts of shares. The spread with respect to shares of the Fund varies
over time based on the Fund’s trading volume and market liquidity and is
generally lower if the Fund has a lot of trading volume and market liquidity and
higher if the Fund has little trading volume and market liquidity.
Because
of the costs of buying and selling Fund shares, frequent trading may reduce
investment return and an investment in the Fund may not be advisable for
investors who anticipate regularly making small investments.
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.
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| Frequent
Purchases and Redemptions of Shares |
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to adopt a written policy restricting frequent
trading in the Fund, the Board evaluated the risks of market timing activities
by Fund shareholders. Purchases and redemptions by APs, who are the only parties
that may purchase or redeem Shares directly with the Fund, are an essential part
of the ETF process and help keep Share trading prices in line with NAV. As such,
the Fund accommodates frequent purchases and redemptions by APs. However,
frequent purchases and redemptions for cash may increase portfolio transaction
costs and may lead to the realization of capital gains. To minimize these
potential consequences of frequent purchases
and
redemptions, the Fund employs fair value pricing and may impose transaction fees
on purchases and redemptions of Creation Units to cover the custodial and other
costs incurred by the Fund in effecting trades. In addition, the Fund and the
Adviser reserve the right to reject any purchase order at any time.
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| Determination
of Net Asset Value |
The
Fund’s NAV is calculated by dividing the value of the Fund’s total assets, less
its liabilities, by the number of its shares outstanding. In calculating the
Fund’s NAV, portfolio securities are valued using current market values or
official closing prices, if available. If such information is not available for
a security held by the Fund or is determined to be unreliable, the security will
be valued at fair value estimates under guidelines established by the Board (as
described below). The Fund’s NAV is calculated at the close of regular trading
of the NYSE (which is generally 4:00 p.m., Eastern time). The Fund’s NAV will
not be calculated on days on which the NYSE is closed for trading. If the NYSE
closes early, the Fund will calculate its NAV as of the close of trading on the
NYSE on that day. If an emergency exists as permitted by the SEC, the NAV may be
calculated at a different time.
The
Board has adopted procedures and methodologies to fair value Fund securities
whose market prices are not “readily available” or are deemed to be unreliable.
For example, such circumstances may arise when: (i) a security has been
de-listed or has had its trading halted or suspended; (ii) a security’s primary
pricing source is unable or unwilling to provide a price; (iii) a security’s
primary trading market is closed during regular market hours; or (iv) a
security’s value is materially affected by events occurring after the close of
the security’s primary trading market. Generally, when fair valuing a security,
the Fund will take into account all reasonably available information that may be
relevant to a particular valuation including, but not limited to, fundamental
analytical data regarding the issuer, information relating to the issuer’s
business, recent trades or offers of the security, general and/or specific
market conditions and the specific facts giving rise to the need to fair value
the security. Fair value determinations are made in good faith and in accordance
with the fair value methodologies included in the Board-adopted valuation
procedures. Due to the subjective and variable nature of fair value pricing,
there can be no assurance that the Adviser will be able to obtain the fair value
assigned to the security upon the sale of such security.
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| Dividends,
Distributions, and Taxes |
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| Dividends
and Distributions |
The
Fund intends to make distributions of net investment income and net capital
gain, if any, at least annually, typically during the month of December. The
Fund will declare and pay income and capital gain distributions in cash.
Distributions in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option
available. Your broker is responsible for distributing the income and capital
gain distributions to you.
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax advisor
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Fund intends to qualify each year for treatment as a regulated investment
company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as
amended. If it meets certain minimum distribution requirements, a RIC is not
subject to federal income tax at the fund level on income and gains from
investments that are timely distributed to shareholders. However, the Fund’s
failure to qualify as a RIC or to
meet
minimum distribution requirements would result (if certain relief provisions
were not available) in fund-level taxation and, consequently, a reduction in
income available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when the Fund makes distributions, when you sell your Shares listed
on the
Exchange, and when you purchase or redeem Creation Units ( institutional
investors only).
The
tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax
Act”) made significant changes to the U.S. federal income tax rules for taxation
of individuals and corporations, generally effective for taxable years beginning
after December 31, 2017. Many of the changes applicable to individuals are
temporary and would apply only to taxable years before January 1, 2026. There
were only minor changes with respect to the specific rules only applicable to
RICs, such as the Fund. The Tax Act, however, also made numerous other changes
to the tax rules that may affect shareholders and the Fund. Subsequent
legislation has modified certain changes to the U.S. federal income tax rules
made by the Tax Act which may, in addition, affect shareholders and the Fund.
You are urged to consult with your own tax advisor regarding how this
legislation affects your investment in the Fund.
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| Taxes
on Purchases and Redemptions of Creation
Units |
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The IRS may
assert, however, that a loss that is realized upon an exchange of securities for
Creation Units may not be currently deducted under the rules governing “wash
sales” (for an AP who does not mark-to-market their holdings) or on the basis
that there has been no significant change in economic position. Persons
exchanging securities should consult their own tax advisor with respect to
whether wash sale rules apply and when a loss might be deductible.
Any
capital gain or loss realized upon redemption of Creation Units is generally
treated as long-term capital gain or loss if Shares have been held for more than
one year and as a short-term capital gain or loss if Shares have been held for
one year or less.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to realize investment income and/or capital
gains or losses that it might not have realized if it had completely satisfied
the redemption in-kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
For
federal income tax purposes, distributions of net investment income are
generally taxable as ordinary income or qualified dividend income. A portion of
dividends received from the Fund (but none of the Fund’s capital gain
distributions) may qualify for the dividends-received deduction for
corporations. Taxes on distributions of net capital gains (if any) are
determined by how long the Fund owned the investments that generated them,
rather than how long a shareholder has owned his or her Shares. Sales of assets
held by the Fund for more than one year generally result in long-term capital
gains and losses, and sales of assets held by the Fund for one year or less
generally result in short-term capital gains and losses. Distributions of the
Fund’s net capital gain (the excess of net long-term capital gains over net
short-term capital losses) that are reported to shareholders by the Fund as
capital gain dividends (“Capital Gain Dividends”) will be taxable as
long-term
capital gains, which for non-corporate shareholders are subject to tax at
reduced rates of up to 20% (lower rates apply to individuals in lower tax
brackets). Distributions of short-term capital gain will generally be taxable as
ordinary income. Dividends and distributions are generally taxable to you
whether you receive them in cash or reinvest them in additional
Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that the Fund receives in respect of stock of certain
foreign corporations may be qualified dividend income if that stock is readily
tradable on an established U.S. securities market. Corporate shareholders may be
entitled to a dividends-received deduction for the portion of dividends they
receive from the Fund that are attributable to dividends received by the Fund
from U.S. corporations, subject to certain limitations.
Shortly
after the close of each calendar year, you will be informed of the character of
any distributions received from the Fund.
In
addition to the federal income tax, certain individuals, trusts and estates may
be subject to a Net Investment Income (“NII”) tax of 3.8%. The NII tax is
imposed on the lesser of: (i) the taxpayer’s investment income, net of
deductions properly allocable to such income; or (ii) the amount by which the
taxpayer’s modified adjusted gross income exceeds certain thresholds ($250,000
for married individuals filing jointly, $200,000 for unmarried individuals and
$125,000 for married individuals filing separately). The Fund’s distributions
are includable in a shareholder’s investment income for purposes of this NII
tax. In addition, any capital gain realized by a shareholder upon a sale or
redemption of Fund shares is includable in such shareholder’s investment income
for purposes of this NII tax.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. The Fund may, under certain circumstances,
report all or a portion of a dividend as an “interest-related dividend” or a
“short-term capital gain dividend,” which would generally be exempt from this
30% U.S. withholding tax, provided certain other requirements are
met.
Under
the Foreign Account Tax Compliance Act (“FATCA”), the Fund may be required to
withhold a generally nonrefundable 30% tax on (i) distributions of investment
company taxable income and (ii) distributions of net capital gain and the gross
proceeds of a sale or redemption of Fund shares paid to (A) certain “foreign
financial institutions” unless such foreign financial institution agrees to
verify, monitor, and report to the IRS the identity of certain of its account
holders, among other items (or unless such entity is otherwise deemed compliant
under the terms of an intergovernmental agreement between the United States and
the foreign financial institution’s country of residence), and (B) certain
“non-financial foreign entities” unless such entity certifies to the Fund that
it does not have any substantial U.S. owners or provides the name, address, and
taxpayer identification number of each substantial U.S. owner, among other
items. In December 2018, the IRS and Treasury Department released proposed
Treasury Regulations that would eliminate FATCA withholding on Fund
distributions of net capital gain and the gross proceeds from a sale or
redemption of Fund shares. Although taxpayers are entitled to rely on these
proposed Treasury Regulations
until
final Treasury Regulations are issued, these proposed Treasury Regulations have
not been finalized, may not be finalized in their proposed form, and are
potentially subject to change. This FATCA withholding tax could also affect the
Fund’s return on its investments in foreign securities or affect a shareholder’s
return if the shareholder holds its Fund shares through a foreign intermediary.
You are urged to consult your tax adviser regarding the application of this
FATCA withholding tax to your investment in the Fund and the potential
certification, compliance, due diligence, reporting, and withholding obligations
to which you may become subject in order to avoid this withholding
tax.
The
Fund or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale or redemption proceeds paid to
any shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that he, she or it is not subject to such withholding.
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| Taxes
When Shares are Sold on the Exchange |
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares and disallowed to the extent of the
amount of exempt-interest dividends received by the shareholder with respect to
such Shares. The ability to deduct capital losses may be limited.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares.
Consult
your personal tax advisor about the potential tax consequences of an investment
in Shares under all applicable tax laws. For more information, please see the
section entitled “Federal Income Tax Matters” in the SAI.
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| Premium/Discount
Information |
The
Fund is new and therefore does not have any information regarding how often
Shares are traded on the Exchange at a price above (i.e., at a premium) or below
(i.e., at a discount) the NAV of the Fund.
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of, the timing,
prices, or quantities of Shares to be issued, nor in the determination or
calculation of the equation by which Shares are redeemable. The Exchange has no
obligation or liability to owners of Shares in connection with the
administration, marketing, or trading of Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser and the Fund make no representation or warranty, express or implied, to
the owners of Shares or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly.
Pursuant
to the Trust’s Amended and Restated Declaration of Trust (the “Declaration of
Trust”), and subject to the limitations disclosed in the Declaration of Trust, a
Fund shareholder may only bring a derivative action if (i) the shareholder or
shareholders make a pre-suit demand upon the Board of Trustees to bring the
subject action unless an effort to cause the Board of Trustees to bring such an
action is not likely to succeed (as defined in the Declaration of Trust); (ii)
shareholders eligible to bring such derivative action under the Delaware
Statutory Trust Act who hold at least 10% of the outstanding voting securities
of the Trust, or 10% of the outstanding voting securities of the series or class
to which such action relates, shall join in the request for the Board of
Trustees to commence such action; and (iii) the Board of Trustees is afforded a
reasonable amount of time to consider such shareholder request and to
investigate the basis of such claim. The Board of Trustees shall be entitled to
retain counsel or other advisors in considering the merits of the request and
shall require an undertaking by the shareholders making such request to
reimburse the Trust for the expense of any such advisors in the event that the
Trustees determine not to bring such action. The provision requiring at least
10% of the outstanding voting securities of the Trust, applicable series or
class to join in the request to bring the derivative action and the provision
requiring an undertaking by the requesting shareholders to reimburse the Trust
for the expense of any advisors retained by the Board in the event that the
Trustees determine not to bring such action, do not apply to claims brought
under federal securities laws.
On
February 18, 2022, the Fund acquired all of the assets and liabilities of the
Predecessor Fund in exchange for shares of beneficial interest of the Fund. As a
result of such reorganization, the Fund adopted the financial and performance
history of the Predecessor Fund.
The
financial highlights table below is intended to help you understand the
Predecessor Fund’s financial performance information for the Predecessor Fund’s
five most recent fiscal years. Certain information reflects financial results
for a single Fund share. The total returns in the table represent the rate that
you would have earned or lost on an investment in the Predecessor Fund (assuming
you reinvested all distributions). This information has been audited by Cohen
& Company, Ltd., the independent registered public accounting firm of the
Predecessor Fund, whose report, along with the Predecessor Fund’s financial
statements, are included in the Predecessor Fund’s 2021 Annual
Report
to Shareholders, which is available free of charge upon request.
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| Per
Share Data for a Share Outstanding Throughout Each Year |
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|
Year
Ended November 30, |
|
2021 |
2020 |
2019 |
2018 |
2017 |
| Net
Asset Value, Beginning of Year |
$ |
14.03 |
|
$ |
19.76 |
|
$ |
19.83 |
|
$ |
21.03 |
|
$ |
18.47 |
|
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|
|
|
|
|
| Income
from investment operations: |
|
|
|
|
|
|
Net
investment income (loss)(1) |
(0.03) |
|
0.01 |
|
0.14 |
|
0.01 |
|
0.04 |
|
| Net
realized and unrealized gain (loss) on investments |
3.98 |
|
(1.11) |
|
0.65 |
|
1.47 |
|
3.32 |
|
| Total
from investment operations |
3.95 |
|
(1.10) |
|
0.79 |
|
1.48 |
|
3.36 |
|
|
|
|
|
|
|
| Less
distributions paid: |
|
|
|
|
|
|
From
net investment income |
(0.04) |
|
(0.13) |
|
(0.07) |
|
(0.04) |
|
(0.18) |
|
|
From
net realized gains |
— |
|
(4.50) |
|
(0.79) |
|
(2.64) |
|
(0.62) |
|
| Total
distributions paid |
(0.04) |
|
(4.63) |
|
(0.86) |
|
(2.68) |
|
(0.80) |
|
|
|
|
|
|
|
| Net
Asset Value, End of Year |
$ |
17.94 |
|
$ |
14.03 |
|
$ |
19.76 |
|
$ |
19.83 |
|
$ |
21.03 |
|
|
|
|
|
|
|
|
Total
Return(2) |
28.26 |
% |
-7.68 |
% |
4.72 |
% |
7.69 |
% |
18.81 |
% |
|
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| Supplemental
Data and Ratios: |
|
|
|
|
|
| Net
assets at end of year (000’s) |
$29,313 |
$22,537 |
$67,741 |
$112,861 |
$128,565 |
| Ratio
of expenses to average net assets: |
|
|
|
|
|
|
Before
waiver, expense reimbursement and recoupments(3)
|
2.56 |
% |
2.58 |
% |
2.18 |
% |
2.20 |
% |
2.11 |
% |
|
After
waiver, expense reimbursement and recoupments(3) |
2.11 |
% |
2.39 |
% |
2.18 |
% |
2.20 |
% |
2.11 |
% |
|
Ratio
of net investment income to average net assets: |
|
|
|
|
|
| Before
waiver, expense reimbursement and recoupments |
(0.63) |
% |
(0.13) |
% |
0.76 |
% |
0.03 |
% |
0.20 |
% |
| After
waiver, expense reimbursement and recoupments |
(0.18) |
% |
0.06 |
% |
0.76 |
% |
0.03 |
% |
0.20 |
% |
| Portfolio
turnover rate |
303.76 |
% |
251.72 |
% |
239.08 |
% |
193.55 |
% |
214.61 |
% |
(1)Per
share net investment income was calculated using the daily average shares
outstanding method.
(2)Total
return in the table represents the rate that the investor would have earned or
lost on an investment in the Predecessor Fund, assuming reinvestment of
dividends.
(3)The
ratio of expenses to average net assets includes dividends on short positions,
interest and broker expenses. The annualized before waiver, expense
reimbursement and recoupments and after waiver, expense reimbursement and
recoupments ratios excluding dividends on short positions, interest and broker
expenses were 1.95% and 1.50%, 1.69% and 1.50%, 1.32% and 1.32%, 1.27% and
1.27%, 1.28% and 1.28% for the periods ended November 30, 2021, November 30,
2020, November 30, 2019, November 30, 2018, November 30, 2017,
respectively.
Investment
Adviser
Convergence
Investment Partners, LLC
3801
PGA Boulevard, Suite 1001
Palm
Beach Gardens, Florida 33410
Independent
Registered Public Accounting Firm
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115
Legal
Counsel
Godfrey
& Kahn, S.C.
833
East Michigan Street, Suite 1800
Milwaukee,
Wisconsin 53202
Custodian
U.S.
Bank National Association
Custody
Operations
1555
North River Center Drive, Suite 302
Milwaukee,
Wisconsin 53212
Transfer
Agent, Fund Accountant and Fund Administrator
U.S.
Bancorp Fund Services, LLC
615
East Michigan Street
Milwaukee,
Wisconsin 53202
Distributor
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101
Convergence
Long/Short Equity ETF
A
series of Trust for Professional Managers
You
can find more information about the Fund in the following
documents:
Statement
of Additional Information
The
Fund’s SAI provides additional details about the investments and techniques of
the Fund and certain other additional information. A current SAI is on file with
the SEC and is incorporated into this Prospectus by reference. This means that
the Fund’s SAI is legally considered a part of this Prospectus even though it is
not physically within this Prospectus.
Annual
and Semi-Annual Reports
The
Fund’s annual and semi-annual reports provide the most recent financial reports
and portfolio holdings. The Fund’s annual report contains a discussion of the
market conditions and investment strategies that significantly affected the
Fund’s performance during the Fund’s prior fiscal year.
You
can obtain a free copy of these documents, request other information, or make
general inquiries about the Fund by calling the Fund (toll-free) at
877-677-9414, by visiting the Fund’s website at www.investcip.com, or by writing
to:
Convergence
Long/Short Equity ETF
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
WI 53201-0701
Shareholder
reports and other information about the Fund are also available:
•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].
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(The
Trust’s SEC Investment Company Act file number is
811‑10401) |
