ck0001727398-20221031
PROSPECTUS February 15,
2023
Procure Disaster Recovery Strategy
ETF (FIXT)
Listed
on The Nasdaq Stock Market LLC
NEITHER
THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Not
FDIC Insured | May Lose
Value | No Bank
Guarantee |
Procure
ETF Trust II (the “Trust”) is a registered investment company that consists of
separate investment portfolios called “Funds”. This Prospectus relates to the
following Fund:
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| Name |
Listing
Exchange |
CUSIP |
Symbol |
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Procure
Disaster Recovery Strategy ETF |
The
Nasdaq Stock Market LLC |
74280R304 |
(FIXT) |
The
Fund is an exchange-traded fund. This means that shares of the Fund are listed
on a national securities exchange and trade at market prices. The market price
for the Fund’s shares may be different from its net asset value per share (the
“NAV”). The Fund has its own CUSIP number and exchange trading
symbol.
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Procure
Disaster Recovery Strategy ETF
Summary
Information |
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Summary
Information
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Procure
Disaster Recovery Strategy ETF
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Investment Objective
The Procure Disaster Recovery
Strategy ETF (the “Fund”) seeks investment results that correspond generally to
the performance, before the Fund’s fees and expenses, of the VettaFi Natural
Disaster Recovery Index (the “Underlying Index”) developed by GKD Index
Partners, LLC, doing business as Alerian (the “Index Provider”).
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 tables and example
below.
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 |
0.75 |
% |
| Distribution
and/or Service (12b-1) Fees |
0.00 |
% |
| Other
Expenses |
4.88 |
% |
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Total
Annual Fund Operating Expenses (1) |
5.63 |
% |
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Less
Management Fee Reductions and/or Expense Reimbursements(1) |
(4.88) |
% |
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Total
Annual Fund Operating Expenses After Fee Reductions and/or Expense
Reimbursements (1) |
0.75 |
% |
(1)
ProcureAM, LLC (the
“Advisor”) has contractually agreed, until February 29,
2024, to reduce Management Fees and reimburse Other Expenses to
the extent necessary to limit Total Annual Fund Operating Expenses (except
brokerage and other transaction expenses including taxes; extraordinary legal
fees or expenses, such as those for litigation or arbitration; extraordinary
expenses; and distribution fees and expenses paid by the Trust under any
distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act) to an
amount not exceeding 0.75% of the Fund’s average daily net assets. Prior to
February 29, 2024, this agreement may not be modified or terminated without
the approval of the Board of Trustees (the “Board”).
Example
This example is intended to help
you compare the cost of investing in the Fund with the cost of investing in
other funds. This example does not take into account brokerage commissions that
you pay when purchasing or selling Shares of the
Fund.
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 at current
levels. The return of 5% and estimated expenses are for illustration purposes
only and should not be considered indicators of expected Fund expenses or
performance, which may be greater or less than the estimates.
Although your actual costs may be higher
or lower, based on these assumptions your costs would
be:
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| One
Year |
Three
Years |
Five
Years |
Ten
Years |
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| $77 |
$1,243 |
$2,395 |
$5,212 |
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Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
Example, affect the Fund’s performance. For the fiscal period May 31, 2022
(commencement of operations) through October 31, 2022, the Fund’s portfolio
turnover rate was 16% of the average value of its
portfolio.
Principal Investment Strategy
The
Fund, using a “passive” or “indexing” investment approach, seeks investment
results that correlate to the performance, before the Fund’s fees and expenses,
of the Underlying Index.
The
Underlying Index consists of globally-listed stocks and depositary receipts.
Companies eligible for inclusion in the Underlying Index include (i) companies
that are in the home improvement sub-industry as categorized by ICE; (ii)
companies that are materially engaged in the development and production of
emergency/backup power generators and batteries that are in the electrical
components and power equipment sub-industry as categorized by ICE; and (iii)
companies with government contracts that aid in natural disaster relief or
mitigation within the last five years, as determined by key word hits in
publicly available data. Companies in the following sub-industries are excluded
from the Underlying Index: diversified defense contractors, aerospace
engineering & components, and
industrial
conglomerates. In addition, companies whose only involvement with natural
disasters is the development and provision of communication equipment or
services are excluded from the Underlying Index. Companies in the Underlying
Index are equally weighted.
The
component companies of the Underlying Index are small-capitalization,
medium-capitalization, and large-capitalization listed equity securities and
depositary receipts. Securities with a price below US$1 or a total market
capitalization less than US$250 million are excluded from the Underlying Index.
In addition, the Underlying Index excludes companies listed in Taiwan or
Korea.
The
Underlying Index is owned and developed by GKD Index Partners, LLC d/b/a/
Alerian (“Alerian” or the “Index Provider”) and is calculated by Refinitiv US
LLC (“Refinitiv”). Alerian and Refinitiv are not affiliated with ProcureAM, LLC,
the Fund’s investment advisor (the “Advisor”), or the Fund’s distributor.
The
Underlying Index is rebalanced (i.e.,
the weights of the Underlying Index components are reset) on a quarterly basis
in March, June, September, and December and is reconstituted (i.e.,
Underlying Index components are added or deleted) on an annual basis each March.
Underlying Index components are selected on the last business day of the month
prior to reconstitution.
The
Board of Trustees (the “Board”) of the Trust may change the Fund’s investment
strategy, index provider or other policies without shareholder approval. Also,
in certain circumstances, it may not be possible or practicable to purchase all
of the component securities that make up the Underlying Index. In those
circumstances, the Fund may purchase a sample of the component securities in the
Underlying Index in proportions expected by the Advisor (defined below) to
deliver the performance of the Underlying Index. The Fund may sell securities
that are represented in the Underlying Index or purchase securities that are not
yet represented in the Underlying Index in anticipation of their removal from or
addition to the Underlying Index pursuant to scheduled reconstitutions and
rebalancing of the Underlying Index.
The Fund will concentrate its
investments (i.e., invest 25% or more of its assets) in securities issued by
companies whose principal business activities are in the same industry or group
of industries to the extent the Underlying Index is so concentrated. As of
December 31, 2022, the Index was concentrated in the Industrials sector. The
Fund is “non-diversified” for purposes of the Investment Company Act of 1940
(the “1940 Act”), which means that the Fund may invest in fewer securities at
any one time than a diversified fund.
The
Fund may lend its portfolio securities to brokers, dealers, and other financial
organizations. These loans, if and when made, may not exceed 33 1/3% of the
total asset value of the Fund (including the loan collateral). By lending its
securities, the Fund may increase its income by receiving payments from the
borrower.
As
of December 31, 2022, the Underlying Index contained 62 constituents. The
inception date of the Underlying Index (when live calculation of the index
values began) was March 20, 2020.
Principal Risks
Investors
should consider the principal risks associated with investing in the Fund, which
are summarized below. The value of an investment in the Fund will fluctuate
and you could lose money by investing in the Fund. The Fund may
not achieve its investment objective. 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, regardless of the order in which it appears. Different
risks may be more significant at different times depending on market conditions
or other factors.
Associated
Risks of Companies Related to Natural Disasters—The
Fund invests in the securities of companies that address natural or
environmental disasters, including, but not limited to, earthquakes, fires,
floods, hurricanes, tsunamis and other severe weather-related phenomena. Such
companies can be significantly affected by, among other things, worldwide
economic growth, supply and demand for specific products and services,
international political and economic developments, environmental issues, tariffs
and trade barriers, and tax and governmental regulatory policies. In addition,
companies that are government contractors can be significantly affected by
certain changes or events, such as political, social, or economic developments,
including increasing or negative interest rates or the U.S. government’s
inability at times to agree on a long-term budget and deficit reduction plan,
which has in the past resulted and may in the future result in a government
shutdown and cessation of payments to government contractors. As the demand for,
or prices of, such products and services increase, the value of the Fund’s
investments generally would be expected to also increase. Conversely, declines
in the demand for, or prices of, such products and services generally would be
expected to contribute to declines in the value of such securities. Such
declines may occur quickly and without warning and may negatively impact the
value of the Fund and your investment.
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.
Epidemic
Risk—
Widespread
disease, including pandemics and epidemics, have been and may be highly
disruptive to economies and markets, adversely impacting individual companies,
sectors, industries, markets, currencies, interest and inflation rates, credit
ratings, investor sentiment, and other factors affecting the value of the Fund’s
investments. Given the increasing interdependence among global economies and
markets, conditions in one country, market, or region are increasingly likely to
adversely affect markets, issuers, and/or foreign exchange rates in other
countries, including the U.S. Any such events could have a significant adverse
impact on the value of the Fund’s investments.
Any
public health emergency, including any emerging or reemergent epidemics
(including, without limitation, outbreaks of coronavirus, influenza virus and
Ebola virus), or the threat thereof, could have a significant adverse impact on
the Fund and the securities it holds, and could adversely affect the Fund’s
ability to fulfill its investment objectives. Beginning in late 2019, a novel
and highly contagious form of coronavirus known as SARS-CoV-2 emerged, causing a
disease referred to as COVID-19 or “coronavirus.” In March 2020, the World
Health Organization declared the COVID-19 epidemic a “global pandemic,” meaning
the disease was prevalent and spreading in multiple geographies. Subsequently,
financial markets in the United States and around the world experienced extreme
and, in many cases, unprecedented volatility and severe losses due to the global
pandemic caused by COVID-19, a novel coronavirus. The pandemic resulted in a
wide range of social and economic disruptions, including closed borders,
voluntary or compelled quarantines of large populations, stressed healthcare
systems, reduced or prohibited domestic or international travel, and supply
chain disruptions affecting the United States and many other countries. Some
sectors of the economy and individual issuers have experienced particularly
large losses as a result of these disruptions, and 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.
Many countries, including the U.S., are subject to few restrictions related to
the spread of COVID-19. 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.
In
addition, the operations of the Fund, the Advisor, the Sub-Advisor, and the
Fund’s other service providers may be significantly impacted, or even
temporarily or permanently halted, as a result of government quarantine
measures, voluntary and precautionary restrictions on travel or meetings and
other factors related to a public health emergency, including its potential
adverse impact on the health of any such entity’s personnel.
Equity
Securities Risk—The
prices of equity securities generally fluctuate in value more than fixed-income
investments, may rise or fall rapidly or unpredictably and may reflect real or
perceived changes in the issuing company’s financial condition and changes in
the overall market or economy. A decline in the value of equity securities held
by the Fund will adversely affect the value of your investment in the Fund.
Common stocks generally represent the riskiest investment in a company and
dividend payments (if declared) to preferred stockholders generally rank junior
to payments due to a company’s debtholders. The Fund may lose a substantial
part, or even all, of its investment in a company’s stock. Certain equity
securities may be difficult or impossible to sell at the time and the price that
the Fund would like. The Fund may have to lower the price of the security, sell
other securities instead or forego an investment opportunity, any of which could
have a negative effect on Fund management or performance.
In
addition, local, regional or global events such as war, including Russia’s
invasion of Ukraine, acts of terrorism, spread of infectious diseases or other
public health issues, recessions, rising inflation, or other events could have a
significant negative impact on the Fund and its investments. 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.
Foreign
Securities Risk—The
Underlying Index contains equities listed in foreign markets. These securities
markets are subject to various regulations, market trading times and contractual
settlement dates. Market liquidity may also differ from the U.S. equity markets
as many foreign market shares trade over the counter (“OTC”) and prices are not
published to the official exchanges until after the trades are completed. In
addition, where all or a portion of the Fund’s underlying securities trade in a
market that is closed when the market in which the Fund’s shares are listed and
trading in that market is open, there may be changes between the last quote from
its closed foreign market and the value of such security during the Fund’s
domestic trading day. Consequently, this could lead to differences between the
market price of the Fund’s shares and the value of the shares of its underlying
portfolio holdings.
Index
Construction Risk—A
stock included in the Underlying Index may not exhibit the factor trait or
provide specific factor exposure for which it was selected, and consequently,
the Fund’s holdings may not exhibit returns consistent with that factor trait.
Index
Risk—Although
the Fund follows a defined index rebalance schedule, the Index Provider could
determine to suspend or delay a rebalance to a market event, during which time
the Fund’s index tracking risk may be heightened and could negatively impact
investors.
Industry
Concentration Risk—To
the extent that its Underlying Index is concentrated in a particular industry,
the Fund also will be concentrated in that industry. Concentrated Fund
investments will subject the Fund to a greater risk of loss as a result of
adverse economic, business or other developments than if its investments were
diversified across different industry sectors.
Industrials
Sector Risk — The
prices of securities of companies in the industrials sector are affected by
supply and demand both for their specific product or service and for industrials
sector products in general, which may be cyclical. The products of manufacturing
companies may face product obsolescence due to rapid technological developments
and frequent new product introduction. Government regulation, world events and
economic conditions may affect the performance of companies in the industrials
sector. Companies in the industrials sector may be at risk for environmental
damage and product liability claims and may be adversely affected by changes or
trends in commodity prices, imposition of import controls, labor relations and
insurance costs.
Issuer-Specific
Changes Risk—The
value of an individual security or type of security can be more volatile than
the total market and can perform differently from the value of the total market.
The value of securities of smaller issuers can be more volatile than that of
larger issuers.
Large-Capitalization
Securities Risk—The
Fund is subject to the risk that large-capitalization securities may
underperform other segments of the equity market or the total equity market.
Larger, more established companies may be unable to respond quickly to new
competitive challenges such as changes in technology and may not be able to
attain the high growth rate of smaller companies, especially during extended
periods of economic expansion.
Limited
Operating History Risk—The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
Liquidity
Risk—The
Fund’s shares are subject to liquidity risk, which means that, in stressed
market conditions, the market for the Fund’s shares may become less liquid in
response to deteriorating liquidity in the markets for the Fund’s underlying
portfolio holdings. Please also note that this adverse effect on liquidity for
the Fund’s shares in turn could lead to differences between the market price of
the Fund’s shares and the underlying value of those shares.
Market
Price Risk—Shares
are listed for trading on The Nasdaq Stock Market LLC (the “Exchange” or
“NASDAQ”) and are bought and sold in the Secondary Market at market prices. The
market prices of Shares may fluctuate continuously during trading hours, in some
cases materially, in response to changes in the net asset value (“NAV”) and
supply and demand for Shares, among other factors. Although it is expected that
the market price of Shares typically will remain closely correlated to the NAV,
the market price will generally differ from the NAV because of timing reasons,
supply and demand imbalances and other factors. As a result, the trading prices
of Shares may deviate significantly from NAV during certain periods, especially
those of market volatility. The Investment Advisor cannot predict whether Shares
will trade above (premium), below (discount) or at their NAV prices. Thus, an
investor may pay more than NAV when buying Shares in the Secondary Market and
receive less than NAV when selling Shares in the Secondary Market.
Additionally,
natural or environmental disasters, widespread disease or other public health
issues, war, acts of terrorism or other events could result in increased
premiums or discounts to the Fund’s NAV.
Non-Correlation
Risk—The
Fund’s return may not match the return of the Underlying Index. For example, the
Fund incurs operating expenses not applicable to the Underlying Index, and
incurs costs in buying and selling securities, especially when rebalancing the
Fund’s securities holdings to reflect changes in the composition of the
Underlying Index. In addition, the performance of the Fund and the Underlying
Index may vary due to asset valuation differences and differences between the
Fund’s portfolio and the Underlying Index resulting from legal restrictions,
cash flows or operational inefficiencies.
Non-Diversification
Risk—The Fund is classified as “non-diversified.”
This means that the Fund may invest a large percentage of its assets in
securities issued by or representing a small number of issuers. As a result, the
Fund may be more susceptible to the risks associated with these particular
issuers or to a single economic, political or regulatory occurrence affecting
these issuers.
Passive
Management Risk—Unlike
many investment companies, the Fund is not “actively” managed. Therefore, it
would not necessarily sell a security because the security’s issuer was in
financial trouble or defaulted on its obligations under the security, or whose
credit rating was downgraded, unless that security is removed from the
Underlying Index. In addition, the Fund will not otherwise take defensive
positions in declining markets unless such positions are reflected in the
Underlying Index.
Unlike
with an actively managed fund, the Advisor does not use techniques or defensive
strategies designed to lessen the effects of market volatility or to reduce the
impact of periods of market decline. This means that, based on market and
economic conditions, the Fund’s performance could be lower than other types of
funds that may actively shift their portfolio assets to take advantage of market
opportunities or to lessen the impact of a market decline.
Securities
Lending Risk
— There are certain risks associated with securities lending, including the risk
that the borrower may fail to return the securities on a timely basis or even
the loss of rights in the collateral deposited by the borrower, if the borrower
should fail financially. The Fund could also lose money in the event of a
decline in the value of collateral provided for loaned securities or a decline
in the value of any investments made with cash collateral. As a result, the Fund
may lose money.
Small and Mid-Capitalization
Securities Risk—The Fund may be subject to the risk that
small- and mid-capitalization securities may underperform other segments of the
equity market or the equity market as a whole. Securities of small- and
mid-capitalization companies may experience much more price volatility, greater
spreads between their bid and ask prices and significantly lower trading volumes
than securities issued by large, more established companies. Accordingly, it may
be difficult for the Fund to sell small- and mid-capitalization securities at a
desired time or price. Small- and mid-capitalization companies tend to have
inexperienced management as well as limited product and market diversification
and financial resources. Small- and mid-capitalization companies have more
speculative prospects for future growth, sustained earnings and market share
than large companies, and may be more vulnerable to adverse economic, market or
industry developments than large capitalization companies.
Performance
Information
Performance information for the Fund is not
included because the Fund did not have a full calendar year of performance prior
to the date of this Prospectus. In the future, performance
information for the Fund will be presented in this section. Updated performance
information is available on the Fund’s website at www.ProcureETFs.com.
The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future.
Investment
Advisor
ProcureAM,
LLC (the “Advisor”) is the investment advisor to the Fund.
Sub-Advisor
Penserra
Capital Management LLC (the “Sub-Advisor”) serves as the sub-advisor to the
Fund.
Portfolio
Managers
The
professionals primarily responsible for the day-to-day management of the Fund
are as follows:
Dustin
Lewellyn, Ernesto Tong and Anand Desai of the Sub-Advisor have been appointed as
the Fund’s portfolio managers.
Purchase
and Sale of Fund Shares
Individual
Shares of the Fund may only be purchased and sold in Secondary Market
transactions through brokers and may not be purchased or redeemed directly with
the Fund. Shares of the Fund are listed for trading on the NASDAQ and, because
Shares trade at market prices rather than NAV, Shares of the Fund may trade at a
price greater than (premium) or less than (discount) NAV.
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.ProcureETFs.com.
The
Fund will issue and redeem Shares at NAV, only with Authorized Participants, and
only in a large, specified number of Shares called a “Creation Unit” or
multiples thereof with certain large institutional investors. A Creation Unit
consists of 25,000 Shares. Creation Unit transactions are principally conducted
in exchange for the deposit or delivery of specific securities specified by the
Fund and distributed to the Authorized Participants via the NSCC Portfolio
Composition File (“PCF”). Except
when aggregated in Creation Units, the Shares are not redeemable securities of
the Fund.
Tax
Information
The
Fund’s distributions will generally be taxed as ordinary income or capital
gains. Investors should consult their tax advisors about specific
situations.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Advisor or other related companies may pay the
intermediary for the sale of Fund Shares and related services. These payments
may create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend the Fund over another investment.
Ask your salesperson or visit your financial intermediary’s website for more
information.
The
Trust is an investment company consisting of a number of separate investment
portfolios that are exchange-traded funds (“ETFs”). ETFs are investment products
whose shares are listed on a stock exchange and traded like equity securities at
market prices. ETFs, such as the Fund, allow you to buy or sell shares that
represent the collective performance of a selected group of securities. ETFs are
designed to add the flexibility, ease and liquidity of stock-trading to the
benefits of traditional index fund investing. The investment objective of the
Fund is to correspond generally, before fees and expenses, to the performance of
a particular index (the “Underlying Index”) developed by its Index
Provider.
This
Prospectus provides the information you need to make an informed decision about
investing in the Fund. It contains important facts about the Trust as a whole
and the Fund in particular.
ProcureAM,
LLC (the “Advisor”) is the investment advisor to the Fund. Shares of the Fund
are listed for trading on NASDAQ. The market price for a share of the Fund may
be different from the Fund’s most recent NAV.
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PREMIUM/DISCOUNT
INFORMATION |
Information
regarding how often Shares of the Fund trade on the Exchange at a price above
(i.e., at a premium) or below (i.e., at a discount) the NAV of the Fund will be
available on the Fund’s website at www.ProcureETFs.com.
Information
regarding the extent and frequency with which market prices of Shares has
tracked the Fund’s NAV for the most recently completed calendar year and the
quarters since that year will be available without charge on the Fund’s website
at www.ProcureETFs.com.
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DESCRIPTION
OF THE PRINCIPAL INVESTMENT STRATEGIES OF THE
FUND |
The
Fund employs a “passive management” — or indexing — investment approach designed
to track the performance of its Underlying Index. Generally, the Fund invests in
all of the securities that comprise its Underlying Index in proportion to their
weightings in the Underlying Index; however, under various circumstances, it may
not be possible or practicable to purchase all of the securities in the
Underlying Index in those weightings. In those circumstances, the Fund may
purchase a sample of the securities in the Underlying Index or utilize various
combinations of other available investment techniques in seeking to correspond
generally the performance of the Underlying Index as a whole.
There
also may be instances in which the Advisor or Sub-Advisor, as applicable, may
choose to (i) overweight a security in the Underlying Index, (ii) purchase
securities not contained in the Underlying Index that the Advisor or Sub-Advisor
believes are appropriate to substitute for certain securities in the Underlying
Index or (iii) utilize various combinations of other available investment
techniques in seeking to track the Underlying Index. The Fund may sell
securities that are represented in the applicable Underlying Index in
anticipation of their removal from the Underlying Index or purchase securities
not represented in such Underlying Index in anticipation of their addition to
such Underlying Index.
The
Fund may invest in investments not included in its Underlying Index, but which
the Advisor or Sub-Advisor believes will help the Fund track its Underlying
Index. For example, there may be instances in which the Advisor or Sub-Advisor
may choose to purchase (or sell) securities not in the Underlying Index which
the Advisor or Sub-Advisor believes are appropriate to substitute for one or
more Underlying Index Components in seeking to correspond generally, before fees
and expenses, the performance of the Underlying Index.
To
the extent that the Fund’s Underlying Index concentrates (i.e., holds 25% or
more of its total assets) in the securities of a particular industry or group of
industries, the Fund will concentrate its investment to approximately the same
extent as its Underlying Index.
These
requirements are applied at the time the Fund invests its assets. If, subsequent
to an investment by the Fund, this requirement is no longer met, the Fund’s
future investments will be made in a manner that will bring the Fund into
compliance with this requirement. Each policy is “non-fundamental,” which means
that it may be changed without the vote of a majority of the Fund’s outstanding
shares as defined in the 1940 Act.
As
Fund cash flows permit, the Advisor or Sub-Advisor may use cash flows to adjust
the weights of the Fund’s Underlying investments in an effort to minimize any
differences in weights between the Fund and its respective Underlying
Index.
To
the extent the Advisor or Sub-Advisor to the Fund makes investments on behalf of
the Fund that are regulated by the Commodities Futures Trading Commission, it
intends to do so in accordance with Rule 4.5 under the Commodity Exchange Act
(“CEA”). The Advisor has filed a notice of eligibility for exclusion from the
definition of the term “commodity pool operator” in accordance with Rule 4.5 and
is therefore not subject to registration as a commodity pool operator under the
CEA.
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ADDITIONAL
INVESTMENT STRATEGIES |
In
addition to its principal investment strategies, the Fund may also invest in
money market instruments, including short-term debt instruments and repurchase
agreements or other funds which invest exclusively in money market instruments
(subject to applicable limitations under the 1940 Act, or exemptions therefrom),
rather than its Underlying Index components, when it would be more efficient or
less expensive for the Fund to do so, for liquidity purposes, or to earn
interest. The Advisor anticipates that it may take approximately two business
days for additions and deletions to a Fund’s Underlying Index to be reflected in
the portfolio composition of the Fund.
Each
of the policies described herein, including the investment objective of the
Fund, constitutes a non-fundamental policy that may be changed by the Board of
Trustees of the Trust without shareholder approval. Certain fundamental policies
of the Fund are set forth in the Fund’s Statement of Additional Information (the
“SAI”) under “Investment Restrictions.”
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| DESCRIPTION
OF THE PRINCIPAL RISKS OF THE FUND |
The
Advisor and the Underlying Index have a limited operating history; therefore,
investors need to be aware that the investment returns, and the underlying index
methodology may not deliver the expected returns or achieve the intended
results.
An
investment or type of security specifically identified in the Prospectus
generally reflects a principal investment of the Fund. The Fund also may invest
in or use certain other types of investments and investing techniques that are
more fully described in the SAI. An investment or type of security only
identified in the SAI typically is treated as a non-principal investment.
Additional information on the principal risks and certain non-principal risks of
the Fund is described below. Not all the risks are principal risks for the Fund.
The fact that a particular risk is not indicated as a principal risk for the
Fund does not mean that the Fund is prohibited from investing its assets in
securities that give rise to that risk. It simply means that the risk is not a
principal risk for that Fund. Although the Fund will not generally trade for
short-term profits, circumstances (e.g., a rebalancing of the Fund’s Index) may
warrant a sale without regard to the length of time a security was held. A high
turnover rate may increase transaction costs, which decreases the value of
investments and may result in additional taxable gains for Shares held through a
taxable account.
In
addition, investors should note that the Fund reserves the right to cease
operations and liquidate at any time without shareholder approval, or to merge
or reorganize itself without shareholder approval, unless required by applicable
law. The Board has also determined that the Fund’s underlying index is not
fundamental to the Fund and hence may be changed by a majority vote of the Board
of Trustee’s with notice to investors. It may also change its respective
Underlying Index, after giving notice to investors through its website and the
media. If the Advisor believes the Underlying Index no longer represents a
viable investment strategy it may benchmark the Fund to any other index. The
Advisor may change service providers to the Fund as needed. The Advisor may
lower fees to investors without shareholder vote.
Investors
in the Fund should carefully consider the risks of investing in the Fund as set
forth in the Fund’s Summary Information section under “Principal Risks.” Unless
otherwise noted, each risk discussed below is applicable to the
Fund.
Associated
Risks of Companies Related to Natural Disasters
The
Fund invests in the securities of companies that address natural or
environmental disasters, including, but not limited to, earthquakes, fires,
floods, hurricanes, tsunamis and other severe weather-related phenomena. Such
companies can be significantly affected by, among other things, worldwide
economic growth, supply and demand for specific products and services,
international political and economic developments, environmental issues, tariffs
and trade barriers, and tax and governmental regulatory policies. In addition,
companies that are government contractors can be significantly affected by
certain changes or events, such as political, social, or economic developments,
including increasing or negative interest rates or the U.S. government’s
inability at times to agree on a long-term budget and deficit reduction plan,
which has in the past resulted and may in the future result in a government
shutdown and the cessation of payments to government contractors. As the demand
for, or prices of, such products and services increase, the value of the Fund’s
investments generally would be expected to also increase. Conversely, declines
in the demand for, or prices of, such products and services generally would be
expected to contribute to declines in the value of such securities. Such
declines may occur quickly and without warning and may negatively impact the
value of the Fund and your investment.
Depositary
Receipt Risk
The
Fund may hold the securities of non-U.S. companies in the form of American
Depositary Receipts (“ADRs”). 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. The underlying securities of the ADRs 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 trade on foreign exchanges at times when the U.S. markets are not open for
trading, the value of the securities underlying the ADRs
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.
Epidemic
Risk
Widespread
disease, including pandemics and epidemics, have been and may be highly
disruptive to economies and markets, adversely impacting individual companies,
sectors, industries, markets, currencies, interest and inflation rates, credit
ratings, investor sentiment, and other factors affecting the value of the Fund’s
investments. Given the increasing interdependence among global economies and
markets, conditions in one country, market, or region are increasingly likely to
adversely affect markets, issuers, and/or foreign exchange rates in other
countries, including the U.S. Any such events could have a significant adverse
impact on the value of the Fund’s investments.
Any
public health emergency, including any emerging or reemergent epidemics
(including, without limitation, outbreaks of coronavirus, influenza virus and
Ebola virus), or the threat thereof, could have a significant adverse impact on
the Fund and the securities it holds, and could adversely affect the Fund’s
ability to fulfill its investment objectives. Beginning in late 2019, a novel
and highly contagious form of coronavirus known as SARS-CoV-2 emerged, causing a
disease referred to as COVID-19 or “coronavirus.” In March 2020, the World
Health Organization declared the COVID-19 epidemic a “global pandemic,” meaning
the disease was prevalent and spreading in multiple geographies. Subsequently,
financial markets in the United States and around the world experienced extreme
and, in many cases, unprecedented volatility and severe losses due to the global
pandemic caused by COVID-19, a novel coronavirus. The pandemic resulted in a
wide range of social and economic disruptions, including closed borders,
voluntary or compelled quarantines of large populations, stressed healthcare
systems, reduced or prohibited domestic or international travel, and supply
chain disruptions affecting the United States and many other countries. Some
sectors of the economy and individual issuers have experienced particularly
large losses as a result of these disruptions, and 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.
Many countries, including the U.S., are subject to few restrictions related to
the spread of COVID-19. 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.
In
addition, the operations of the Fund, the Advisor, the Sub-Advisor, and the
Fund’s other service providers may be significantly impacted, or even
temporarily or permanently halted, as a result of government quarantine
measures, voluntary and precautionary restrictions on travel or meetings and
other factors related to a public health emergency, including its potential
adverse impact on the health of any such entity’s personnel.
Equity
Securities Risk
The
Fund may invest in equity securities, which include common stocks (and may
include other equity securities), and the prices of equity securities generally
fluctuate in value more than other investments. The price of equity securities
may rise or fall rapidly or unpredictably and may reflect real or perceived
changes in the issuing company’s financial condition and changes in the overall
market or economy. Price movements in equity securities may result from factors
or events affecting individual issuers, industries, or the entire market, such
as changes in economic or political conditions. In addition, equity markets tend
to move in cycles that may cause downward price movements over prolonged periods
of time. Common stocks generally represent the riskiest investment in a company
and dividend payments (if declared) to preferred stockholders generally rank
junior to payments due to a company’s debt holders. If the prices of the equity
securities held by the Fund fall, the value of your investment in the Fund will
be adversely affected. The Fund may lose a substantial part, or even all, of its
investment in a company’s stock.
In
addition, local, regional or global events such as war, including Russia’s
invasion of Ukraine, acts of terrorism, spread of infectious diseases or other
public health issues, recessions, rising inflation, or other events could have a
significant negative impact on the Fund and its investments. 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.
Foreign
Securities Risk
The
Underlying Index contains equities listed in foreign markets. These securities
markets are subject to various regulations, market trading times and contractual
settlement dates. Market liquidity may also differ from the U.S. equity markets
as many foreign market shares trade OTC and prices are not published to the
official exchanges until after the trades are completed. In addition, where all
or a portion of the Fund’s underlying securities trade in a market that is
closed when the market in which the Fund’s shares are listed and trading in that
market is open, there may be changes between the last quote from its closed
foreign market and the value of such security during the Fund’s domestic trading
day. Consequently, this could lead to differences between the market price of
the Fund’s shares and the value of the shares of its underlying portfolio
holdings.
Index
Construction Risk
A
stock included in the Underlying Index may not exhibit the factor trait or
provide specific factor exposure for which it was selected and consequently the
Fund’s holdings may not exhibit returns consistent with that factor
trait.
Index
Risk
Although
the Fund follows a defined index rebalance schedule, the Index Provider could
determine to suspend or delay a rebalance due to a market event, during which
time the Fund’s index tracking risk may be heightened and could negatively
impact investors.
Industry
Concentration Risk
To
the extent that its Underlying Index is concentrated in a particular industry,
the Fund also will be concentrated in that industry. Concentrated Fund
investments will subject the Fund to a greater risk of loss as a result of
adverse economic, business or other developments than if its investments were
diversified across different industry sectors.
Industrials
Sector Risk
The
prices of securities of companies in the industrials sector are affected by
supply and demand both for their specific product or service and for industrials
sector products in general, which may be cyclical. The products of manufacturing
companies may face product obsolescence due to rapid technological developments
and frequent new product introduction. Government regulation, world events and
economic conditions may affect the performance of companies in the industrials
sector. Companies in the industrials sector may be at risk for environmental
damage and product liability claims and may be adversely affected by changes or
trends in commodity prices, imposition of import controls, labor relations and
insurance costs.
Issuer-Specific
Changes Risk
The
value of an individual security or type of security can be more volatile than
the total market and can perform differently from the value of the total market.
The value of securities of smaller issuers can be more volatile than that of
larger issuers.
Large-Capitalization
Securities Risk
The
Fund is subject to the risk that large-capitalization securities may
underperform other segments of the equity market or the total equity market.
Larger, more established companies may be unable to respond quickly to new
competitive challenges such as changes in technology and may not be able to
attain the high growth rate of smaller companies, especially during extended
periods of economic expansion.
Limited
Operating History Risk
The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
Liquidity
Risk
The
Fund’s shares are subject to liquidity risk, which means that, in stressed
market conditions, the market for the Fund’s shares may become less liquid in
response to deteriorating liquidity in the markets for the Fund’s underlying
portfolio holdings. Please also note that this adverse effect on liquidity for
the Fund’s shares in turn could lead to differences between the market price of
the Fund’s shares and the underlying value of those shares. Further, the
Underlying Index’s screening process requires that each component security have
a three month average daily trading volume minimum of $1,000,000 on the date of
the Underlying Index’s semi-annual reconstitution date, therefore the number of
stocks available to the Underlying Index may be negatively affected during
stressed market conditions.
Market
Price Risk
Shares
are listed for trading on the NASDAQ and are bought and sold in the Secondary
Market at market prices. The market prices of Shares may fluctuate continuously
during trading hours, in some cases materially, in response to changes in the
net asset value (“NAV”) and supply and demand for Shares, among other factors.
Although it is expected that the market price of Shares typically will remain
closely correlated to the NAV, the market price will generally differ from the
NAV because of timing reasons, supply and demand imbalances and other factors.
As a result, the trading prices of Shares may deviate significantly from NAV
during certain periods, especially those of market volatility. The Investment
Advisor cannot predict whether Shares will trade above (premium), below
(discount) or at their NAV prices. Thus, an investor may pay more than NAV when
buying Shares in the Secondary Market and receive less than NAV when selling
Shares in the Secondary Market.
Additionally,
natural or environmental disasters, widespread disease or other public health
issues, war, acts of terrorism or other events could result in increased
premiums or discounts to the Fund’s NAV.
Non-Correlation
Risk
The
Fund’s return may not match the return of its Underlying Index for many reasons.
For example, the Fund incurs operating expenses not applicable to the Underlying
Index, and incurs costs in buying and selling securities, especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Underlying Index. In addition, the performance of the Fund and its
Underlying Index may vary due to asset valuation differences and differences
between the Fund’s portfolio and the Underlying Index resulting from legal
restrictions, cash flows or operational inefficiencies. An Underlying Index is
not required to apply fair valuation to its constituents, but the Fund may apply
fair valuation to its portfolio securities in certain situations, which may lead
to increased differences between a Fund’s performance and that of its Underlying
Index.
Due
to legal and regulatory rules and limitations, the Fund may not be able to
invest in all the securities included in its Underlying Index. For tax
efficiency purposes, the Fund may sell certain securities to realize losses,
causing its performance to deviate from the Underlying Index.
The
Fund may not be fully invested at times, either because of cash flows into the
Fund or reserves of cash held by the Fund to meet redemptions and expenses. If
the Fund utilizes a sampling approach, or otherwise holds investments other than
those which comprise the Underlying Index, its return may not correlate well
with the return of its Underlying Index, as would be the case if it purchased
all the securities in the Underlying Index with the same weightings as its
Index.
Non-Diversification
Risk
The
Fund is considered non-diversified because it may invest a large portion of its
assets in a small number of issuers. As a result, the Fund is more susceptible
to risks associated with those issuers and the Fund may experience greater
losses and volatility than a more diversified portfolio.
Passive
Management Risk
Unlike
many investment companies, the Fund is not “actively” managed. Therefore, it
would not necessarily sell a security because the security’s issuer was in
financial trouble or defaulted on its obligations under the security, or whose
credit rating was downgraded, unless that security is removed from the
Underlying Index. In addition, the Fund will not otherwise take defensive
positions in declining markets unless such positions are reflected in the
Underlying Index.
Unlike
with an actively managed fund, the Advisor does not use techniques or defensive
strategies designed to lessen the effects of market volatility or to reduce the
impact of periods of market decline. This means that, based on market and
economic conditions, the Fund’s performance could be lower than other types of
funds that may actively shift their portfolio assets to take advantage of market
opportunities or to lessen the impact of a market decline.
Securities
Lending Risk
There
are certain risks associated with securities lending, including the risk that
the borrower may fail to return the securities on a timely basis or even the
loss of rights in the collateral deposited by the borrower, if the borrower
should fail financially. As a result, the Fund may lose money. The Fund could
also lose money in the event of a decline in the value of collateral provided
for loaned securities or a decline in the value of any investments made with
cash collateral. These events could also trigger adverse tax consequences for
the Fund.
Small
and Mid-Capitalization Securities Risk
The
Fund may be subject to the risk that small- and mid-capitalization securities
may underperform other segments of the equity market or the equity market as a
whole. Securities of small- and mid-capitalization companies may experience much
more price volatility, greater spreads between their bid and ask prices and
significantly lower trading volumes than securities issued by large, more
established companies. Accordingly, it may be difficult for the Fund to sell
small- and mid-capitalization securities at a desired time or price. Small and
mid-capitalization companies tend to have inexperienced management as well as
limited product and market diversification and financial resources. Small- and
mid-capitalization companies have more speculative prospects for future growth,
sustained earnings and market share than large companies, and may be more
vulnerable to adverse economic, market or industry developments than large
capitalization companies.
Asset
Class Risk
The
securities in an Underlying Index or in the Fund’s portfolio may underperform
the returns of other securities or indexes that track other countries, groups of
countries, regions, industries, groups of industries, markets, asset classes or
sectors. Different types of securities, currencies and indexes may experience
cycles of outperformance and underperformance in comparison to the general
financial markets depending upon a number of factors including, among other
things, inflation, interest rates, productivity, global demand for local
products or resources and regulation and governmental controls.
Authorized
Participant Concentration Risk
Only
an Authorized Participant may engage in creation or redemption transactions
directly with the Fund. The Fund has a limited number of institutions that may
act as Authorized Participants on an agency basis (i.e., on behalf of other
market participants). To the extent that those Authorized Participants exit the
business or are unable to proceed with creation and/or redemption orders with
respect to the Fund and no other Authorized Participant is able to step forward
to engage in creation or redemption transactions with the Fund, Fund shares may
be more likely to trade at a premium or discount to NAV and possibly face
trading halts and/or delisting.
Concentration
Risk
The
Fund may be susceptible to an increased risk of loss, including losses due to
adverse events that affect the Fund’s investments more than the market as a
whole, to the extent that the Fund’s investments are concentrated in the
securities of a particular issuer or issuers, country, group of countries,
region, market, industry, group of industries, sector or asset class. The Fund
may be more adversely affected by the underperformance of those securities, may
experience increased price volatility and may be more susceptible to adverse
economic, market, political or regulatory occurrences affecting those securities
than a fund that does not concentrate its investments.
Currency
Risk
Because
the Fund’s NAV is determined on the basis of the U.S. dollar, investors may lose
money if the foreign currencies in which the Fund’s holdings are denominated
depreciate against the U.S. dollar, even if the local currency value of the
Fund’s holdings increases. Generally, when the U.S. dollar rises in value
against a foreign currency, a security denominated in that currency loses value
because the currency is worth fewer U.S. dollars. Conversely, when the U.S.
dollar decreases in value against a foreign currency, a security denominated in
that currency gains value because the currency is worth more U.S. dollars. This
risk means that a strong U.S. dollar will reduce returns for U.S. investors,
while a weak U.S. dollar will increase those returns. The Fund will not hedge
against fluctuations in foreign currencies. The value of the US dollar measured
against a foreign currency is influenced by a variety of factors. These factors
include: interest rates, 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, global
energy prices, political instability and government monetary policies and the
buying or selling of currency by a country’s government.
Cyber
Security Risk
With
the increased use of technologies such as the internet to conduct business, the
Fund, Authorized Participants, service providers and the relevant listing
exchange are susceptible to operational, information security and related
“cyber” risks both directly and through their service providers. Similar types
of cyber security risks are also present for issuers of securities in which the
Fund invests, which could result in material adverse consequences for such
issuers and may cause the Fund’s investment in such portfolio companies to lose
value. Unlike many other types of risks faced by the Fund, these risks typically
are not covered by insurance. In general, cyber incidents can result from
deliberate attacks or unintentional events. Cyber incidents 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
security failures by or breaches of the systems of the Fund’s advisor,
sub-advisor, distributor and other service providers (including, but not limited
to, index providers, fund accountants, custodians, transfer agents and
administrators), market makers, Authorized Participants or the issuers of
securities in which the Fund invests, have the ability to cause disruptions and
impact business operations, potentially resulting in: financial losses,
interference with the Fund’s ability to calculate its NAV, disclosure of
confidential trading information, impediments to trading, submission of
erroneous trades or erroneous creation or redemption orders, the inability of
the Fund or its service providers to transact business, violations of applicable
privacy and other laws, regulatory fines, penalties, reputational damage,
reimbursement or other compensation costs, or additional compliance costs. In
addition, cyber attacks may render records of the Fund assets and transactions,
shareholder ownership of Fund shares, and other data integral to the functioning
of the Fund inaccessible or inaccurate or incomplete. Substantial costs may be
incurred by the Fund in order to resolve or prevent cyber incidents in the
future. While the Fund has established business continuity plans in the event
of, and risk management systems to prevent, such cyber attacks, there are
inherent limitations in such plans and systems, including the possibility that
certain risks have not been identified and that prevention and remediation
efforts will not be successful. Furthermore, the Fund cannot control the cyber
security plans and systems put in place by service providers to the Fund,
issuers in which the Fund invests, the Index Provider, market makers or
Authorized Participants. The Fund and its shareholders could be negatively
impacted as a result.
Liquidity
Risk Management Rule Risk
Rule
22e-4 under the 1940 Act (the “Liquidity Rule”) requires open-end funds,
including ETFs such as the Fund, to establish a liquidity risk management
program and enhance disclosures regarding fund liquidity. As required by the
Liquidity Rule, the Fund has implemented a liquidity risk management program,
and the Board, including a majority of the Independent Trustees of the Trust,
has
appointed
the Advisor as the administrator of the liquidity risk management program. There
are exclusions from certain portions of the liquidity risk management program
requirements for “in-kind” ETFs, as defined in the Liquidity Rule. To the extent
that an investment is deemed to be an illiquid investment or a less liquid
investment, the Fund can expect to be exposed to greater liquidity risk. The
Liquidity Rule and the Fund’s ability to rely on the exclusions for “in-kind”
ETFs may impact the Fund’s performance and/or ability to achieve its investment
objective.
Management
Risk
The
strategy used by the Fund to match the performance of the Underlying Index may
fail to produce the intended results. The skill of the Advisor or Sub-Advisor
will play a significant role in the Fund’s ability to achieve its investment
objectives. The Fund’s ability to achieve its investment objectives depends on
the ability of the Advisor to correctly identify economic trends, especially
with regard to accurately forecasting projected dividend and growth rates and
inflationary and deflationary periods. In addition, the Fund’s ability to
achieve its investment objective depends on the Advisor’s or Sub-Advisor’s
ability to select stocks, particularly in volatile stock markets. The Advisor or
Sub-Advisor could be incorrect in its analysis of industries, companies’
projected dividends and growth rates and the relative attractiveness of value
stocks and other matters. Additionally, if the Advisor uses a “sampling”
approach to managing an Underlying Index, the performance of the Fund may not
correlate with the Underlying Index as well as if the Fund “replicated” the
Underlying Index by buying all of its constituent stocks.
Market
Risk
The
value of, or income generated by, the securities held by the Fund are subject to
the possibility of rapid and unpredictable fluctuation. The value of certain
securities (e.g., equity securities) tends to fluctuate more dramatically over
the shorter term than do the value of other asset classes. These movements may
result from factors affecting individual companies, or from broader influences,
including real or perceived changes in prevailing interest rates, changes in
inflation or expectations about inflation, investor confidence or economic,
political, social or financial market conditions that may be temporary or last
for extended periods. Different sectors, industries and security types may react
differently to such developments and, when the market performs well, there is no
assurance that the securities held by the Fund will increase in value along with
the broader markets. For example, the value of a Fund’s investments in
securities or other instruments may be particularly susceptible to changes in
commodity prices. As a result, a change in commodity prices may adversely affect
the Fund’s investments. Volatility of financial markets can expose the Fund to
greater market risk, possibly resulting in reduced liquidity. Moreover, changing
economic, political, social or financial market conditions in one country or
geographic region could adversely affect the market value of the securities held
by the Fund in a different country or geographic region because of the
increasingly interconnected global economies and financial markets. The Advisor
potentially will be prevented from executing investment decisions at an
advantageous time or price because of any domestic or global market disruptions,
particularly disruptions causing heightened market volatility and reduced market
liquidity. Changes or disruptions in market conditions also may lead to
increased regulation of the Fund and the instruments in which the Fund may
invest, which may, in turn, affect the Fund’s ability to pursue its investment
objective and the Fund’s performance. In general, the securities or other
instruments represented in the Fund’s Underlying Index or in which the Fund
seeks to invest may be unavailable entirely or in the specific quantities sought
by the Fund. As a result, the Fund may need to obtain the desired exposure
through a less advantageous investment or forgo the investment at the time. This
may adversely affect the Fund and increase the Fund’s Underlying Index tracking
error.
Market
Trading Risk
Absence
of Active Market.
Although shares of the Fund are listed for trading on one or more stock
exchanges, there can be no assurance that an active trading market for such
shares will continue to develop and be maintained by market makers or Authorized
Participants.
Risk
of Secondary Listings.
The Fund’s shares may be listed or traded on U.S. and non-U.S. stock exchanges
other than the U.S. stock exchange where the Fund’s primary listing is
maintained and may otherwise be made available to non-U.S. investors through
funds or structured investment vehicles similar to depositary receipts. There
can be no assurance that the Fund’s shares will continue to trade on any such
stock exchange or in any market or that the Fund’s shares will continue to meet
the requirements for listing or trading on any exchange or in any market. The
Fund’s shares may be less actively traded in certain markets than in others, and
investors are subject to the execution and settlement risks and market standards
of the market where they or their broker direct their trades for execution.
Certain information available to investors who trade Fund shares on a U.S. stock
exchange during regular U.S. market hours may not be available to investors who
trade in other markets, which may result in Secondary Market prices in such
markets being less efficient.
Secondary
Market Trading Risk.
Shares of the Fund may trade in the Secondary Market at times when the Fund does
not accept orders to purchase or redeem shares. At such times, shares may trade
in the Secondary Market with more significant premiums or discounts than might
be experienced at times when the Fund accepts purchase and redemption
orders.
Secondary
Market trading in Fund shares may be halted by a stock exchange because of
market conditions or for other reasons. In addition, trading in Fund shares on a
stock exchange or in any market may be subject to trading halts caused by
extraordinary market volatility pursuant to “circuit breaker” rules on the stock
exchange or market.
Shares
of the Fund, similar to shares of other issuers listed on a stock exchange, may
be sold short and are therefore subject to the risk of increased volatility and
price decreases associated with being sold short.
Shares
of the Fund May Trade at Prices Other Than NAV.
Shares of the Fund trade on stock exchanges at prices at, above or below the
Fund’s most recent NAV. The NAV of the Fund is calculated at the end of each
business day and fluctuates with changes in the market value of the Fund’s
holdings. The trading price of the Fund’s shares fluctuates continuously
throughout trading hours based on both market supply of and demand for Fund
shares and the underlying value of the Fund’s portfolio holdings or NAV. As a
result, the trading prices of the Fund’s shares may deviate significantly from
NAV during periods of market volatility. ANY
OF THESE FACTORS, AMONG OTHERS, MAY LEAD TO THE FUND’S SHARES TRADING AT A
PREMIUM OR DISCOUNT TO NAV.
However, because shares can be created and redeemed in Creation Units at NAV,
the Advisor believes that large discounts or premiums to the NAV of the Fund are
not likely to be sustained over the long term (unlike shares of many closed-end
funds, which frequently trade at appreciable discounts from, and sometimes at
premiums to, their NAVs). While the creation/redemption feature is designed to
make it more likely that the Fund’s shares normally will trade on stock
exchanges at prices close to the Fund’s next calculated NAV, exchange prices are
not expected to correlate exactly with the Fund’s NAV due to timing reasons,
supply and demand imbalances and other factors. In addition, disruptions to
creations and redemptions, including disruptions at market makers, Authorized
Participants, or other market participants, and during periods of significant
market volatility, may result in trading prices for shares of the Fund that
differ significantly from its NAV. Authorized Participants may be less willing
to create or redeem Fund shares if there is a lack of an active market for such
shares or its underlying investments, which may contribute to the Fund’s shares
trading at a premium or discount to NAV.
Costs
of Buying or Selling Fund Shares.
Buying or selling Fund shares on an exchange involves two types of costs that
apply to all securities transactions. When buying or selling shares of the Fund
through a broker, you will likely incur a brokerage commission and other
charges. In addition, you may incur the cost of the “spread”; that is, the
difference between what investors are willing to pay for Fund shares (the “bid”
price) and the price at which they are willing to sell Fund shares (the “ask”
price). The spread, which varies over time for shares of the Fund based on
trading volume and market liquidity, is generally narrower if the Fund has more
trading volume and market liquidity and wider if the Fund has less trading
volume and market liquidity. In addition, increased market volatility may cause
wider spreads. There may also be regulatory and other charges that are incurred
as a result of trading activity. Because of the costs inherent in buying or
selling Fund shares, frequent trading may detract significantly from investment
results and an investment in Fund shares may not be advisable for investors who
anticipate regularly making small investments through a brokerage
account.
National
Closed Market Trading Risk
To
the extent that the underlying securities held by the Fund trade on foreign
exchanges that may be closed when the securities exchange on which the Fund’s
shares trade is open, there are likely to be deviations between the current
price of an underlying security and the last quoted price for the underlying
security (i.e., the Fund’s quote from the closed foreign market). These
deviations could result in premiums or discounts to the Fund’s NAV that may be
greater than those experienced by other ETFs.
Portfolio
Turnover Risk
The
Fund may engage in active and frequent trading of its portfolio securities to
reflect the periodic rebalancing of the Underlying Index. A portfolio turnover
rate of 200%, for example, is equivalent to the Fund buying and selling all its
securities two times during the year. A high portfolio turnover rate (such as
100% or more) could result in high brokerage costs and may result in higher
taxes when Shares are held in a taxable account.
Regulatory
and Legal Risk
U.S.
and non-U.S. governmental agencies and other regulators may implement additional
regulations and legislators may pass new laws that affect the investments held
by the Fund, the strategies used by the Fund or the level of regulation applying
to the Fund. These may impact the investment strategies, performance, costs and
operations of the Fund.
Risk
of Investing in the United States
The
Fund may have significant exposure to U.S. issuers. A decrease in imports or
exports, changes in trade regulations and/or an economic recession in the U.S.
may have a material adverse effect on the U.S. economy and the securities listed
on U.S. exchanges. Proposed and adopted policy and legislative changes in the
U.S. are changing many aspects of financial and other regulation and may have a
significant effect on the U.S. markets generally, as well as on the value of
certain securities. In addition, a continued rise in the U.S. public debt level
or U.S. austerity measures may adversely affect U.S. economic growth and the
securities to which the Fund has exposure. The U.S. has developed increasingly
strained relations with a number of foreign countries, including traditional
allies, such as certain European countries, and historical adversaries, such as
North Korea, Iran, China and Russia. If these relations were to
worsen,
it could adversely affect U.S. issuers as well as non-U.S. issuers that rely on
the U.S. for trade. The U.S. has also experienced increased internal unrest and
discord. If this trend were to continue, it may have an adverse impact on the
U.S. economy and the issuers in which the Fund invests.
Risks
Relating to Calculation of NAV
The
Fund relies on various sources to calculate its NAV. Therefore, the Fund is
subject to certain operational risks associated with reliance on third party
service providers and data sources. NAV calculation may be impacted by
operational risks arising from factors such as failures in systems and
technology. Such failures may result in delays in the calculation of the Fund’s
NAV and/or the inability to calculate NAV over extended time periods. The Fund
may be unable to recover any losses associated with such failures.
Tariff
Disputes or Trade Wars Risk
Significant
tariff disputes between trading partners can cause affected countries to
retaliate, resulting in “trade wars” which can cause negative effects on the
economies of such countries, as well as the global economy. For example, a trade
war could cause increased costs for goods imported to the trading partners, thus
limiting customer demand for these products and reducing the volume and scope of
trading. In addition, disruption in trading markets may result to depressed
capital and business investment, curtailed spending, as well as volatile or
otherwise negatively impacted financial markets. These effects
can be amplified as business confidence drops and investment decisions are
delayed. Also, imposition of new or higher tariffs can result in the adoption of
tariffs by other countries, thus widening the negative effects on the global
economy.
Tracking
Error Risk
The
Fund’s performance may not match its Underlying Index during any period of time.
Although the Fund attempts to track the performance of its Underlying Index, the
Fund may not be able to duplicate its exact composition or return for any number
of reasons, including but not limited to risk that the strategies used by the
Advisor to match the performance of the Underlying Index may fail to produce the
intended results, liquidity risk and new fund risk, as well as the incurring of
Fund expenses, which the Underlying Index does not incur. For example, the Fund
may not be able to invest in certain securities included in its Underlying Index
due to restrictions or limitations imposed, by or a lack of liquidity in,
certain countries in which such securities trade, or may be delayed in
purchasing or selling securities included in the Underlying Index. To the extent
the Fund intends to engage in a significant portion in cash transactions for the
creation and redemption of Shares, such practice may affect the Fund’s ability
to match the return of its Underlying Index.
Trading
Issues Risk
Trading
in Shares on the Exchange may be halted due to market conditions or for reasons
that, in the view of the Exchange, make trading in Shares inadvisable. There can
be no assurance that an active trading market will develop or be maintained. In
addition, trading in Shares on the Exchange is subject to trading halts caused
by extraordinary market volatility pursuant to the Exchange “circuit breaker”
rules. If a trading halt or unanticipated early closing of the Exchange occurs,
a shareholder may be unable to purchase or sell Shares when desired. There can
be no assurance that the requirements of the Exchange necessary to maintain the
listing of the Fund will continue to be met or will remain unchanged or that
Shares will trade with any volume, or at all, in any Secondary Market. As with
other exchange traded securities, Shares may be sold short and may experience
increased volatility and price decreases associated with such trading
activity.
Trading
Price Risk
It
is expected that the shares of the Fund (in each case, “Shares”) will be listed
for trading on the Exchange and will be bought and sold in the Secondary Market
at market prices. Although it is generally expected that the market price of the
Shares of the Fund will approximate the respective Fund’s NAV, there may be
times when the market price and the NAV vary significantly. Thus, you may pay
more than NAV when you buy Shares in the Secondary Market, and you may receive
less than NAV when you sell those Shares in the Secondary Market. Similar to
shares of other issuers listed on a stock exchange, Shares may be sold short and
are therefore subject to the risk of increased volatility and price decreases
associated with being sold short.
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 Advisor
believes that, under normal market conditions, large market price discounts or
premiums to NAV will not be sustained because of arbitrage opportunities,
particularly through creations and redemptions by Authorized Participants
dealing directly with the Fund. While the creation/redemption feature is
designed to make it more likely that the Fund’s Shares normally will trade on
the Exchange at prices close to its next calculated NAV, exchange prices are not
expected to correlate exactly with the Fund’s NAV due to timing reasons, supply
and demand imbalances and other factors. In addition, disruptions to creations
and redemptions, including disruptions at market makers, Authorized
Participants, or other market participants, and during periods of significant
market volatility, may result in trading prices for shares of the Fund that
differ significantly from its NAV. Authorized Participants may be less willing
to create or
redeem
Fund shares if there is a lack of an active market for such shares or its
underlying investments, which may contribute to the Fund’s shares trading at a
premium or discount to NAV.
Valuation
Risk
The
price the Fund could receive upon sale of a security or other asset may differ
from the Fund’s valuation of the security or other asset and from the value used
by the Underlying Index, particularly for securities or other assets that trade
in low volume or volatile markets or that are valued using a fair value
methodology as a result of trade suspensions or for other reasons. Because
non-U.S. exchanges may be open on days when the Fund does not price its shares,
the value of the securities or other assets in the Fund’s portfolio may change
on days or during time periods when shareholders will not be able to purchase or
sell the Fund’s shares. In addition, for purposes of calculating the Fund’s NAV,
the value of assets denominated in non-U.S. currencies is converted into U.S.
dollars using prevailing market rates on the date of valuation as quoted by one
or more data service providers. This conversion may result in a difference
between the prices used to calculate the Fund’s NAV and the prices used by the
Underlying Index, which, in turn, could result in a difference between the
Fund’s performance and the performance of the Underlying Index. Authorized
Participants who purchase or redeem Fund shares on days when the Fund is holding
fair-valued securities may receive fewer or more shares, or lower or higher
redemption proceeds, than they would have received had the Fund not fair-valued
securities or used a different valuation methodology. The Fund’s ability to
value investments may be impacted by technological issues or errors by pricing
services or other third-party service providers.
In
addition to the Principal Risks described above, the Fund may also be exposed to
the following Risks.
Absence
of Prior Active Market
Although
Shares are approved for listing and have been trading on the Exchange, there can
be no assurance that an active trading market will continue to develop and be
maintained for the Shares. There can be no assurance that the Fund will grow to
or maintain an economically viable size, in which case the Fund may experience
greater tracking error to its Underlying Index than it otherwise would at higher
asset levels, or the Fund may ultimately liquidate.
Fluctuation
of Net Asset Value
The
NAV of the Fund’s Shares will generally fluctuate with changes in the market
value of the Fund’s holdings. The market prices of the Shares will generally
fluctuate in accordance with changes in NAV as well as the relative supply of
and demand for the Shares on the Exchange. The Advisor cannot predict whether
the Shares will trade below, at or above their NAV. Price differences may be
due, in large part, to the fact that supply and demand forces at work in the
secondary trading market for the Shares will be closely related to, but not
identical to, the same forces influencing the prices of the securities of the
Fund’s Underlying Index trading individually or in the aggregate at any point in
time. If an investor purchases Shares at a time when the market price is at a
premium to the NAV of the Shares or sells at a time when the market price is at
a discount to the NAV of the Shares, then the investor may sustain losses.
However, given that the Shares can be purchased and redeemed in Creation Units
(unlike shares of closed-end funds, which frequently trade at appreciable
discounts from, and sometimes at premiums to, their NAV), the Advisor believes
that large discounts or premiums to the NAV of the Shares should not be
sustained.
Shares
are not Individually Redeemable
Shares
may be redeemed by the Fund only in large blocks known as “Creation Units” which
are expected to be worth in excess of $500,000 each. The Trust may not redeem
Shares in fractional Creation Units. Only certain large institutions that enter
into agreements with the Distributor are authorized to transact in Creation
Units with the Fund. These entities are referred to as “Authorized
Participants.” All other persons or entities transacting in Shares must do so in
the Secondary Market.
Tax
Risks
To
qualify for the favorable U.S. federal income tax treatment accorded to
regulated investment companies, the Fund must, among other things, derive in
each taxable year at least 90% of its gross income from certain prescribed
sources. If for any taxable year, the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
for that year would be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions would be
taxable to shareholders as dividend income to the extent of the Fund’s current
and accumulated earnings and profits.
Furthermore,
the tax treatment of derivatives is unclear for purposes of determining the
Fund’s tax status. In addition, the Fund’s transactions in derivatives may
result in the Fund realizing more short-term capital gains and ordinary income
that are subject to higher ordinary income tax rates than if it did not engage
in such transactions.
Please
refer to the SAI for a more complete discussion of the risks of investing in
Shares.
The
method by which Creation Units are purchased and traded may raise certain issues
under applicable securities laws. Because new Creation Units are issued and sold
by the Fund on an ongoing basis, at any point a “distribution,” as such term is
used in the Securities Act, may occur. Broker-dealers and other persons are
cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in a
manner which could render them statutory underwriters and subject them to the
prospectus delivery and liability provisions of the Securities Act. For example,
a broker-dealer firm or its client may be deemed a statutory underwriter if it
takes Creation Units after placing an order with the Distributor, breaks them
down into individual Shares, and sells such Shares directly to customers, or if
it chooses to couple the creation of a supply of new Shares with an active
selling effort involving solicitation of Secondary Market demand for Shares. A
determination of whether one is an underwriter for purposes of the Securities
Act must take into account all the facts and circumstances pertaining to the
activities of the broker-dealer or its client in the particular case, and the
examples mentioned above should not be considered a complete description of all
the activities that could lead to categorization as an underwriter.
Broker-dealer
firms should also note that dealers who are not “underwriters” but are effecting
transactions in Shares, whether or not participating in the distribution of
Shares, are generally required to deliver a prospectus. This is because the
prospectus delivery exemption in Section 4(a)(3) of the Securities Act is not
available with respect to such transactions as a result of Section 24(d) of the
1940 Act. As a result, broker dealer-firms should note that dealers who are not
underwriters but are participating in a distribution (as contrasted with
ordinary Secondary Market transactions) and thus dealing with Shares that are
part of an over-allotment within the meaning of Section 4(a)(3) of the
Securities Act would be unable to take advantage of the prospectus delivery
exemption provided by Section 4(a)(3) of the Securities Act. Firms that incur a
prospectus delivery obligation with respect to Shares of the Fund are reminded
that under Rule 153 of the Securities Act, a prospectus delivery obligation
under Section 5(b)(2) of the Securities Act owed to an exchange member in
connection with a sale on the Exchange is satisfied by the fact that such Fund’s
prospectus is available at the Exchange upon request. The prospectus delivery
mechanism provided in Rule 153 is only available with respect to transactions on
an exchange.
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CREATION
AND REDEMPTION OF CREATION UNITS |
The
Fund issues and redeems Shares only in bundles of a specified number of Shares.
These bundles are known as “Creation Units.” For the Fund, a Creation Unit is
comprised of 25,000 Shares. The number of Shares in a Creation Unit will not
change, except in the event of a share split, reverse split or similar
revaluation. The Fund cannot issue fractional Creation Units. To purchase or
redeem a Creation Unit, you must be an Authorized Participant, or you must do so
through a broker, dealer, bank or other entity that is an Authorized
Participant. An Authorized Participant is either (1) a “Participating Party,”
i.e., a broker-dealer or other participant in the clearing process of the
Continuous Net Settlement System of the NSCC (the “Clearing Process”), or (2) a
participant of DTC (a “DTC Participant”), and, in each case, must have executed
an agreement with the Distributor with respect to creations and redemptions of
Creation Units (a “Participation Agreement”). It is expected that only large
institutional investors will purchase and redeem Shares directly from the Fund
in the form of Creation Units. In turn, it is expected that institutional
investors who purchase Creation Units will break up their Creation Units and
offer and sell individual Shares in the Secondary Market.
Retail
investors may acquire Shares in the Secondary Market (not from the Fund) through
a broker or dealer. Shares are listed on the Exchange and are publicly traded.
For information about acquiring Shares in the Secondary Market, please contact
your broker or dealer. If you want to sell Shares in the Secondary Market, you
must do so through your broker or dealer.
When
you buy or sell Shares in the Secondary Market, your broker or dealer may charge
you a commission, market premium or discount or other transaction charge, and
you may pay some or all of the spread between the bid and the offered price for
each purchase or sale transaction. Unless imposed by your broker or dealer,
there is no minimum dollar amount you must invest and no minimum number of
Shares you must buy in the Secondary Market. In addition, because transactions
in the Secondary Market occur at market prices, you may pay more than NAV when
you buy Shares and receive less than NAV when you sell those
Shares.
The
creation and redemption processes discussed above are summarized, and such
summary only applies to shareholders who purchase or redeem Creation Units (they
do not relate to shareholders who purchase or sell Shares in the Secondary
Market). Authorized Participants should refer to their Participant Agreements
for the precise instructions that must be followed in order to create or redeem
Creation Units.
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BUYING
AND SELLING SHARES IN THE SECONDARY
MARKET |
Most
investors will buy and sell Shares of the Fund in Secondary Market transactions
through brokers. Shares of the Fund will be listed for trading on the Secondary
Market on the Exchange. Shares can be bought and sold throughout the trading day
like other publicly-traded shares. There is no minimum investment. Although
Shares are generally purchased and sold in “round lots” of 100 Shares, brokerage
firms typically permit investors to purchase or sell Shares in smaller “odd
lots” at no per-Share price differential. 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 offered price in the Secondary
Market on each leg of a round trip (purchase and sale) transaction.
Share
prices are reported in dollars and cents per Share. For information about buying
and selling Shares in the Secondary Market, please contact your broker or
dealer.
Book
Entry
Shares
of the Fund are held in book-entry form and no stock certificates are issued.
Depository Trust Company (“DTC”), through its nominee Cede & Co., 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.
Participants in DTC 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 securities that you hold in
book-entry or “street name” form for any publicly-traded company. Specifically,
in the case of a shareholder meeting of the Fund, DTC assigns applicable Cede
& Co. voting rights to its participants that have Shares credited to their
accounts on the record date, issues an omnibus proxy and forwards the omnibus
proxy to the Fund. The omnibus proxy transfers the voting authority from Cede
& Co. to the DTC participant. This gives the DTC participant through whom
you own Shares (namely, your broker, dealer, bank, trust company or other
nominee) authority to vote the shares, and, in turn, the DTC participant is
obligated to follow the voting instructions you provide.
Board
of Trustees
The
Board of Trustees of the Trust is responsible for the general supervision and
overseeing the management and business affairs of the Fund. The Board of
Trustees appoints officers who are responsible for the day-to-day operations and
oversee operations of the Fund by its officers. The Board of Trustees also
reviews management of the Fund’s assets by the investment advisor and
sub-advisor. Information about the Board of Trustees and executive officers of
the Fund is contained in the SAI.
Investment
Advisor
The
Advisor is registered as an investment advisor with the SEC. The Advisor’s
principal office is located at 16 Firebush Road, Levittown, Pennsylvania
19056.
The
Advisor has overall responsibility for the general management and administration
of the Trust. The Advisor provides an investment program for the Fund. The
Advisor has arranged for custody, fund administration, transfer agency and all
other non-distribution related services necessary for the Fund to
operate.
As
compensation for its services and its assumption of certain expenses, the Fund
pays the Advisor a management fee equal to a percentage of the Fund’s average
daily net assets that is calculated daily and paid monthly, as
follows:
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| Fund
Name |
Management
Fee |
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Procure
Disaster Recovery Strategy ETF |
0.75% |
The
Advisor serves as advisor to the Fund pursuant to an Investment Advisory
Agreement (the “Advisory Agreement”). The Advisor is a SEC-registered investment
advisor and advises the Fund and other ETFs. The Sub-Advisor serves as
sub-advisor to the Fund pursuant to a Sub-Advisory Agreement. The basis for the
Trustees’ approval of the Advisory Agreement and the Sub-Advisory Agreement is
available in the Trust’s Annual
Report
to shareholders for the year ended October 31, 2022.
Under
the Advisory Agreement, the Advisor has agreed to pay all expenses of the Trust
(except brokerage and other transaction expenses including taxes; extraordinary
legal fees or expenses, such as those for litigation or arbitration;
compensation and expenses of the Independent Trustees, counsel to the
Independent Trustees, and the Trust’s chief compliance officer; extraordinary
expenses; distribution fees and expenses paid by the Trust under any
distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act and the
advisory fee payable to the Advisor under the Advisory Agreement). The Advisor
has contractually agreed to waive its expenses and reimburse the Fund to the
extent necessary to ensure that Total Annual Fund Operating Expenses do not
exceed 0.75% until February 29, 2024.
The
Advisor and its affiliates deal, trade and invest for their own accounts in the
types of securities in which the Fund also may invest. The Advisor does not use
inside information in making investment decisions on behalf of the
Fund.
Portfolio
Management
Sub-Advisor
Pursuant
to an investment sub-advisory agreement (“Sub-Advisory Agreement”), Penserra
Capital Management LLC, a New York limited liability company with a Principal
Office located at 4 Orinda Way, 100-A, Orinda, California 94563 (“Penserra” or
the “Sub-Advisor”), is responsible for the day-to-day management of the Fund.
The Sub-Advisor provides investment advisory services to other ETFs. The
Sub-Advisor is responsible for, among other things, trading portfolio securities
on behalf of the Fund, including selecting broker-dealers to execute purchase
and sale transactions as instructed by the Advisor or in connection with any
rebalancing or reconstitution of the Index, subject to the supervision of the
Advisor and the Board. Under the Sub-Advisory Agreement, the Advisor pays the
Sub-Advisor a fee for its services, which fee is calculated daily and paid
monthly, at an annual rate of the Fund’s average daily net assets of 0.05% ,
subject to a minimum annual fee of $40,000.
The
Sub-Advisor has been registered as an investment advisor since
2014.
The
Sub-Advisor is responsible for managing the investment portfolio of the Fund and
will direct the purchase and sale of the Fund’s investment securities. The
Sub-Advisor utilizes a team of investment professionals acting together to
manage the assets of the Fund. The team meets regularly to review portfolio
holdings and to discuss purchase and sale activity. The team adjusts holdings in
the portfolio as they deem appropriate in the pursuit of the Fund’s investment
objective.
In
the future, the Advisor may seek exemptive relief to permit the Fund to replace
any sub-advisor without shareholder approval, and the Board reserves the right
to replace any sub-advisor with another sub-advisor without the approval of
shareholders if the Board believes it is in the best interest of
shareholders.
PORTFOLIO
MANAGERS.
The
Fund’s day-to-day activities are managed by a team of portfolio managers from
Penserra Capital Management, LLC, the Sub-Advisor.
Dustin
Lewellyn, Ernesto Tong, and Anand Desai are the Fund’s portfolio managers and
are jointly responsible for the day-to-day management of the Fund. The portfolio
managers are responsible for various functions related to portfolio management,
including, but not limited to, investing cash inflows, implementing investment
strategy, researching and reviewing investment strategy, and overseeing members
of their portfolio management team with more limited
responsibilities.
Mr.
Lewellyn has been Chief Investment Officer with Penserra since 2012. He was
President and Founder of Golden Gate Investment Consulting LLC from 2011 through
2015. Prior to that, Mr. Lewellyn was a managing director at Charles Schwab
Investment Management, Inc. (“CSIM”), which he joined in 2009, and head of
portfolio management for Schwab ETFs. Prior to joining CSIM, he worked for two
years as director of ETF product management and development at a major financial
institution focused on asset and wealth management. Prior to that, he was a
portfolio manager for institutional clients at a financial services firm for
three years. In addition, he held roles in portfolio operations and portfolio
management at a large asset management firm for more than 6 years.
Mr.
Tong has been a Managing Director with Penserra since 2015. Prior to that, Mr.
Tong spent seven years as vice president at Blackrock, where he was a portfolio
manager for a number of the iShares ETFs, and prior to that, he spent two years
in the firm’s index research group.
Mr.
Desai has been a Senior Vice President with Penserra since 2020. Mr. Desai has
served in various roles at Penserra since joining the team in 2015. Prior to
that, Mr. Desai was a portfolio fund accountant at State Street for five
years.
For
more information about the portfolio managers’ compensation, other accounts
managed by the portfolio managers and the portfolio managers’ ownership of
shares in the Fund, see the SAI.
Index
Provider to the Procure Disaster Recovery Strategy ETF
GKD
Index Partners, LLC d/b/a/ Alerian located at 3625 N Hall Street, Suite 1200,
Dallas, TX 75219, developed and sponsors the Underlying Index for the Procure
Disaster Recovery Strategy ETF. The Fund is not sponsored, endorsed, sold or
promoted by GKD Index Partners, LLC.
THE
INDEX PROVIDER DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
INDEX OR ANY DATA INCLUDED THEREIN AND THE INDEX PROVIDER SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. THE INDEX
PROVIDER MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
LICENSEE, OWNERS OF THE PRODUCT(S), OR ANY OTHER PERSON OR ENTITY FROM THE USE
OF THE INDEX OR ANY DATA INCLUDED THEREIN. THE INDEX PROVIDER NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT
LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL THE INDEX PROVIDER HAVE ANY LIABILITY
FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Fund
Administrator, Custodian, and Transfer Agent for the Procure Disaster Recovery
Strategy ETF
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services
(“Fund Services”), located at 615 East Michigan Street, Milwaukee, Wisconsin
53202, serves as the Fund’s Administrator and Transfer Agent. U.S. Bank,
National Association, serves as the custodian to the Fund (the “Custodian”). The
Custodian and Fund Services are affiliates.
Distributor
Quasar
Distributors LLC (“Quasar” or “Distributor”) serves as the Distributor of
Creation Units for the Fund on an agency basis. The Distributor does not
maintain a Secondary Market in Shares. ProcureAM, LLC has entered into a
Services Agreement with Quasar to distribute the Fund.
Compliance
Services
Cipperman
Compliance Services (“CCS”), located at 480 East Swedesford Road, Suite 220,
Wayne, Pennsylvania 19087, manages the compliance program of the Trust and the
Fund. Stacey Gillespie of CCS serves as the Trust’s Chief Compliance Officer
(the “CCO”) and performs the functions of the CCO as described in Rule 38a-1
under the 1940 Act. The CCO shall have primary responsibility for administering
the Trust’s compliance policies and procedures adopted pursuant to Rule 38a-1
(the “Compliance Program”) and reviewing the Compliance Program, in the manner
specified in Rule 38a-1, at least annually or as may be required by Rule 38a-1,
as may be amended from time to time. The CCO reports directly to the Board of
Trustees regarding the Compliance Program.
Independent
Registered Public Accounting Firm
Cohen
& Company Ltd., located at 1350 Euclid Avenue, Suite 800, Cleveland,
Ohio 44115, serves as the independent registered public accounting firm for the
Trust.
Legal
Counsel
K&L
Gates LLP, located at 599 Lexington Avenue, New York, New York 10022, serves as
counsel to the Trust and the Fund.
The
Trust’s Board of Trustees has not adopted policies and procedures with respect
to frequent purchases and redemptions of Fund Shares by Fund shareholders
(“market timing”). In determining not to adopt market timing policies and
procedures, the Board noted that the Fund is expected to be attractive to active
institutional and retail investors interested in buying and selling Fund Shares
on a short-term basis. In addition, the Board considered that, unlike
traditional mutual funds, the Fund’s Shares can only be purchased and redeemed
directly from the Fund in Creation Units by Authorized Participants, and that
the vast majority of trading in the Fund’s Shares occurs on the Secondary
Market. Because Secondary Market trades do not involve the Fund directly, it is
unlikely those trades would cause many of the harmful effects of market timing,
including dilution, disruption of portfolio management, increases in the Fund’s
trading costs and the realization of capital gains. With respect to trades
directly with the Fund, to the extent effected in-kind (namely, for securities),
those trades do not cause any of the harmful effects that may result from
frequent cash trades. To the extent trades are effected in whole or in part in
cash, the Board noted that those trades could result in dilution to the Fund and
increased transaction costs (the Fund may impose higher transaction fees to
offset these increased costs), which could negatively impact the Fund’s ability
to achieve its investment objective. However, the Board noted that direct
trading on a short-term basis by Authorized Participants is critical to ensuring
that the Fund’s Shares trade at or close to NAV. Given this structure, the Board
determined that it is not necessary to adopt market timing policies and
procedures. The Fund reserves the right to reject any purchase order at any time
and reserves the right to impose restrictions on disruptive or excessive trading
in Creation Units.
The
Board of Trustees has instructed the officers of the Trust to review reports of
purchases and redemptions of Creation Units on a regular basis to determine if
there is any unusual trading in the Fund. The officers of the Trust will report
to the Board any such unusual trading in Creation Units that is disruptive to
the Fund. In such event, the Board may reconsider its decision not to adopt
market timing policies and procedures.
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| DISTRIBUTION
AND SERVICE PLAN |
The
Board of Trustees of the Trust has adopted a Distribution and Service Plan
pursuant to Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1
plan, the Fund is authorized to pay an amount up to 0.25% of its average daily
net assets each year to finance activities primarily intended to result in the
sale of Creation Units of the Fund or the provision of investor 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,
they will be paid out of the Fund’s assets, and over time these fees will
increase the cost of your investment and they may cost you more than certain
other types of sales charges.
The
Advisor and its affiliates may, out of their own resources, pay amounts
(“Payments”) to third parties for distribution or marketing services on behalf
of the Fund. The making of these payments could create a conflict of interest
for a financial intermediary receiving such payments. The Advisor may make
Payments for such third parties to organize or participate in activities that
are designed to make registered representatives, other professionals and
individual investors more knowledgeable about ETFs, including ETFs advised by
the Advisor, or for other activities, such as participation in marketing
activities and presentations, educational training programs, conferences, the
development of technology platforms and reporting systems (“Education Costs”).
The Advisor also may make Payments to third parties to help defray costs
typically covered by a trading commission, such as certain printing, publishing
and mailing costs or materials relating to the marketing of services related to
exchange-traded products (such as commission-free trading platforms) or
exchange-traded products in general (“Administrative Costs”). As of the
date of this Prospectus, the Advisor has not entered into arrangements whereby
it would make Payments.
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| DETERMINATION
OF NET ASSET VALUE (NAV) |
The
NAV of the Shares for the Fund is equal to the Fund’s total assets minus the
Fund’s total liabilities divided by the total number of Shares outstanding.
Interest and investment income on the Trust’s assets accrue daily and are
included in the Fund’s total assets. Expenses and fees (including investment
advisory, management, administration and distribution fees, if any) accrue daily
and are included in the Fund’s total liabilities. The NAV that is published is
rounded to the nearest cent; however, for purposes of determining the price of
Creation Units, the NAV is calculated to five decimal places. The NAV is
calculated by the Administrator and Custodian and determined each Business Day
as of the close of regular trading on the New York Stock Exchange (“NYSE”)
(ordinarily 4:00 p.m. New York time).
In
calculating NAV, the Fund’s investments are valued using market quotations when
available. Equity securities are generally valued at the closing price of the
security on the security’s primary exchange. The primary exchanges for the
Fund’s foreign equity securities may close for trading at various times prior to
close of regular trading on the NYSE, and the value of such securities used in
computing the Fund’s NAV are generally determined as of such times. The Fund’s
foreign securities may trade on weekends or other days when Fund Shares do not
trade. Consequently, the value of portfolio securities of the Fund may change on
days when Shares of the Fund cannot be purchased or sold. With respect to any
portion of the Fund’s assets invested in one or more underlying mutual funds,
the Fund’s NAV is calculated based upon the NAVs of those underlying mutual
funds.
When
market quotations are not readily available or are deemed unreliable or not
representative of an investment’s fair value, investments are valued using fair
value pricing as determined in good faith by the Valuation Designee, subject to
the Board’s general oversight. The Board has designated the Advisor as the
Valuation Designee. Investments that may be valued using fair value pricing
include, but are not limited to: (1) securities that are not actively traded,
including “restricted” securities and securities received in private placements
for which there is no public market; (2) securities of an issuer that becomes
bankrupt or enters into a restructuring; and (3) securities whose trading has
been halted or suspended; and (4) foreign securities traded on exchanges that
close before the Fund’s NAV is calculated.
The
frequency with which the Fund’s investments are valued using fair value pricing
is primarily a function of the types of securities and other assets in which the
Fund invests pursuant to its investment objective, strategies and limitations.
If the Fund invests in other open-end management investment companies registered
under the 1940 Act, they may rely on the net asset values of those companies to
value the shares they hold of them. Those companies may also use fair value
pricing under some circumstances.
Valuing
the Fund’s investments using fair value pricing results in using prices for
those investments that may differ from current market valuations. In addition,
with respect to securities that are primarily listed on foreign exchanges, the
value of a Fund’s portfolio securities may change on days when you will not be
able to purchase or sell your Shares. Accordingly, fair value pricing could
result in a difference between the prices used to calculate NAV and the prices
used to determine the Fund’s Indicative Intra-Day Value (“IIV”), which could
result in the market prices for Shares deviating from NAV.
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INDICATIVE
INTRA-DAY VALUE |
The
approximate value of the Fund’s investments on a per-Share basis, the Indicative
Intra-Day Value, or IIV, is disseminated by ICE Data Indices LLC every 15
seconds during hours of trading of the Fund. The IIV should not be viewed as a
“real-time” update of NAV because the IIV may not be calculated in the same
manner as NAV, which is computed once per day.
An
independent third-party calculator calculates the IIV for the Fund during hours
of trading of the Fund by dividing the “Estimated Fund Value” as of the time of
the calculation by the total number of outstanding Shares of that Fund.
“Estimated Fund Value” is the sum of the estimated amount of cash held in the
Fund’s portfolio, the estimated amount of accrued interest owed to the Fund and
the estimated value of the securities held in the Fund’s portfolio, minus the
estimated amount of the Fund’s liabilities. The IIV will be calculated based on
the same portfolio holdings disclosed on the Trust’s website.
The
Fund may provide the independent third-party calculator with information to
assist in the calculation of the IIV, but the Fund is not involved in the actual
calculation of the IIV and is not responsible for the calculation or
dissemination of the IIV. The Fund makes no warranty as to the accuracy of the
IIV.
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DIVIDENDS,
DISTRIBUTIONS AND TAXES |
Net
Investment Income and Capital Gains
As
a Fund shareholder, you are entitled to your share of the Fund’s distributions
of net investment income and net realized capital gains on its investments. The
Fund pays out substantially all of its net earnings to their shareholders as
“distributions”, at least annually.
The
Fund typically earns income dividends from stocks and interest from debt
securities. These amounts, net of expenses, typically are passed along to Fund
shareholders as dividends from net investment income. The Fund realizes capital
gains or losses whenever they sell securities. Net capital gains typically are
passed along to shareholders as “capital gain distributions.” Net investment
income and net capital gains typically are distributed to shareholders at least
annually. Dividends may be declared and paid more frequently to improve index
tracking or to comply with the distribution requirements of the U.S. Internal
Revenue Code of 1986, as amended (the “Code”). In addition, the Fund may decide
to distribute at least annually amounts representing the full dividend yield net
of expenses on the underlying investment securities, as if the Fund owned the
underlying investment securities for the entire dividend period, in which case
some portion of each distribution may result in a return of capital. You will be
notified regarding the portion of a distribution that represents a return of
capital.
Distributions
in cash may be reinvested automatically in additional Shares of the Fund only if
the broker through which you purchased Shares makes such option available.
Distributions which are reinvested nevertheless will be subject to U.S. federal
income tax to the same extent as if such distributions had not been
reinvested.
U.S.
Federal Income Taxation
The
following is a summary of certain U.S. federal income tax considerations
applicable to an investment in Shares of the Fund. The summary is based on the
Code, U.S. Treasury Department regulations promulgated thereunder, and judicial
and administrative interpretations thereof, all as in effect on the date of this
Prospectus and all of which are subject to change, possibly with retroactive
effect. In addition, this summary assumes that a Fund shareholder holds Shares
as capital assets within the meaning of the Code and does not hold Shares in
connection with a trade or business. This summary does not address all potential
U.S. federal income tax considerations possibly applicable to an investment in
Shares of the Fund, and does not address the consequences to Fund shareholders
subject to special tax rules, including, but not limited to, partnerships and
the partners therein, tax-exempt shareholders, regulated investment companies
(“RICs”), real estate investment trusts (“REITs”), real estate mortgage
investment conduits (“REMICs”), those who hold Shares through an IRA, 401(k)
plan or other tax-advantaged account, and, except to the extent discussed below,
“non-U.S. shareholders” (as defined below). This discussion does not discuss any
aspect of U.S. state, local, estate, and gift, or non-U.S. tax law. Furthermore,
this discussion is not intended or written to be legal or tax advice to any
shareholder in the Fund or other person and is not intended or written to be
used or relied on, and cannot be used or relied on, by any such person for the
purpose of avoiding any U.S. federal tax penalties that may be imposed on such
person. Prospective Fund shareholders are urged to consult their own tax
advisors with respect to the specific U.S. federal, state and local, and
non-U.S., tax consequences of investing in Shares, based on their particular
circumstances.
The
Fund has not requested and will not request an advance ruling from the U.S.
Internal Revenue Service (the “IRS”) as to the U.S. federal income tax matters
described below. The IRS could adopt positions contrary to those discussed below
and such positions could be sustained. Prospective investors should consult
their own tax advisors with regard to the U.S. federal tax consequences of the
purchase, ownership and disposition of Shares, as well as the tax consequences
arising under the laws of any state, locality, non-U.S. country or other taxing
jurisdiction. The following information supplements, and should be read in
conjunction with, the section in the SAI entitled “U.S. Federal Income
Taxation.”
Tax
Treatment of the Fund
The
Fund intends to qualify and elect to be treated as a separate RIC under the
Code. To qualify and remain eligible for the special tax treatment accorded to
RICs, the Fund must meet certain annual income and quarterly asset
diversification requirements and must distribute annually at least the sum of
(i) 90% of its “investment company taxable income” (which includes dividends,
interest and net short-term capital gains) and (ii) 90% of certain net
tax-exempt income, if any.
As
a RIC, the Fund generally will not be required to pay corporate-level U.S.
federal income taxes on any ordinary income or capital gains that it distributes
to its shareholders. If the Fund fails to qualify as a RIC for any year (subject
to certain curative measures allowed by the Code), the Fund will be subject to
regular corporate-level U.S. federal income tax in that year on all of its
taxable income, regardless of whether the Fund makes any distributions to its
shareholders. In addition, in such case, distributions will be taxable to the
Fund’s shareholders generally as ordinary dividends to the extent of the Fund’s
current and accumulated earnings and profits. The remainder of this discussion
assumes that the Fund will qualify for the special tax treatment accorded to
RICs.
The
Fund generally will be subject to a 4% excise tax on certain undistributed
income if the Fund does not distribute to its shareholders in each calendar year
an amount at least equal to the sum of 98% of its ordinary income for the
calendar year (taking into account certain deferrals and elections), 98.2% of
its capital gain net income (adjusted for certain ordinary losses) for the
twelve months ended October 31 of such year (or later if the Fund is permitted
to elect and so elects), plus 100% of any undistributed amounts from prior
years. For these purposes, the Fund will be treated as having distributed any
amount on which it has been subject to U.S. corporate income tax for the taxable
year ending within the calendar year. The Fund intends to make distributions
necessary to avoid this 4% excise tax, although there can be no assurance that
it will be able to do so.
The
Fund may be required to recognize taxable income in advance of receiving the
related cash payment. For example, if the Fund invests in original issue
discount obligations (such as zero coupon debt instruments or debt instruments
with payment-in-kind interest), the Fund will be required to include in income
each year a portion of the original issue discount that accrues over the term of
the obligation, even if the related cash payment is not received by the Fund
until a later year. Under the “wash sale” rules, the Fund may not be able to
currently deduct a loss on a disposition of a portfolio security. As a result,
the Fund may be required to make an annual income distribution greater than the
total cash actually received during the year. Such distribution may be made from
the existing cash assets of the Fund or cash generated from selling portfolio
securities. The Fund may realize gains or losses from such sales, in which event
its shareholders may receive a larger capital gain distribution than they would
in the absence of such transactions.
Tax
Treatment of Fund Shareholders
Taxation
of U.S. Shareholders
The
following is a summary of certain U.S. federal income tax consequences of the
purchase, ownership and disposition of Fund Shares applicable to “U.S.
shareholders.” For purposes of this discussion, a “U.S. shareholder” is a
beneficial owner of Fund Shares who, for U.S. federal income tax purposes, is
(i) an individual who is a citizen or resident of the United States; (ii) a
corporation (or an entity treated as a corporation for U.S. federal income tax
purposes) created or organized in the United States or under the laws of the
United States, or of any state thereof, or the District of Columbia; (iii) an
estate, the income of which is includable in gross income for U.S. federal
income tax purposes regardless of its source; or (iv) a trust, if (1) a U.S.
court is able to exercise primary supervision over the administration of such
trust and one or more U.S. persons have the authority to control all substantial
decisions of the trust, or (2) the trust has a valid election in place to be
treated as a U.S. person.
Fund
Distributions.
In general, Fund distributions are subject to U.S. federal income tax when paid,
regardless of whether they consist of cash or property, and regardless of
whether they are re-invested in Shares. However, any Fund distribution declared
in October, November or December of any calendar year and payable to
shareholders of record on a specified date during such month will be deemed to
have been received by each Fund shareholder on December 31 of such calendar
year, if such dividend is actually paid during January of the following calendar
year.
Distributions
of the Fund’s net investment income and net short-term capital gains in excess
of net long-term capital losses (collectively referred to as “ordinary income
dividends”) are taxable as ordinary income to the extent of the Fund’s current
and accumulated earnings and profits (subject to an exception for distributions
of “qualified dividend income,” as discussed below). To the extent designated as
capital gain dividends by the Fund, distributions of the Fund’s net long-term
capital gains in excess of net short-term capital losses (“net capital gain”)
are taxable at long-term capital gain tax rates to the extent of the Fund’s
current and accumulated earnings and profits, regardless of the Fund
shareholder’s holding period in the Fund’s Shares. Distributions of “qualified
dividend income” (defined below) are, to the extent of a Fund’s current and
accumulated earnings and profits, taxed to certain non-corporate Fund
shareholders at the rates generally applicable to long-term capital gain,
provided that the Fund shareholder meets certain holding period and other
requirements with respect to the distributing Fund’s Shares and the distributing
Fund meets certain holding period and other requirements with respect to its
dividend-paying stocks. For this purpose, “qualified dividend income” generally
means income from dividends received by the Fund from U.S. corporations and
qualified non-U.S. corporations. Substitute payments received on Fund Shares
that are lent out will be ineligible for being reported as qualified dividend
income.
If t Fund pays a dividend that would be “qualified” dividend income for
individuals with respect to U.S. corporate dividends received by the Fund,
corporate shareholders may be entitled to a dividends received
deduction.
The
Fund intends to distribute its net capital gain at least annually. However, by
providing written notice to its shareholders no later than 60 days after its
year-end, the Fund may elect to retain some or all of its net capital gain and
designate the retained amount as a “deemed distribution.” In that event, the
Fund pays U.S. federal income tax on the retained net capital gain, and each
Fund shareholder recognizes a proportionate share of the Fund’s undistributed
net capital gain. In addition, each Fund shareholder can claim a tax credit or
refund for the shareholder’s proportionate share of the Fund’s U.S. federal
income taxes paid on the undistributed net capital gain and increase the
shareholder’s tax basis in the Shares by an amount equal to the shareholder’s
proportionate share of the Fund’s undistributed net capital gain, reduced by the
amount of the shareholder’s tax credit or refund.
Distributions
in excess of the Fund’s current and accumulated earnings and profits will, as to
each shareholder, be treated as a tax-free return of capital to the extent of
the shareholder’s tax basis in its Shares of the Fund, and generally as capital
gain thereafter. Any such distribution will reduce the shareholder’s tax basis
in the Shares, and thus will increase the shareholder’s capital gain, or
decrease the capital loss, recognized upon a sale or exchange of
Shares.
In
addition, individuals with adjusted gross incomes above certain threshold
amounts (and certain trusts and estates) generally are subject to a 3.8%
Medicare tax on “net investment income” in addition to otherwise applicable U.S.
federal income tax. “Net investment income” generally will include dividends
(including capital gain dividends) received from the Fund and net gains from the
redemption or other disposition of Shares. Please consult your tax advisor
regarding this tax.
If
the Fund is a “qualified fund of funds” (i.e., a RIC at least 50% of the value
of the total assets of which, at the close of each quarter of the taxable year,
is represented by interests in other RICs) or more than 50% of the Fund’s total
assets at the end of a taxable year consist of non-U.S. stock or securities, the
Fund may elect to “pass through” to its shareholders certain non-U.S. income
taxes paid by the Fund. This means that each shareholder will be required to (i)
include in gross income, even though not actually received, the shareholder’s
pro rata share of the Fund’s non-U.S. income taxes, and (ii) either take a
corresponding deduction (in calculating U.S. federal taxable income) or credit
(in calculating U.S. federal income tax), subject to certain
limitations.
Investors
considering buying Shares just prior to a distribution should be aware that,
although the price of the Shares purchased at such time may reflect the
forthcoming distribution, such distribution nevertheless may be taxable (as
opposed to a non-taxable return of capital).
Sales
or Exchanges of Shares.
Any capital gain or loss realized upon a sale or exchange of Shares generally
(including an exchange of Shares of the Fund for Shares of another Fund) is
treated as a long-term gain or loss if the Shares have been held for more than
one year. Any capital gain or loss realized upon a sale or exchange of Shares
held for one year or less generally is treated as a short-term gain or loss,
except that any capital loss on the sale or exchange of Shares held for six
months or less is treated as long-term capital loss to the extent that capital
gain dividends were paid (or deemed to be paid) with respect to the
Shares.
Creation
Unit Issues and Redemptions.
On an issue of Shares of the Fund as part of a Creation Unit where the creation
is conducted in-kind, an Authorized Participant generally recognizes capital
gain or loss equal to the difference between (i) the fair market value (at
issue) of the issued Shares (plus any cash received by the Authorized
Participant as part of the issue) and (ii) the Authorized Participant’s
aggregate basis in the exchanged securities (plus any cash paid by the
Authorized Participant as part of the issue). On a redemption of Shares as part
of a Creation Unit where the redemption is conducted in-kind, an Authorized
Participant generally recognizes capital gain or loss equal to the difference
between (i) the fair market value (at redemption) of the securities received
(plus any cash received by the Authorized Participant as part of the redemption)
and (ii) the Authorized Participant’s basis in the redeemed Shares (plus any
cash paid by the Authorized Participant as part of the redemption). However, the
IRS may assert, under the “wash sale” rules or on the basis that there has been
no significant change in the Authorized Participant’s economic position, that
any loss on creation or redemption of Creation Units cannot be deducted
currently.
In
general, any capital gain or loss recognized upon the issue or redemption of
Shares (as components of a Creation Unit) is treated either as long-term capital
gain or loss, if the deposited securities (in the case of an issue) or the
Shares (in the case of a redemption) have been held for more than one year, or
otherwise as short-term capital gain or loss. However, any capital loss on a
redemption of Shares held for six months or less is treated as long-term capital
loss to the extent that capital gain dividends were paid (or deemed to be paid)
with respect to such Shares.
Back-Up
Withholding
The
Fund (or a financial intermediary such as a broker through which a shareholder
holds Shares in a Fund) may be required to report certain information on a Fund
shareholder to the IRS and withhold U.S. federal income tax (“backup
withholding”) at a current rate of 24% from taxable distributions and redemption
or sale proceeds payable to the Fund shareholder if (i) the Fund shareholder
fails to provide the Fund or such intermediary with a correct taxpayer
identification number or make required certifications, or if the IRS notifies
the Fund or such intermediary that the Fund shareholder is otherwise subject to
backup withholding, and (ii) the Fund shareholder is not otherwise exempt from
backup withholding. Non-U.S. shareholders can qualify for exemption from backup
withholding
by submitting a properly completed IRS Form W-8BEN or W-8BEN-E. Backup
withholding is not an additional tax and any amount withheld may be credited
against a Fund shareholder’s U.S. federal income tax liability.
Taxation
of Non-U.S. Shareholders
The
following is a summary of certain U.S. federal income tax consequences of the
purchase, ownership and disposition of Shares applicable to “non-U.S.
shareholders.” For purposes of this discussion, a “non-U.S. shareholder” is a
beneficial owner of Fund Shares that is not a U.S. shareholder (as defined
above) and is not an entity or arrangement treated as a partnership for U.S.
federal income tax purposes. The following discussion is based on current law
and is for general information only. It addresses only selected, and not all,
aspects of U.S. federal income taxation applicable to non-U.S.
shareholders.
With
respect to non-U.S. shareholders of the Fund, the Fund’s ordinary income
dividends generally will be subject to U.S. federal withholding tax at a rate of
30% (or at a lower rate established under an applicable tax treaty), subject to
certain exceptions for “interest-related dividends” and “short-term capital gain
dividends” discussed below. The Fund will not pay any additional amounts to
shareholders in respect of any amounts withheld. U.S. federal withholding tax
generally will not apply to any gain realized by a non-U.S. shareholder in
respect of a Fund’s net capital gain. Special rules (not discussed herein) apply
with respect to dividends of the Fund that are attributable to gain from the
sale or exchange of “U.S. real property interests.”
In
general, all “interest-related dividends” and “short-term capital gain
dividends” (each defined below) will not be subject to U.S. federal withholding
tax, provided that, among other requirements, the non-U.S. shareholder furnished
the Fund with a completed IRS Form W-8BEN or W-8BEN-E, as applicable, (or
acceptable substitute documentation) establishing the non-U.S. shareholder’s
non-U.S. status and the Fund does not have actual knowledge or reason to know
that the non-U.S. shareholder would be subject to such withholding tax if the
non-U.S. shareholder were to receive the related amounts directly rather than as
dividends from the Fund. “Interest-related dividends” generally means dividends
designated by the Fund as attributable to the Fund’s U.S.-source interest
income, other than certain contingent interest and interest from obligations of
a corporation or partnership in which the Fund is at least a 10% shareholder,
reduced by expenses that are allocable to such income. “Short-term capital gain
dividends” generally means dividends designated by the Fund as attributable to
the excess of the Fund’s net short-term capital gain over its net long-term
capital loss. Depending on its circumstances, the Fund may treat such dividends,
in whole or in part, as ineligible for these exemptions from
withholding.
In
general, subject to certain exceptions, non-U.S. shareholders will not be
subject to U.S. federal income or withholding tax in respect of a sale or other
disposition of Shares of the Fund.
To
claim a credit or refund for any Fund-level taxes on any undistributed net
capital gain (as discussed above) or any taxes collected through back-up
withholding (discussed below), a non-U.S. shareholder must obtain a U.S.
taxpayer identification number and file a U.S. federal income tax return even if
the non-U.S. shareholder would not otherwise be required to do so.
Foreign
Account Tax Compliance Act
The
U.S. Foreign Account Tax Compliance Act (“FATCA”) generally imposes a 30%
withholding tax on “withholdable payments” (defined below) made to (i) a
“foreign financial institution” (“FFI”), unless the FFI enters into an agreement
with the IRS to provide information regarding certain of its direct and indirect
U.S. account holders and satisfy certain due diligence and other specified
requirements, and (ii) a “non-financial foreign entity” (“NFFE”) unless such
NFFE provides certain information about its direct and indirect “substantial
U.S. owners” to the withholding agent or certifies that it has no such U.S.
owners. The beneficial owner of a “withholdable payment” may be eligible for a
refund or credit of the withheld tax. The U.S. government also has entered into
intergovernmental agreements with other jurisdictions to provide an alternative,
and generally easier, approach for FFIs to comply with FATCA. If the shareholder
is a tax resident in a jurisdiction that has entered into an intergovernmental
agreement with the U.S. government, the shareholder will be required to provide
information about the shareholder’s classification and compliance with the
intergovernmental agreement.
“Withholdable
payments” generally include, among other items, U.S.-source interest and
dividends. Proposed regulations (effective while pending) eliminate the
application of the withholding tax to gross proceeds from the sale or
disposition of property of a type that can produce U.S.-source interest or
dividends that was originally scheduled to take effect in 2019.
The
Fund or shareholder’s broker may be required to impose a 30% withholding tax on
withholdable payments to a shareholder if the shareholder fails to provide the
Fund or broker with the information, certifications or documentation required
under FATCA, including information, certification or documentation necessary for
the Fund or broker to determine if the shareholder is a non-U.S. shareholder or
a U.S. shareholder and, if it is a non-U.S. shareholder, if the non-U.S.
shareholder has “substantial U.S. owners” and/or is in compliance with (or meets
an exception from) FATCA requirements. The Fund will not pay any additional
amounts to shareholders in respect of any amounts withheld. The Fund or broker
may disclose any shareholder information, certifications or documentation to the
IRS or other parties as necessary to comply with FATCA.
The
requirements of, and exceptions from, FATCA are complex. All prospective
shareholders are urged to consult their own tax advisors regarding the potential
application of FATCA with respect to their own situation.
For
a more detailed tax discussion regarding an investment in the Fund, please see
the section of the SAI entitled “U.S. Federal Income Taxation.
The
Trust, the Advisor, and the Sub-Advisor each have adopted a code of ethics under
Rule 17j-1 of the 1940 Act that is designed to prevent affiliated persons of the
Trust, the Advisor, and the Sub-Advisor from engaging in deceptive, manipulative
or fraudulent activities in connection with securities held or to be acquired by
the Fund (which may also be held by persons subject to a code). The Distributor
relies on the principal underwriter’s exception under Rule 17j-1(c)(3),
specifically where the Distributor is not affiliated with the Trust, the
Advisor, or the Sub-Advisor, and no officer, director, or general partner of the
Distributor serves as an officer, director, or general partner of the Trust, the
Advisor, or the Sub-Advisor.
There
can be no assurance that the codes will be effective in preventing such
activities. The codes permit personnel subject to them to invest in securities,
including securities that may be held or purchased by the Fund, subject to
certain conditions. The codes are on file with the SEC and are available to the
public.
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| FUND
WEBSITE AND DISCLOSURE OF PORTFOLIO
HOLDINGS |
The
Advisor maintains a website for the Fund at www.ProcureETFs.com.
The website for the Fund contains the following information, on a per-Share
basis, for the Fund: (1) the prior Business Day’s NAV; (2) the reported
mid-point of the bid-ask spread at the time of NAV calculation (the “Bid-Ask
Price”); (3) a calculation of the premium or discount of the Bid-Ask Price
against such NAV; and (4) data in chart format displaying the frequency
distribution of discounts and premiums of the Bid-Ask Price against the NAV,
within appropriate ranges, for each of the four previous calendar quarters (or
for the life of the Fund if, shorter). In addition, on each Business Day, before
the commencement of trading in Shares on the Exchange, the Fund will disclose on
its website (www.ProcureETFs.com)
the identities and quantities of the portfolio securities and other assets held
by the Fund that will form the basis for the calculation of NAV at the end of
the Business Day.
It
is the policy of the Fund to mail only one copy of the prospectus, annual
report, semi-annual report and proxy statements to all shareholders who share
the same mailing address and share the same last name. You are deemed to consent
to this policy unless you specifically revoke this policy and request that
separate copies of such documents be mailed to you. In such case, you will begin
to receive your own copies within 30 days after our receipt of the revocation.
You may request that separate copies of these disclosure documents be mailed to
you by writing to us at: Procure ETF Trust II, c/o ProcureAM, LLC, 16 Firebush
Road, Levittown, Pennsylvania 19056.
Investors
who hold their shares through an intermediary are subject to the intermediary
policies. Contact your financial intermediary for any questions you may
have.
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| INDEX
PROVIDER AND DISCLAIMERS |
The
Fund is not sponsored, endorsed, sold or promoted by the Index Provider. The
Index Provider makes 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 or the ability of
the Fund to achieve their objectives. The Index Provider has no obligation or
liability in connection with the administration, marketing or trading of the
Fund.
For
purposes of the 1940 Act, the Fund is a registered investment company, and the
acquisition of Shares by other registered investment companies and companies
relying on exemption from registration as investment companies under Section
3(c)(1) or 3(c)(7) of the 1940 Act is subject to the restrictions of Section
12(d)(1) of the 1940 Act, except as permitted by an exemptive order that permits
registered investment companies to invest in the Fund beyond those
limitations.
THE
INDEX PROVIDER DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN AND HAS NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. THE INDEX PROVIDER MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE UNDERLYING
INDEX, OWNERS OF THE FUND OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. THE INDEX PROVIDER MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL THE INDEX PROVIDER HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The
following financial highlights table shows the Fund’s financial performance
information for the periods of the Fund’s operations. The total return in
the table represents the rate that you would have earned or lost on an
investment in the Fund (assuming you reinvested all distributions). This
information has been audited by Cohen & Company, Ltd., the independent
registered public accounting firm of the Fund, whose report, along with the
Fund’s financial statements, is included in the
Fund’s 2022 Annual
Report
to Shareholders, which is available upon request.
Procure
Disaster Recovery Strategy ETF
Financial
Highlights
For
a capital share outstanding throughout the period
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| |
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|
Period
Ended October 31,
20221 |
| Net
Asset Value, Beginning of Period |
|
| $ |
24.81 |
| |
| Income
from Investment Operations: |
|
| |
|
|
Net
investment income 2 |
|
| 0.04 |
| |
| Net
realized and unrealized gain (loss) on investments |
|
| (2.39) |
| |
| Total
from investment operations |
|
| (2.35) |
|
6 |
| Less
Distributions: |
|
| |
|
| Distributions
from net investment income |
|
| (0.04) |
| |
| Distributions
from return of capital |
|
| — |
| |
| Total
distributions |
|
| (0.04) |
| |
| Capital
Share Transactions: |
|
|
| |
| Net
asset value, end of period |
|
| 22.42 |
| |
| Total
Return |
|
|
-9.45 |
% |
3 |
|
|
|
|
| |
| Ratios/Supplemental
Data: |
|
| |
|
| Net
assets at end of period (000’s) |
|
| $ |
561 |
| |
| Ratio
of expenses to Average Net Assets: |
|
| |
|
| Before
waivers and reimbursements of expenses |
|
| 5.63 |
% |
4 |
| After
waivers and reimbursements of expenses |
|
| 0.75 |
% |
4 |
| Net
Investment Income to Average Net Assets |
|
| 0.46 |
% |
4 |
|
Portfolio
Turnover Rate5 |
|
| 16 |
% |
3 |
1 Commencement
of operations on May 31, 2022.
2 Calculated
based on average shares outstanding during the year/period.
3 Not
annualized.
4 Annualized.
5 Excludes
the impact of in-kind transactions.
6 Net
realized and unrealized gains (loss) per share in this caption are balancing
amounts necessary to reconcile the change in net asset value per share for the
period, and may not reconcile with the aggregate gains and losses in the
Statement of Operations due to share transactions the period.
Procure
ETF Trust II is committed to respecting the privacy of personal information you
entrust to us in the course of doing business with us.
The
Trust may collect non-public personal information from various sources. The
Trust uses such information provided by you or your representative to process
transactions, to respond to inquiries from you, to deliver reports, products,
and services, and to fulfill legal and regulatory requirements.
We
do not disclose any non-public personal information about our customers to
anyone unless permitted by law or approved by the customer. We may share this
information within the Trust’s family of companies in the course of providing
services and products to best meet your investing needs. We may share
information with certain third parties who are not affiliated with the Trust to
perform marketing services, to process or service a transaction at your request
or as permitted by law. For example, sharing information with companies that
maintain or service customer accounts for the Trust is essential. We may also
share information with companies that perform administrative or marketing
services for the Trust, including research firms. When we enter into such a
relationship, we restrict the companies’ use of our customers’ information and
prohibit them from sharing it or using it for any purposes other than those for
which they were hired.
We
maintain physical, electronic, and procedural safeguards to protect your
personal information. Within the Trust, we restrict access to personal
information to those employees who require access to that information in order
to provide products or services to our customers, such as handling inquiries.
Our employment policies restrict the use of customer information and require
that it be held in strict confidence.
We
will adhere to the policies and practices described in this notice for both
current and former customers of the Trust.
|
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| |
| Trust |
Procure
ETF Trust II, a registered open-end investment company |
| Fund |
The
investment portfolio of the Trust |
| Shares |
Shares
of the Fund offered to investors |
| Advisor |
ProcureAM,
LLC |
| Custodian |
U.S.
Bank, National Association, the custodian of the Fund’s
assets |
| Distributor |
Quasar
Distributors, LLC, the distributor of the Fund |
| AP
or Authorized Participant |
Certain
large institutional investors such as brokers, dealers, banks or other
entities that have entered into authorized participant agreements with the
Distributor |
| Primary
Market |
NASDAQ,
the primary market on which Shares are listed for trading. |
| IIV |
The
Indicative Intra-Day Value, an appropriate per-Share value based on the
Fund’s portfolio |
| 1940
Act |
Investment
Company Act of 1940, as amended |
| NAV |
Net
asset value |
| SAI |
Statement
of Additional Information |
| SEC |
Securities
and Exchange Commission |
| Secondary
Market |
A
national securities exchange, national securities association or
over-the-counter trading system where Shares may trade from time to
time |
| Securities
Act |
Securities
Act of 1933, as amended |
| Sub-Advisor |
Penserra
Capital Management LLC |
Procure
ETF Trust II
Mailing
Address
c/o
ProcureAM, LLC
16
Firebush Road
Levittown,
Pennsylvania 19056
www.ProcureETFs.com
PROSPECTUS | February
15, 2023
PROCURE
ETF TRUST II
FOR
MORE INFORMATION
If
you would like more information about the Trust, the Fund and the Shares, the
following documents are available free upon request, when they become
available:
Annual/Semi-Annual
Report
Additional
information about the Fund’s investments will be available in the Fund’s annual
and semi-annual reports to shareholders. In the Fund’s annual
report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund’s performance during the last fiscal
year.
Statement
of Additional Information
Additional
information about the Fund and its policies is also available in the Fund’s SAI.
The SAI is incorporated by reference into this Prospectus (and is legally
considered part of this Prospectus).
The
Fund’s annual
and semi-annual reports (when available) and the SAI are available free upon
request by calling 1-866-690-3837. You can also access and download the annual
and semi-annual reports and the SAI at the Fund’s website: www.ProcureETFs.com.
To
obtain other information and for shareholder inquiries:
|
|
|
|
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| |
| By
telephone: |
1-866-690-3837 |
| By
mail: |
Procure
ETF Trust II c/o ProcureAM, LLC
16 Firebush Road, Levittown PA
19056 |
| On
the Internet: |
SEC
Edgar database: http://www.sec.gov |
You
may review and obtain copies of Fund documents (including the SAI) after paying
a duplicating fee, by electronic request to: [email protected].
No
person is authorized to give any information or to make any representations
about the Fund and its Shares not contained in this Prospectus and you should
not rely on any other information. Read and keep the Prospectus for future
reference.
Dealers
effecting transactions in the Fund’s Shares, whether or not participating in
this distribution, may be generally required to deliver a Prospectus. This is in
addition to any obligation dealers have to deliver a Prospectus when acting as
underwriters.
The
Trust’s investment company registration number is 811-23323.
