ck0001540305-20210531
AI Powered International Equity ETF
(AIIQ)
Listed
on NYSE Arca, Inc.
PROSPECTUS
September 30,
2021
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved
of these securities or passed upon the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
AI
Powered International Equity ETF
The AI Powered International
Equity ETF (the “Fund”) seeks capital appreciation.
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
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| Management
Fees |
0.79% |
| Distribution
and/or Service (12b-1) Fees |
0.00% |
| Other
Expenses |
0.00% |
| Total
Annual Fund Operating Expenses |
0.79% |
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This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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| 1
Year |
3
Years |
5
Years |
10
Years |
| $81 |
$252 |
$439 |
$978 |
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
Example, affect the Fund’s performance. For the fiscal year ended May 31,
2021, the Fund’s portfolio turnover rate was 330% of the average value of its
portfolio.
The
Fund is actively managed and seeks to achieve its investment objective by
investing primarily in equity securities (or depositary receipts) of companies
in developed markets outside the United States based on the results of a
proprietary, quantitative model (the “EquBot Model”) developed by EquBot Inc.
(“EquBot” or the “Adviser”) that runs on the Watson™
platform.
EquBot, the Fund’s investment adviser, is a technology based company focused on
applying artificial intelligence (“AI”) based solutions to investment analyses.
As a graduate of the IBM Global Entrepreneur program, EquBot leverages IBM’s
Watson AI to conduct an objective, fundamental analysis of companies in non-U.S.
developed markets based on up to ten years of historical data and apply that
analysis to recent economic and news data.
Each
day, the EquBot Model ranks each company based on the probability of the company
benefiting from current economic conditions, trends, and world events and
identifies approximately 80 to 250 companies with the greatest potential over
the next twelve months for appreciation and their corresponding weights. The
Fund may invest in the securities of companies of any market capitalization. The
EquBot Model recommends a weight for each company based on its potential for
appreciation and correlation to the other companies in the Fund’s portfolio. The
EquBot Model limits the weight of any individual company to 10%.
IBM’s
Watson AI is a computing platform capable of answering natural language
questions by connecting large amounts of data, both structured (e.g.,
spreadsheets) and unstructured (e.g.,
news articles), and learning from each analysis it conducts (e.g.,
by recognizing patterns) to produce a more accurate answer with each subsequent
question.
The
Adviser utilizes the recommendations of the EquBot Model to decide which
securities to purchase and sell, while complying with the Investment Company Act
of 1940 (the “1940 Act”) and its rules and regulations. The Adviser anticipates
primarily making purchase and sale decisions based on information from the
EquBot Model. The Fund may frequently and actively purchase and sell
securities.
As
of June 30, 2021, the Fund had significant exposure to the health care and
information technology sectors.
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with other funds. Each risk summarized below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Fund.”
•Currency
Exchange Rate Risk.
The Fund invests primarily in investments denominated in non-U.S. currencies or
in securities that provide exposure to such currencies. Changes in currency
exchange rates and the relative value of non-U.S. currencies will affect the
value of the Fund’s
investment and the value of your Shares. Currency exchange rates can be very
volatile and can change quickly and unpredictably. As a result, the value of an
investment in the Fund may change quickly and without warning and you may lose
money.
•Depositary
Receipt Risk. Depositary
Receipts involve risks similar to those associated with investments in foreign
securities, such as changes in political or economic conditions of other
countries and changes in the exchange rates of foreign currencies. Depositary
Receipts listed on U.S. exchanges are issued by banks or trust companies and
entitle the holder to all dividends and capital gains that are paid out on the
underlying foreign shares (“Underlying Shares”). When the Fund invests in
Depositary Receipts as a substitute for an investment directly in the Underlying
Shares, the Fund is exposed to the risk that the Depositary Receipts may not
provide a return that corresponds precisely with that of the Underlying Shares.
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests. Common
stocks are generally exposed to greater risk than other types of securities,
such as preferred stock and debt obligations, because common stockholders
generally have inferior rights to receive payment from issuers. In addition,
local, regional or global events such as war, acts of terrorism, spread of
infectious diseases or other public health issues, recessions, or other events
could have a significant negative impact on the Fund and its investments. For
example, the global pandemic caused by COVID-19, a novel coronavirus, and the
aggressive responses taken by many governments, including closing borders,
restricting international and domestic travel, and the imposition of prolonged
quarantines or similar restrictions, has had negative impacts, and in many cases
severe impacts, on markets worldwide. The COVID-19 pandemic has caused prolonged
disruptions to the normal business operations of companies around the world and
the impact of such disruptions is hard to predict. Such events may affect
certain geographic regions, countries, sectors and industries more significantly
than others. Such events could adversely affect the prices and liquidity of the
Fund’s portfolio securities or other instruments and could result in disruptions
in the trading markets.
•ETF
Risks. The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV,
there
may be times when the market price of Shares is more than the NAV intra-day
(premium) or less than the NAV intra-day (discount) due to supply and demand of
Shares or during periods of market volatility. This risk is heightened in times
of market volatility, periods of steep market declines, and periods when there
is limited trading activity for Shares in the secondary market, in which case
such premiums or discounts may be significant. Because securities held by the
Fund may trade on foreign exchanges that are closed when the Fund’s primary
listing exchange is open, the Fund is likely to experience premiums and
discounts greater than those of domestic ETFs.
◦Trading. Although
Shares are listed for trading on NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares, and this could lead to differences between the market price of the
Shares and the underlying value of those Shares.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. Investments in non-U.S. securities also
may be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. These and other factors
can make investments in the Fund more volatile and potentially less liquid than
other types of investments.
•Geographic
Investment Risk.
To the extent 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.
•Management
Risk. The
Fund is actively managed and may not meet its investment objective based on the
Adviser’s success or failure to implement investment strategies for the Fund.
The Fund’s principal investment strategies are dependent on the Adviser’s use of
AI and the EquBot Model. As a result, the Fund’s performance will be dependent
on the Adviser’s skill in understanding and utilizing AI, specifically IBM’s
Watson AI, to implement the Fund’s principal investment strategy.
•Market
Capitalization Risks.
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion. Large-capitalization companies may also be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies. Small-capitalization companies also may be particularly sensitive to
changes in interest rates, government regulation, borrowing costs and
earnings.
•Models
and Data Risk. The
Fund relies heavily on proprietary quantitative models as well as information
and data supplied by third parties (“Models and Data”). When Models and Data
prove to be incorrect or incomplete, any decisions made in reliance thereon may
lead to the inclusion or exclusion of securities that would have been excluded
or included had the Models and Data been correct and complete. Specifically, the
Fund relies on Watson AI and the EquBot Model to implement its principal
investment strategies. As a result, to the extent either such system does not
perform as designed or as intended, the Fund’s strategy may not be successfully
implemented and the Fund may lose value.
•Portfolio
Turnover Risk. The
Fund may actively
and frequently trade
securities or
other instruments in
its portfolio to
carry out
its investment
strategies.
A high portfolio turnover rate increases transaction costs, which may increase
the Fund’s expenses.
Frequent trading may also cause adverse tax consequences for investors in the
Fund due to an increase in short-term capital
gains.
•Sector
Risk. To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors. The Fund may invest a significant portion of its assets in
the following sectors and, therefore, the performance of the Fund could be
negatively impacted by events affecting each of these sectors.
◦Health
Care Sector Risk. Companies
in the health care sector are subject to extensive government regulation and
their profitability can be significantly affected by restrictions on government
reimbursement for medical expenses, rising costs of medical products and
services, pricing pressure (including price discounting), limited product lines,
an increased emphasis on the delivery of healthcare through outpatient services,
loss or impairment of intellectual property rights and litigation regarding
product or service liability.
◦Information
Technology Sector Risk. Market
or economic factors impacting information technology companies and companies
that rely heavily on technological advances could have a significant effect on
the value of the Fund’s investments. The value of stocks of information
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 information 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. Information
technology companies are heavily dependent on patent and intellectual property
rights, the loss or impairment of which may adversely affect
profitability.
The following
performance information indicates some of the risks of investing in the
Fund. The
bar chart shows the Fund’s performance for calendar years ended December
31. The table illustrates how the Fund’s
average annual returns for the 1-year and since inception periods compared with
those of a broad measure of market performance. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is also available on the
Fund’s website at www.aiiqetf.com.
Calendar Year Total Returns
For the year-to-date period ended
June 30, 2021, the
Fund’s total return was 9.29%. During the period of time shown in the bar
chart, the Fund’s highest quarterly return
was 26.82% for the quarter ended June 30, 2020, and the
lowest quarterly return was
-24.70% for the quarter ended March 31,
2020.
Average Annual Total Returns
For the Period Ended December 31,
2020
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| AI
Powered International Equity ETF |
1
Year |
Since
Inception
(6/5/2018) |
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Return Before
Taxes |
15.39% |
11.24% |
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Return After Taxes on
Distributions |
15.10% |
10.36% |
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Return After Taxes on Distributions and
Sale of Shares |
9.45% |
8.43% |
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FTSE
Developed ex US All Cap Net Tax Index
(reflects no deduction for
fees, expenses, or taxes) |
10.00% |
5.71% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. After-tax returns shown are
not relevant to investors who hold their Shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts.
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| Adviser |
EquBot
Inc. |
| Sub-Adviser |
Toroso
Investments, LLC (“Toroso” or the “Sub-Adviser”) |
| Portfolio Managers |
Eric
Kelly and Qiao Duan, CFA, each a portfolio manager of the Sub-Adviser,
have been portfolio managers of the Fund since May
2021. |
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.aiiqetf.com.
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
The
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed without shareholder approval upon written notice to
shareholders.
The
Fund has adopted the following policy to comply with Rule 35d-1 under the
Investment Company Act of 1940. Such policy has been adopted as a
non-fundamental investment policy and may be changed without shareholder
approval upon 60 days’ written notice to shareholders. Under normal
circumstances, at least 80% of the Fund’s net assets, plus borrowings for
investment purposes, will be invested in equity securities.
This
section provides additional information regarding the principal risks described
in the Fund Summary. As in the Fund Summary, the principal risks below are
presented in alphabetical order to facilitate finding particular risks and
comparing them with other funds. Each risk described below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. Each of the factors below could have a negative impact on the Fund’s
performance and trading prices.
•Currency
Exchange Rate Risk.
Changes
in currency exchange rates and the relative value of non-U.S. currencies will
affect the value of the Fund’s investments and the value of your Shares. Because
the Fund’s NAV is determined on the basis of U.S. dollars, the U.S. dollar value
of your investment in the Fund may go down if the value of the local currency of
the non-U.S. markets in which the Fund invests depreciates against the U.S.
dollar. This is true even if the local currency value of securities in the
Fund’s holdings goes up. Conversely, the dollar value of your investment in the
Fund may go up if the value of the local currency appreciates against the U.S.
dollar. The value of the U.S. dollar measured against other currencies is
influenced by a variety of factors. These factors include: national debt levels
and trade deficits, changes in balances of payments and trade, domestic and
foreign interest and inflation rates, global or regional political, economic or
financial events, monetary policies of governments, actual or potential
government intervention, and global energy prices. Political instability, the
possibility of government intervention and restrictive or opaque business and
investment policies may also reduce the value of a country’s currency.
Government monetary policies and the buying or selling of currency by a
country’s government may also influence exchange rates. Currency exchange rates
can be very volatile and can change quickly and unpredictably. As a result, the
value of an investment in the Fund may change quickly and without warning, and
you may lose money.
•Depositary
Receipt Risk.
The Fund may hold the securities of non-U.S. companies in the form of American
Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”). ADRs are
negotiable certificates issued by a U.S. financial institution that represent a
specified number of shares in a foreign stock and trade on a U.S. national
securities exchange, such as the New York Stock Exchange. Sponsored ADRs are
issued with the support of the issuer of the foreign stock underlying the ADRs
and carry all of the rights of common shares, including voting rights. GDRs are
similar to ADRs but may be issued in bearer form and are typically offered for
sale globally and held by a foreign branch of an international bank. The
underlying issuers of certain depositary receipts, particularly unsponsored or
unregistered depositary receipts, are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through
to them any voting rights with respect to the deposited securities. Issuers of
unsponsored depositary receipts are not contractually obligated to disclose
material information in the U.S. and, therefore, such information may not
correlate to the market value of the unsponsored depositary receipt. The
underlying securities of the ADRs and GDRs in the Fund’s portfolio are usually
denominated or quoted in currencies other than the U.S. Dollar. As a result,
changes in foreign currency exchange rates may affect the value of the Fund’s
portfolio. In addition, because the underlying securities of ADRs and GDRs trade
on foreign exchanges at times when the U.S. markets are not open for trading,
the value of the securities underlying the ADRs and GDRs may change materially
at times when the U.S. markets are not open for trading, regardless of whether
there is an active U.S. market for Shares.
•Equity
Market Risk.
Common stocks are susceptible to general stock market fluctuations and to
volatile increases and decreases in value as market confidence in and
perceptions of their issuers change. These investor perceptions are based on
various and unpredictable factors including: expectations regarding government,
economic, monetary and fiscal policies; inflation and interest rates; economic
expansion or contraction; and global or regional political, economic, public
health, and banking crises. If you held common stock, or common stock
equivalents, of any given issuer, you would generally be exposed to greater risk
than if you held preferred stocks and debt obligations of the issuer because
common stockholders, or holders of equivalent interests, generally have inferior
rights to receive payments from issuers in comparison with the rights of
preferred stockholders, bondholders, and other creditors of such issuers.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and in many cases unprecedented volatility and
severe losses due to the global pandemic caused by COVID-19, a novel
coronavirus. The pandemic has resulted in a wide range of social and economic
disruptions, including closed borders, voluntary or compelled quarantines of
large populations, stressed healthcare systems, reduced or prohibited domestic
or international travel, supply chain disruptions, and so-called “stay-at-home”
orders throughout much of the United States and many other countries. The
fall-out from these disruptions has included the rapid closure of businesses
deemed “non-essential” by federal, state, or local governments and rapidly
increasing unemployment, as well as greatly reduced liquidity for certain
instruments at times. Some sectors of the economy and individual issuers have
experienced particularly large losses. Such disruptions may continue for an
extended period of time or reoccur in the future to a similar or greater extent.
In response, the U.S. government and the Federal Reserve have taken
extraordinary actions to support the domestic economy and financial markets,
resulting in very low interest rates and in some cases negative yields. It is
unknown how long circumstances related to the pandemic will persist, whether
they will reoccur in the future, whether efforts to support the economy and
financial markets will be successful, and what additional implications may
follow from the pandemic. The impact of these events and other epidemics or
pandemics in the future could adversely affect Fund performance.
•ETF
Risks. The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦APs,
Market Makers, and Liquidity Providers Concentration Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid-ask spread.” The bid-ask spread varies over time for Shares
based on trading volume and market liquidity, and the spread is generally lower
if Shares have more trading volume and market liquidity and higher if Shares
have little trading volume and market liquidity. Further, a relatively small
investor base in the Fund, asset swings in the Fund, and/or increased market
volatility may cause increased bid-ask spreads. Due to the costs of buying or
selling Shares, including bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility, periods of
steep market declines, and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant. Because securities held by the Fund may trade on foreign exchanges
that are closed when the Fund’s primary listing exchange is open, the Fund is
likely to experience premiums and discounts greater than those of domestic ETFs.
The market price of Shares during the trading day, like the price of any
exchange-traded security, includes a “bid-ask” spread charged by the exchange
specialist, market makers or other participants that trade the Shares. In times
of severe market disruption, the bid-ask spread can increase significantly. At
those times, Shares are most likely to be traded at a discount to NAV, and the
discount is likely to be greatest when the price of Shares is falling fastest,
which may be the time that you most want to sell your Shares. The Adviser
believes that, under normal market conditions, large market price discounts or
premiums to NAV will not be sustained because of arbitrage
opportunities.
◦Trading.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500®
Index during a single day reaches certain thresholds (e.g.,
7%,
13%, and 20%). Additional rules applicable to the Exchange may halt trading in
Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than Shares, and this
could lead to differences between the market price of the Shares and the
underlying value of those Shares.
•Foreign
Securities Risk.
Investments
in non-U.S. securities involve certain risks that may not be present with
investments in U.S. securities. For example, investments in non-U.S. securities
may be subject to risk of loss due to foreign currency fluctuations or to
political or economic instability. There may be less information publicly
available about a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may be
subject to different accounting, auditing, financial reporting and investor
protection standards than U.S. issuers. Investments in non-U.S. securities may
be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. With respect to certain
countries, there is the possibility of government intervention and expropriation
or nationalization of assets. Because legal systems differ, there is also the
possibility that it will be difficult to obtain or enforce legal judgments in
certain countries. Since foreign exchanges may be open on days when the Fund
does not price its Shares, the value of the securities in the Fund’s portfolio
may change on days when shareholders will not be able to purchase or sell
Shares. Conversely, Shares may trade on days when foreign exchanges are closed.
Each of these factors can make investments in the Fund more volatile and
potentially less liquid than other types of investments.
•Geographic
Investment Risk.
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. For example,
political and economic conditions and changes in regulatory, tax, or economic
policy in a country could significantly affect the market in that country and in
surrounding or related countries and have a negative impact on the Fund’s
performance. Currency developments or restrictions, political and social
instability, and changing economic conditions have resulted in significant
market volatility.
•Management
Risk. The
Fund is actively managed and may not meet its investment objective based on the
Adviser’s success or failure to implement investment strategies for the Fund.
The
Fund’s principal investment strategies are dependent on the Adviser’s use of AI
and the EquBot Model. As a result, the Fund’s performance will be dependent on
the Adviser’s skill in understanding and utilizing AI, specifically IBM’s Watson
AI, to implement the Fund’s principal investment strategy.
• Market
Capitalization Risks.
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion. Large-capitalization companies may also be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing. The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies, but they may also be subject to slower growth
than small-capitalization companies during times of economic expansion. The
securities of mid-capitalization companies generally trade in lower volumes and
are subject to greater and more unpredictable price changes than large
capitalization stocks or the stock market as a whole, but they may also be
nimbler and more responsive to new challenges than large-capitalization
companies. Some mid-capitalization companies have limited product lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization
companies.
◦Small-Capitalization
Investing. The
securities of small-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some small capitalization companies have limited product
lines, markets, and financial and managerial resources and tend to concentrate
on fewer geographical markets relative to larger capitalization companies. There
is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and
earnings.
•Models
and Data Risk. When
Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon expose the Fund to potential risks. The EquBot Model is
predictive in nature. The use of predictive models has inherent risks. For
example, such models may incorrectly forecast future behavior, leading to
potential losses. In addition, in unforeseen or certain low-probability
scenarios (often involving a market disruption of some kind), such models may
produce unexpected results, which can result in losses for the Fund.
Furthermore, because predictive models are usually constructed based on
historical data supplied by third parties, the success of relying on such models
may depend heavily on the accuracy and reliability of the supplied historical
data.
•Portfolio
Turnover Risk. The
Fund may actively
and frequently trade
securities or
other instruments in
its portfolio to
carry out
its investment
strategies.
A
high portfolio turnover rate increases transaction costs, which may increase the
Fund’s expenses.
Frequent trading may also cause adverse tax consequences for investors in the
Fund due to an increase in short-term capital gains.
•Sector
Risk. The
Fund’s investing approach may result in an emphasis on certain sectors or
sub-sectors of the market at any given time. To the extent the Fund invests more
heavily in one sector or sub-sector of the market, it thereby presents a more
concentrated risk and its performance will be especially sensitive to
developments that significantly affect those sectors or sub-sectors. In
addition, the value of Shares may change at different rates compared to the
value of shares of a fund with investments in a more diversified mix of sectors
and industries. An individual sector or sub-sector of the market may have
above-average performance during particular periods, but may also move up and
down more than the broader market. The several industries that constitute a
sector may all react in the same way to economic, political or regulatory
events. The Fund’s performance could also be affected if the sectors or
sub-sectors do not perform as expected. Alternatively, the lack of exposure to
one or more sectors or sub-sectors may adversely affect performance.
◦Health
Care Sector Risk.
Companies in the health care sector are subject to extensive government
regulation and their profitability can be significantly affected by restrictions
on government reimbursement for medical expenses, rising costs of medical
products and services, pricing pressure (including price discounting), limited
product lines and an increased emphasis on the delivery of healthcare through
outpatient services. Companies in the health care sector are heavily dependent
on obtaining and defending patents, which may be time consuming and costly, and
the expiration of patents may also adversely affect the profitability of these
companies. Health care companies are also subject to extensive litigation based
on product liability and similar claims. In addition, their products can become
obsolete due to industry innovation, changes in technologies or other market
developments. Many new products in the health care sector require significant
research and development and may be subject to regulatory approvals, all of
which may be time consuming and costly with no guarantee that any product will
come to market.
◦Information
Technology Sector Risk.
Market
or economic factors impacting information technology companies and companies
that rely heavily on technological advances could have a significant effect on
the value of the Fund’s investments. The value of stocks of information
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 information 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. Information
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.
Information
about the Fund’s daily portfolio holdings is available at www.aiiqetf.com. A
complete description of the Fund’s policies and procedures with respect to the
disclosure of the Fund’s portfolio holdings is available in the Fund’s Statement
of Additional Information (“SAI”).
EquBot
Inc. serves as the investment adviser and has overall responsibility for the
general management and administration of the Fund. EquBot is a Delaware
corporation located at 450 Townsend Street, San Francisco, California 94107 and
provides investment advisory services to ETFs, including the Fund. The Adviser
is a graduate of IBM’s Global Entrepreneur program, which provides qualifying
start-up companies with access to technology usage credits, leading experts, and
enterprise-grade IBM Cloud technologies (such as Watson™) to support the
start-ups in developing solutions to real problems and to enable them to bring
innovative products to market faster. The Adviser also provides oversight of the
Sub-Adviser, monitoring of the
Sub-Adviser’s
buying and selling of securities for the Fund, and review of the Sub-Adviser’s
performance. The Adviser also arranges for sub-advisory, transfer agency,
custody, fund administration, and all other non-distribution related services
necessary for the Fund to operate. For the services it provides to the Fund, the
Fund pays the Adviser a unified management fee, which is calculated daily and
paid monthly, at an annual rate of 0.79% of the Fund’s average daily net
assets.
Under
the investment advisory agreement, the Adviser has agreed to pay all expenses
incurred by the Fund except for interest
charges
on any borrowings, dividends, and other expenses on securities sold short,
taxes, brokerage commissions and other expenses incurred in placing orders for
the purchase and sale of securities and other investment instruments, acquired
fund fees and expenses, accrued deferred tax liability, extraordinary expenses,
distribution fees and expenses paid by the Fund under any distribution plan
adopted pursuant to Rule 12b-1 under the 1940 Act,
and
the unified management fee payable to EquBot. The Adviser, in turn, compensates
the Sub-Adviser from the management fee it receives.
The
basis for the Board of Trustees’ approval of the Fund’s investment advisory
agreement is available in the Fund’s Annual
Report to Shareholders
for the fiscal year ended May
31, 2021.
Sub-Adviser
The
Adviser has retained Toroso Investments, LLC to serve as sub-adviser. Toroso is
responsible for the day-to-day management of the Fund. Toroso’s principal office
is located at 898 N. Broadway, Suite 2, Massapequa, New York 11758. Toroso is a
Delaware limited liability company founded in March 2012 that is dedicated to
understanding, researching and managing assets within the expanding ETF
universe. Toroso is responsible for trading portfolio securities for the Fund,
including selecting broker-dealers to execute purchase and sale transactions,
subject to the supervision of the Adviser and the Board. For its services,
Toroso is paid a fee by the Adviser, which fee is calculated daily and paid
monthly, at an annual rate of the Fund’s average daily net assets of 0.045% on
the first $500 million, 0.040% on the next $500 million, and 0.035% on net
assets in excess of $1 billion, all subject to a minimum annual fee of
$25,000.
From
May 17, 2021 to August 6, 2021, Toroso served as sub-adviser to the Fund
pursuant to an Interim Sub-Advisory Agreement. The Interim Sub-Advisory
Agreement was materially identical to the current sub-advisory agreement, except
that the Interim Sub-Advisory Agreement entitled Toroso to receive a fee from
the Adviser of 0.030% on net assets in excess of $1 billion, rather than 0.035%
under the current sub-advisory agreement.
Prior
to May 17, 2021, Vident Investment Advisory, LLC (“VIA”) served as the
sub-adviser to the Fund. During the fiscal period June 1, 2020 through May 16,
2021, the Adviser paid VIA a fee for its sub-advisory services, which fee was
calculated daily and paid monthly, at an annual rate of the Fund’s average daily
net assets of 0.050% on the first $500 million, 0.040% on the next $500 million,
and 0.030% on net assets in excess of $1 billion, all subject to a minimum
annual fee of $25,000.
The
basis for the Board of Trustees’ approval of the Fund’s sub-advisory agreement
is available in the Fund’s Annual
Report to Shareholders
for the fiscal year ended May 31, 2021.
Portfolio
Managers
Eric
Kelly and Qiao Duan, CFA, are primarily and jointly responsible for the
day-to-day management of the Fund.
Mr.
Kelly serves as portfolio manager at the Sub-Adviser focusing on strategy
implementation and trade execution, having joined the firm in September 2020.
From July 2019 - September 2020, he was an execution Portfolio Manager at
Exponential ETFs, where he managed trading and reporting responsibilities
relating to all ETF strategies. Prior to joining the Exponential ETFs, Mr. Kelly
was an Associate Director with Institutional Investment Consulting (IIC) serving
as the lead investment analyst on over $10 billion worth of Treasury and
Retirement assets. Mr. Kelly joined IIC in 2013. Prior to IIC, Mr. Kelly served
as an analyst and trader at Merrill Lynch and in the hedge fund industry,
operating within the equities, options, futures, and fixed income markets. Mr.
Kelly attended the University of Michigan Dearborn where he received degrees in
Finance and Accounting, with a minor in International Economics. He is a
candidate in the CFA Program.
Ms.
Duan serves as Portfolio Manager at the Sub-Adviser focusing on strategy
implementation and trade execution, having joined the firm in October 2020. From
February 2017 to October 2020, she was an execution Portfolio Manager at
Exponential ETFs, where she managed research and analysis relating to all
Exponential ETF strategies. Ms. Duan received a Master of Science in
Quantitative Finance and Risk Management from the University of Michigan in 2016
and a Bachelor of Science in Mathematics and Applied Mathematics from Xiamen
University in 2014. She holds the CFA designation.
The
Fund’s SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by the Portfolio Managers, and
the Portfolio Managers’ ownership of Shares.
The
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from the Fund, and only APs may tender their Shares for
redemption directly to the Fund, at NAV. APs must be a member or participant of
a clearing agency registered with the SEC and must execute a Participant
Agreement that has been agreed to by the Distributor (defined below), and that
has been accepted by the Fund’s transfer agent, with respect to purchases and
redemptions of Creation Units. Once created, Shares trade in the secondary
market in quantities less than a Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Shares are listed for trading on the secondary market on the Exchange and can be
bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the bid-ask spread on
your transactions. In addition, because secondary market transactions occur at
market prices, you may pay more than NAV when you buy Shares and receive less
than NAV when you sell those Shares.
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.
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, the Board has also
determined that frequent purchases and redemptions for cash may increase
tracking error and portfolio transaction costs and may lead to the realization
of capital gains. To minimize these potential consequences of frequent purchases
and redemptions, the Fund employs fair value pricing and may impose transaction
fees on purchases and redemptions of Creation Units to cover the custodial and
other costs incurred by the Fund in effecting trades. In addition, the Fund and
the Adviser reserve the right to reject any purchase order at any time.
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern time, each day
the NYSE is open for business. The NAV is calculated by dividing the Fund’s net
assets by its Shares outstanding.
In
calculating its NAV, the Fund generally values its assets on the basis of market
quotations, last sale prices, or estimates of value furnished by a pricing
service or brokers who make markets in such instruments. If such information is
not available for a security held by the Fund or is determined to be unreliable,
the security will be valued at fair value estimates under guidelines established
by the Board (as described below).
The
Board has adopted procedures and methodologies to fair value Fund securities
whose market prices are not “readily available” or are deemed to be unreliable.
For example, such circumstances may arise when: (i) a security has been
de-listed or has had its trading halted or suspended; (ii) a security’s primary
pricing source is unable or unwilling to provide a price; (iii) a security’s
primary trading market is closed during regular market hours; or (iv) a
security’s value is materially affected by events occurring after the close of
the security’s primary trading market. Generally, when fair valuing a security,
the Fund will take into account all reasonably available information that may be
relevant to a particular valuation including, but not limited to, fundamental
analytical data regarding the issuer, information relating to the issuer’s
business, recent trades or offers of the security, general and/or specific
market conditions and the specific facts giving rise to the need to fair value
the security. Fair value determinations are made in good faith and in accordance
with the fair value methodologies included in the Board-adopted
valuation
procedures. Due to the subjective and variable nature of fair value pricing,
there can be no assurance that the Adviser or Sub-Adviser will be able to obtain
the fair value assigned to the security upon the sale of such security.
Section 12(d)(1)
of the 1940 Act restricts investments by registered investment companies in the
securities of other investment companies, including Shares. Registered
investment companies are permitted to invest in the Fund beyond the limits set
forth in section 12(d)(1), subject to certain terms and conditions set forth in
an SEC exemptive order issued to the Adviser or rule under the 1940 Act,
including that such investment companies enter into an agreement with the
Fund.
Householding
is an option available to certain investors of the Fund. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Fund is available through certain broker-dealers. If
you are interested in enrolling in householding and receiving a single copy of
prospectuses and other shareholder documents, please contact your broker-dealer.
If you are currently enrolled in householding and wish to change your
householding status, please contact your broker-dealer.
Dividends
and Distributions
The
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. The Fund will declare and
pay capital gain distributions, if any, in cash. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to
you.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax advisor
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Fund intends to qualify each year for treatment as a regulated investment
company (“RIC”) under the Code. If it meets certain minimum distribution
requirements, a RIC is not subject to tax at the fund level on income and gains
from investments that are timely distributed to shareholders. However, the
Fund’s failure to qualify as a RIC or to meet minimum distribution requirements
would result (if certain relief provisions were not available) in fund-level
taxation and, consequently, a reduction in income available for distribution to
shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when the Fund makes distributions, when you sell your Shares listed
on the Exchange; and when you purchase or redeem Creation Units (APs
only).
Taxes
on Distributions. The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long the Fund owned the investments that generated them,
rather than how long a shareholder has owned his or her Shares. Sales of assets
held by the Fund for more than one year generally result in long-term capital
gains and losses, and sales of assets held by the Fund for one year or less
generally result in short-term capital gains and losses. Distributions of the
Fund’s net capital gain (the excess of net long-term capital gains over net
short-term capital losses) that are reported by the Fund as capital gain
dividends (“Capital Gain Dividends”) will be taxable as long-term capital gains,
which for non-corporate shareholders are subject to tax at reduced rates of up
to 20% (lower rates apply to individuals in lower tax brackets). Distributions
of short-term capital gain will generally be taxable as ordinary income.
Dividends and distributions are generally taxable to you whether you receive
them in cash or reinvest them in additional Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that the Fund received in respect of stock of certain
foreign corporations may be qualified dividend income if that stock is readily
tradable on an established U.S. securities market.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your investment.
If
the Fund’s distributions exceed its earnings and profits, all or a portion of
the distributions made for a taxable year may be recharacterized as a return of
capital to shareholders. A return of capital distribution will generally not be
taxable, but will reduce each shareholder’s cost basis in Shares and result in a
higher capital gain or lower capital loss when the Shares are sold. After a
shareholder’s basis in Shares has been reduced to zero, distributions in excess
of earnings and profits in respect of those Shares will be treated as gain from
the sale of the Shares.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares generally are not subject to U.S. taxation, unless you are a
nonresident alien individual who is physically present in the U.S. for 183 days
or more per year. The Fund may, under certain circumstances, report all or a
portion of a dividend as an “interest-related dividend” or a “short-term capital
gain dividend,” which would generally be exempt from this 30%
U.S. withholding tax, provided certain other requirements are met.
Different tax consequences may result if you are a foreign shareholder engaged
in a trade or business within the United States or if a tax treaty applies.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act),
the Fund is required to withhold 30% of certain ordinary dividends it pays to
shareholders that are foreign entities and that fail to meet prescribed
information reporting or certification requirements.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale or redemption proceeds paid to
any shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that he, she or it is not subject to such withholding.
Taxes
When Shares are Sold on the Exchange. Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares of the Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of Shares. The ability to deduct capital
losses may be limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your account.
Taxes
on Purchases and Redemptions of Creation Units. An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash sales” (for an AP who does not mark-to-market
their
holdings), or on the basis that there has been no significant change in economic
position. APs exchanging securities should consult their own tax advisor with
respect to whether wash sale rules apply and when a loss might be
deductible.
Any
capital gain or loss realized upon redemption of Creation Units is generally
treated as long-term capital gain or loss if Shares have been held for more than
one year and as a short-term capital gain or loss if Shares have been held for
one year or less.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Foreign
Taxes
To
the extent the Fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the Fund received from
sources in foreign countries.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax advisor about the
potential tax consequences of an investment in Shares under all applicable tax
laws. For more information, please see the section entitled “Federal Income
Taxes” in the SAI.
The
Distributor, Quasar Distributors, LLC, is a broker-dealer registered with the
SEC. The Distributor distributes Creation Units for the Fund on an agency basis
and does not maintain a secondary market in Shares. The Distributor has no role
in determining the policies of the Fund or the securities that are purchased or
sold by the Fund. The Distributor’s principal address is 111 East Kilbourn
Avenue, Suite 2200, Milwaukee, Wisconsin 53202.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year for certain
distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the future,
because the fees are paid out of the Fund’s assets, over time these fees will
increase the cost of your investment and may cost you more than certain other
types of sales charges.
Information
regarding how often Shares traded on the Exchange at a price above (i.e.,
at a premium) or below (i.e.,
at a discount) the NAV per Share is available, free of charge, on the Fund’s
website at www.aiiqetf.com.
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.
The
financial highlights table is intended to help you understand the Fund’s
financial performance for the Fund’s five most recent fiscal years (or the life
of the Fund, if shorter). Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Cohen & Company, Ltd., the Fund’s independent registered public
accounting firm, whose report, along with the Fund’s financial statements, is
included in the Fund’s annual report, which is available upon request.
For
a capital share outstanding throughout the year/period
|
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|
Year
Ended
May 31, 2021 |
|
Year
Ended
May 31, 2020 |
|
Period
Ended
May
31, 2019(a) |
|
| Net
Asset Value, Beginning of Year/Period |
$ |
24.86 |
|
|
$ |
23.71 |
|
|
$ |
25.00 |
|
|
|
|
|
|
|
|
|
| INCOME
GAIN (LOSS) FROM INVESTMENT OPERATIONS: |
|
|
|
|
|
|
|
Net
Investment Income (Loss) (b) |
0.12 |
|
|
0.23 |
|
|
0.23 |
|
|
| Net
Realized and Unrealized Gain (Loss) on Investments |
7.82 |
|
|
1.25 |
|
|
(0.60) |
|
|
| Total
from Investment Operations |
7.94 |
|
|
1.48 |
|
|
(0.37) |
|
|
|
|
|
|
|
|
|
| DISTRIBUTIONS
TO SHAREHOLDERS: |
|
|
|
|
|
|
| Net
Investment Income |
(0.41) |
|
|
(0.33) |
|
|
(0.17) |
|
|
| Net
Realized Gains |
— |
|
|
— |
|
|
(0.75) |
|
|
| Total
Distributions |
(0.41) |
|
|
(0.33) |
|
|
(0.92) |
|
|
|
|
|
|
|
|
|
| CAPITAL
SHARE TRANSACTIONS |
|
|
|
|
|
|
| Transaction
Fees |
$ |
0.01 |
|
|
$ |
— |
|
|
$ |
— |
|
|
| Net
Asset Value, End of Year/Period |
$ |
32.40 |
|
|
$ |
24.86 |
|
|
$ |
23.71 |
|
|
|
|
|
|
|
|
|
| Total
Return |
32.13 |
% |
|
6.12 |
% |
|
-0.76 |
% |
(c) |
|
|
|
|
|
|
|
| SUPPLEMENTAL
DATA: |
|
|
|
|
|
|
| Net
Assets at End of Year/Period (000’s) |
$ |
11,340 |
|
|
$ |
3,729 |
|
|
$ |
3,557 |
|
|
|
|
|
|
|
|
|
| RATIOS
TO AVERAGE NET ASSETS: |
|
|
|
|
|
|
| Expenses
to Average Net Assets |
0.79 |
% |
|
0.79 |
% |
|
0.79 |
% |
(d) |
| Net
Investment Income (Loss) to Average Net Assets |
0.41 |
% |
|
0.93 |
% |
|
0.97 |
% |
(d) |
|
|
|
|
|
|
|
|
Portfolio
Turnover Rate
(e) |
330 |
% |
|
114 |
% |
|
127 |
% |
(c) |
(a)Commenced
operations on June 5, 2018.
(b)Calculated
based on average shares outstanding during the period.
(c)Not
annualized.
(d)Annualized.
(e)Excludes
impact of in-kind transactions.
AI
POWERED INTERNATIONAL EQUITY ETF
|
|
|
|
|
|
|
|
|
|
|
|
| Adviser |
EquBot
Inc.
450
Townsend Street
San
Francisco, California 94107 |
Sub-Adviser |
Toroso
Investments, LLC
898
N. Broadway, Suite 2
Massapequa,
New York 11758 |
| Transfer
Agent |
U.S.
Bancorp Fund Services, LLC
d/b/a/
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Administrator
and Fund Accountant |
U.S.
Bancorp Fund Services, LLC
d/b/a/
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
| Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Dr., Suite 302
Milwaukee,
Wisconsin 53212 |
Distributor |
Quasar
Distributors, LLC
111
E. Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202 |
| Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
Wisconsin 53202 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004 |
Investors
may find more information about the Fund in the following documents:
Statement
of Additional Information: The
Fund’s SAI provides additional details about the investments and techniques of
the Fund and certain other additional information. A current SAI dated
September 30,
2021,
as supplemented from time to time, is on file with the SEC and is herein
incorporated by reference into this Prospectus. It is legally considered a part
of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments is available in the Fund’s annual and
semi-annual reports to shareholders. In the annual report you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at:
AI
Powered International Equity ETF
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
Wisconsin 53201-0701
1-800-617-0004
Shareholder
reports and other information about the Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Fund’s Internet web site at www.aiiqetf.com; or
(SEC
Investment Company Act File No. 811-22668)
