Filed
with the U.S. Securities and Exchange Commission on February 27,
2020
1933
Act Registration File No. 333-222463
1940
Act Registration File No. 811-23323
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
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Pre-Effective
Amendment No.
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Post-Effective
Amendment No. 2
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and
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
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☒
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Amendment No.
7
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(Check
appropriate box or boxes.)
PROCURE ETF TRUST II
(Exact
Name of Registrant as Specified in Charter)
Robert
Tull
16
Firebush Road
Levittown,
PA 19056
(Address
of Principal Executive Offices)
(Registrant’s
Telephone Number, including Area Code): (215) 454-2540
Copy
to:
Kathleen
H. Moriarty, Esq.
Chapman
and Cutler LLP
1270
Avenue of the Americas
New
York, NY 10020
As soon
as practical after the effective date of this Registration
Statement
(Approximate
Date of Proposed Public Offering)
It is
proposed that this filing will become effective
☐
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immediately upon filing pursuant to paragraph (b)
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on
February 28, 2020 pursuant to
paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on
(date) pursuant to paragraph
(a)(1)
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☐
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75 days after filing pursuant to paragraph (a)(2)
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on
(date) pursuant to paragraph
(a)(2) of Rule 485.
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If
appropriate, check the following box
☐
this post-effective
amendment designates a new effective date for a previously filed
post-effective amendment.
PROSPECTUS |
FEBRUARY 28, 2020
Procure
ETF Trust II
Procure Space ETF (UFO)
Beginning
on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission (“SEC”), paper
copies of the Fund’s shareholders reports will no longer be
sent by mail, unless you specifically request paper copies of the
Fund’s reports from your financial intermediary, such as a
broker-dealer or bank. Instead, the reports will be made available
on a website, and you will be notified by mail each time a report
is posted and provided with a website link to access the
report.
If
you already elected to receive shareholder reports electronically,
you will not be affected by this change and you need not take any
action. Please contact your financial intermediary to elect to
receive shareholder reports and other Fund communications
electronically.
You
may elect to receive all future Fund reports in paper free of
charge. Please contact your financial intermediary to inform them
that you wish to continue receiving paper copies of Fund
shareholder reports and for details about whether your election to
receive reports in paper will apply to all funds held with your
financial intermediary.
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.
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:
Name
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CUSIP
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Symbol
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Procure
Space ETF
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74280R205
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UFO
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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.
Table
of Contents
Procure
Space ETF
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1
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Overview
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8
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Premium/Discount
Information
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8
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Description
of the Principal Investment Strategies of the Fund
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8
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Additional
Investment Strategies
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9
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Description
of the Principal Risks of the Fund
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9
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Additional
Risks
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20
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Continuous
Offering
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21
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Creation
and Redemption of Creation Units
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21
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Buying
and Selling Shares in the Secondary Market
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22
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Management
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23
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Other
Service Providers
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24
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Frequent
Trading
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25
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Distribution
and Service Plan
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26
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Determination
of Net Asset Value (NAV)
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26
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Indicative
Intra-Day Value
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27
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Dividends,
Distributions and Taxes
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28
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Code
of Ethics
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33
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Fund
Website and Disclosure of Portfolio Holdings
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33
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Other
Information
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34
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Financial
Highlights
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34
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Privacy
Policy
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34
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Frequently
Used Terms
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35
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Summary Information
Procure Space ETF
Investment Objective
Procure
Space ETF (the “Fund”) seeks investment results that
correspond generally to the performance, before the Fund’s
fees and expenses, of an equity index called the “S-Network
Space Index” (the “Underlying Index”) developed
by S-Network Global Indexes (the “Index
Provider”).
Fees and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund (“Shares”). Investors
purchasing Shares of the Fund in the Secondary
Market may be subject to costs (including customary
brokerage commissions) charged by their broker.
Shareholder Fees (fees paid directly from your
investment):
No
shareholder fees are levied by the Fund for purchases and sales
made on the Secondary Market.
Annual Fund Operating Expenses (expenses that you pay each year as
a percentage of the value of your investment):
Management Fees
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0.75%
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Distribution and/or Service (12b-1)
Fees
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0.00%
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Other Expenses
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0.96%
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Chief Compliance Officer
Fees
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0.53%
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Trustee Fees
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0.43%
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Remaining Other
Expenses
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0.00%
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Total Annual Fund Operating
Expenses(1)
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1.71%
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(1)
ProcureAM,
LLC, the investment adviser to the Fund, has voluntarily 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%.
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:
One
Year
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Three
Years
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Five
Years
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Ten
Years
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$174
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$539
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$928
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$2,019
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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. The Fund will rebalance quarterly and hence annual
turnover is expected to be less than 20% due to Underlying
Index rules regarding corporate actions and bankruptcy.
For the period from the
Fund's commencement of operations
on
April 10, 2019 to the fiscal year ended October 31, 2019, the
portfolio turnover rate of the Fund was 17%.
Principal Investment
Objective
The
Fund invests, under normal circumstances, at least 80% of its net
assets in companies of the Underlying Index that receive at least
50% of their revenues or profits from space-related businesses, as
described below. This policy is “non-fundamental,”
which means that it may be changed without the majority of the
Fund’s outstanding shares as defined in the Investment
Company Act of 1940, as amended (the “1940
Act”). The Fund will provide at least 60 days’
prior written notice of any changes in such non-fundamental
policy.
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 which tracks a portfolio of companies engaged in
space-related businesses, including those companies utilizing
satellite technology. The Fund will provide shareholders with at
least 60 days’ written notice prior to any material change in
this Fund’s investment strategy.
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 to deliver the performance of the
Underlying Index. There may also be instances when the Advisor may
choose to overweight another component security in the Underlying
Index or purchase (or sell) securities not in the Underlying Index,
which the Advisor believes are an appropriate substitute for one or
more Underlying Index components in seeking to accurately track the
Underlying Index, such as: (i) regulatory requirements possibly
affecting the Fund’s ability to hold a security in the
Underlying Index, or (ii) liquidity concerns possibly affecting the
Fund’s ability to purchase or sell a security in the
Underlying Index. In addition, from time to time, securities are
added to or removed from 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 February 21, 2020, the Index was
concentrated in the securities of companies that utilize satellite
technology, which represent a significant portion of the
Underlying Index. The Fund is “non-diversified”
for purposes of the 1940 Act, which means that the Fund may invest
in fewer securities at any one time than a diversified
fund.
The Underlying Index
The
Fund has licensed as its Underlying Index the S-Network Space
Index, an equity securities index created and developed by
S-Network Global Indexes, Inc. (the “Index Provider”),
a developer and publisher of custom and proprietary indexes. The
Index Provider is independent of, and not affiliated with, either
the Fund or the Advisor. The Underlying Index is designed to serve
as an equity benchmark for a globally traded portfolio of companies
that are engaged in space-related business, such as those utilizing
satellite technology. The component companies of the Underlying
Index are small-capitalization, medium-capitalization, and
large-capitalization equity securities listed on recognized global
stock exchanges. As of February 21, 2020, the
Underlying Index is focused on U.S. companies, which account for
approximately 82% of its index
components. In addition, the Underlying Index is considered
concentrated in the securities of companies that utilize satellite
technology, which currently account for approximately
70% of the index weight. The Underlying Index is a
modified capitalization-weighted, free float- and space revenue
percentage-adjusted equity index that is created and maintained
according to a rules-based methodology and a predetermined
selection process.
Although there is no legal definition of “space,” a
commonly accepted definition is that the edge of space begins at
the Kármán line, which is 100 kilometers (62 miles) above
the Earth’s surface. This is approximately the point where
there is not enough air to provide lift to a winged vehicle. This
definition is supported by the Fédération
Aéronautique Internationale (an international aeronautics and
astronautics standards-setting body), as well as many other
organizations.
The Index Provider considers a company to be in a
“space-related business” if its product(s) or
service(s) either have as their essential purpose — or are
entirely dependent upon — “space-based
functions”. Space-based functions include any kind of
function carried out by hardware, software, or humans physically
located in space. The revenue produced by space-related business is
referred to as “space-related revenues.”
Examples of current space-related businesses (or “Space
Industry Segments”) include satellite-based
telecommunications; transmission of television and radio content
via satellite; rocket and satellite manufacturing, deployment,
operation, and maintenance; manufacturing of ground equipment that
is used with satellite systems; space technology and hardware; and
space-based imagery and intelligence services.
In the case of companies that make products that go into space
(such as launch vehicles), or companies that operate or maintain
systems used in space (such as satellites), the space-related
nature of the business is clear. In the case of companies whose
products and services are used wholly on Earth, space must play an
essential role in the business. For example, a company that
manufactures GPS navigation systems as its primary business is
wholly dependent upon those products’ GPS satellite
connectivity and therefore is engaged in a space-related business.
By contrast, an automaker that incorporates a GPS navigation system
into its automobiles is not considered to be engaged in a
space-related business because the GPS system is not essential to
the operation of the automobile and accounts for a negligible part
of the selling price.
In addition to companies exclusively focused on space, the
Underlying Index includes certain companies whose products and
services span both space-related and other types of businesses. An
example of such a company would be a defense contractor that
manufactures systems and hardware involving space but does not
derive a sufficient percentage of its revenues from space to
qualify as a non-diversified space company. Another example would
be a company that transmits television or radio content both via
satellite and via terrestrial wired or wireless services; its
space-related revenue is considered to be only that which is
derived from customers who subscribe to content delivery via
satellite.
The Index Provider believes that in the future, additional
companies engaged in other space-related businesses will emerge.
These businesses would include space colonization/infrastructure;
space resource exploration/extraction; space-based military/defense
systems; space tourism, including transportation and hospitality;
and space technologies that enable the space economy.
The Underlying Index Security Selection and Weighting
Process
Each candidate for inclusion as a component of the Underlying Index
must first meet all of the following eligibility criteria: (a)
listing on a national stock exchange in any geographic region, (b)
being engaged in one or more of the Space Industry Segments, and
(c) having a three-month average daily trading volume of at least
USD 1,000,000 on each Underlying Index semi-annual reconstitution
snapshot date, which is the last trading day of the month prior to
a reconstitution date. If a company’s stock has been trading
for less than three calendar months, but more than 22 trading days,
the company’s average daily trading volume for its entire
trading history shall be used to calculate turnover
eligibility.
The Index Provider’s assessment of whether a company is
engaged in one or more of the Space Industry Segments (per the
criteria listed above) is based on mention of space-related
business in the company’s annual filings. In addition, a
company’s space-related revenue must constitute either (a) a
minimum of 20% of the company’s total annual
revenue, or (b) more than $500 million in annual revenue. In all
cases, space-related revenues are determined through review by the
Index Provider of the company’s regulatory
filings and investor-focused materials, including quarterly
earnings announcements and analyst presentations, as well as other
reliable data sources. Space revenues are then divided by the
company’s total revenues to determine its
percentage of space-related revenues. Accordingly, the Underlying
Index methodology considers the factual reporting of revenue
statistics rather than more subjective factors to determine
eligibility.
The screening process discussed above identifies candidate stocks
according to their Global Industry Classification Standard
(“GICS”) sub-industry, and then reviews them to ensure
that such companies meet at least one of the following additional
criteria for inclusion as a component of the Underlying
Index:
●
the company was a
“prime manufacturer” (i.e., the contractor responsible
for managing subcontractors and delivering the product to the
customer) for a satellite in the past five
years;
●
the company was a
“prime manufacturer” or operator of a launch vehicle in
the past five years;
●
the company
currently operates or utilizes satellites;
●
the company
manufactures space vehicle components (for satellites, launch
vehicles, or other spacecraft); or
●
the company
manufactures ground equipment dependent upon satellite
systems.
The companies thus chosen for inclusion in the Underlying Index are
separated into two tranches:
The
first tranche (“Non-diversified Tranche”)
comprises “non-diversified” companies that derive at
least 50% (but typically 100%) of their total annual revenues from
space-related business. Companies included in the Non-diversified
Tranche are accorded an aggregate weight of 80% of the total
Underlying Index weight (100%).
The
second tranche (“Diversified
Tranche”) comprises companies in which
space-related business plays a significant role in the generation
of revenues but produces less than 50% of total annual revenues.
Companies included in the Diversified Tranche are accorded an
aggregate weight of 20% of the total Underlying Index
weight (100%).
Each stock’s weight within its respective tranche is
determined by its “Modified Market
Capitalization,” which is a
company’s full market capitalization that has
been mathematically modified by one or more factors for the purpose
of weighting in an index. Modified Market Capitalization for
companies eligible for inclusion in the Underlying Index is
determined by multiplying a) the company’s full
market capitalization by b) the company’s
“Float Factor” by c) the
percentage of total revenues the company derives from space. A
company’s Modified Market Capitalization is a
percentage of a company’s total market
capitalization ranging from 0% to 100%.
The Float Factor is the percentage of the
company’s shares outstanding that are
unencumbered from trading freely on the open market. It is
determined by deducting shares that are a) restricted from sale to
the public, b) held by a governmental entity, c) held by company
insiders in size that requires reporting to the SEC or a similar
international regulatory body (>5%) and/or d) held by investors
in size subject to reporting to the SEC or a similar international
regulatory body (>5%) from the company’s
total shares outstanding. The resulting percentage is the
company’s Float Factor.
Next, the Non-diversified Tranche of the Underlying Index is given
80% of the weight of the Underlying Index and the Diversified
Tranche is given 20% of the weight. The within-tranche weights for
the Non-diversified Tranche are capped at 6%, with the excess
weight redistributed proportionally to the remaining constituents
within the same tranche. The within-tranche company weights for the
Diversified Tranche are capped at 12%, with the excess weight
redistributed proportionally to the remaining constituents within
the same tranche. The final index weight of each component stock
will then be the product of its within-tranche weight and the
overall weight assigned to that stock’s tranche (the tranche
weight). Accordingly, the maximum weight of any constituent in the
Non-diversified Tranche will be 4.8% (6% X 80%) and the maximum
weight of any constituent in the Diversified Tranche will be 2.4%
(12% X 20%).
Capping is applied separately to each of the tranches. The
following steps are taken to weight the constituents in the
Underlying Index:
Step
1. Multiply each selected company’s full market
capitalization by its Float Factor.
Step
2. Multiply each selected company’s float market
capitalization derived in Step 1 by its space-related revenue
percentage.
Step
3. The combination of Steps 1 & 2 above results in the
company’s Modified Market Capitalization, which
is used to weight the companies included in the Non-diversified and
Diversified tranches. Each tranche is weighted
separately.
Step
4. Capping procedures are then applied to each tranche separately.
The capping procedure is implemented by identifying those companies
whose uncapped weights are in excess of the desired cap weight. The
weights of these companies are then set at the cap weight, and the
weight over the cap weight is then redistributed across the
remaining stocks in the exact proportion of the original weights of
those stocks. Capping is applied separately to each of the
tranches.
Step
5. The weights derived in Step 4 are modified by the respective
tranche weights (80% for the non-diversified tranche and 20% for
the diversified tranche) to determine each
stock’s final Underlying Index
weight.
Although there is no stated maximum or minimum number of Underlying
Index components required for inclusion in the Underlying Index,
the Index Provider intends to conform to RIC diversification
requirements as defined in Sub-Chapter M of the IRS code and,
therefore, will maintain at least 22 component securities in the
Underlying Index, nor will any stock have a weight greater than 25%
of the total Underlying Index, and the combined weight of all
stocks with weights greater than 5% will be less than
50%.
The Underlying Index is reconstituted semi-annually by the Index
Committee of the Index Provider in accordance with a rules-based
process. Companies that are components of the Underlying Index will
be screened periodically, and any company that no longer meets the
eligibility criteria described above will be removed from the
Underlying Index. Also, a candidate list of all identifiable
companies engaged in the Space Industry Segments will be screened
and companies will be added to the Underlying Index if they satisfy
the screening criteria. Finally, the Underlying Index is rebalanced
each quarter to reflect changes of more than 5% in the number of
float-adjusted shares.
As of
February 21, 2020, the Underlying Index contained
30 constituents with market capitalizations ranging
from $306 million to $276.5 billion. The
inception date of the Underlying Index (when live calculation of
the index values began) was May 7, 2018.
In the future ProcureAM, LLC may seek exemptive relief
to permit the Fund to replace any manager without shareholder
approval, and the Board reserves the right to replace any manager
with another manager without the approval of shareholders if the
Board believes it is in the best interest of shareholders.
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.
Aerospace and
Defense Companies Risk - Aerospace and
defense companies can be significantly affected by government
aerospace and defense regulation and spending policies because
companies involved in this industry rely to a significant extent on
U.S. (and other) government demand for their products and services.
Thus, the financial condition of, and investor interest in,
aerospace and defense companies are heavily influenced by
governmental defense spending policies which are typically under
pressure from efforts to control the U.S. (and other) government
budgets.
Communication
Services Risk - Companies in
the communications sector may be affected by industry competition,
substantial capital requirements, government regulation,
cyclicality of revenues and earnings, obsolescence of
communications products and services due to technological
advancement, a potential decrease in the discretionary income of
targeted individuals and changing consumer tastes and
interests.
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.
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.
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.
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
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 Stock Market (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.
New Fund Risk—The Fund is a new fund with a limited
operating history. As a new Fund, there can be no assurance
that it will grow to or maintain an economically viable size, in
which case it may experience greater tracking error to its
Underlying Index than it otherwise would at higher asset levels or
it could ultimately liquidate.
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.
Satellite Companies Concentration
Risk—The Fund is
considered to be concentrated in securities of companies
that operate or utilize satellites which are subject to
manufacturing delays, launch delays or failures, and operational
and environmental risks (such as signal interference or space
debris) that could limit their ability to utilize the satellites
needed to deliver services to customers. Some companies that
operate or utilize satellites do not carry commercial launch or
in-orbit insurance for the full value of their satellites and could
face significant impairment charges if the satellites experience
full or partial failures. Rapid and significant technological
changes in the satellite communications industry or in competing
terrestrial industries may impair a company’s competitive
position and require significant additional capital expenditures.
There are also regulatory risks associated with the allocation of
orbital positions and spectrum under the International
Telecommunication Union (“ITU”) and the regulatory
bodies in each of the countries in which companies provide service.
In addition, the ground facilities used for controlling satellites
or relaying data between Earth and the satellites may be subject to
operational and environmental risks (such as natural disasters) or
licensing and regulatory risks. If a company does not obtain or
maintain regulatory authorizations for its satellites and
associated ground facilities, it may not be able to operate its
existing satellites or expand its operations.
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
Space Industry Risk—The exploration of space by private
industry and the utilization of space assets is a business focused
on the future and is witnessing new entrants into the market. This
is a global event with a growing number of corporate participants
looking to meet the future needs of a growing global population.
Therefore, investments in the Fund will be riskier than traditional
investments in established industry sectors and the growth of these
companies may be slower and subject to setbacks as new technology
advancements are made to expand into space.
Performance Information
The Fund is new and
therefore does not have a performance history for a full calendar
year. In the future, performance information for the Fund will be
presented in this section. Updated performance information is also
available on the Fund’s website at www.ProcureETFs.com
Investment Advisor
ProcureAM, LLC (the “Advisor”) is the investment
advisor to the Fund.
Sub-Advisor
Penserra Capital Management LLC 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:
Sub Advisor:
Dustin
Lewellyn, Ernesto Tong and Anand Desai of the Sub-Advisor have been
appointed as the Fund’s portfolio
managers.
For
important information about the purchase and sale of Fund Shares,
tax information, and financial intermediary compensation, please
turn to Summary Information in the Prospectus.
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.
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 intends to
make distributions that may 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.
Overview
The Trust is an investment company consisting of a number of
separate investment portfolios (the “Fund”) that are
exchange-traded funds (“ETFs”). ETFs are index funds
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 price and yield performance (before the
Fund’s fees and expenses) 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.
Premium/Discount Information
Information
regarding how often Shares of each Fund trade on the Exchange at a
price above (i.e., at a premium) or below (i.e., at a discount) the
NAV of such Fund is available on the Funds’ 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.
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. The Advisor seeks a correlation over time of
0.95 or better between the Fund’s performance, before fees
and expenses, and the performance of its Underlying Index. A figure
of 1.00 would represent perfect correlation.
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.
Under
normal circumstances, the Fund invests at least 80% of its net
assets, plus the amount of any borrowings for investment purposes,
in the securities and other instruments that make up its Underlying
Index (the “Underlying Index Components”). In
determining the Fund’s net assets for the purposes of this
80% threshold, accounting practices do not include collateral held
under the Fund’s securities lending program, as such
collateral does not represent a true asset of the
Fund.
The
Fund may invest up to 20% of its net assets 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.
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.
In
accordance with Rule 35d-1 under the Investment Company Act of
1940, as amended (the “1940 Act”), the Procure Space
ETF has adopted a policy that it will, under normal circumstances,
invest at least 80% of the value of its assets (net assets plus the
amount of any borrowings for investment purposes) in securities of
U.S. issuers.
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. The
Fund has adopted a policy to provide the Fund’s shareholders
with at least 60 days’ prior notice of any changes in the
Fund’s non-fundamental investment policy with respect to
investments of the type suggested by its name. The Fund may count
investments in underlying funds toward various guideline tests
(such as the 80% test required under Rule 35d-1 under the 1940
Act).
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.
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. In addition to
investing directly in the Underlying Index Components, the Fund may
invest in such Underlying Index Components indirectly through ETPs.
Swaps may be used by the Fund to seek performance that tracks its
Underlying Index and to manage cash flows. 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.”
Description of the Principal Risks of the
Fund
The Issuer 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.
Aerospace and Defense Companies Risk
Aerospace
and defense companies can be significantly affected by government
aerospace and defense regulation and spending policies because
companies involved in this industry rely to a significant extent on
U.S. (and other) government demand for their products and services.
Thus, the financial condition of, and investor interest in,
aerospace and defense companies are heavily influenced by
governmental defense spending policies which are typically under
pressure from efforts to control the U.S. (and other) government
budgets.
Communication Services
Risk
The
communication services sector consists of both companies in the
telecommunication services industry as well as those in the media
and entertainment industry. Examples of companies in the
telecommunication services industry group include providers of
fiber-optic, fixed-line, cellular and wireless telecommunications
networks. Companies in the media and entertainment industry group
encompass a variety of services and products including television
broadcasting, gaming products, social media, networking platforms,
online classifieds, online review websites and Internet search
engines. The communication services sector of a country’s
economy is often subject to extensive government regulation. The
costs of complying with governmental regulations, delays or failure
to receive required regulatory approvals, or the enactment of new
regulatory requirements may negatively affect the business of
communications companies. Companies in the communication services
sector may encounter distressed cash flows due to the need to
commit substantial capital to meet increasing competition,
particularly in developing new products and services using new
technology. Communication services companies are particularly
vulnerable to the potential obsolescence of products and services
due to technological advancement and the innovation of competitors.
While all companies may be susceptible to network security
breaches, certain companies in the communication services sector
may be particular targets of hacking and potential theft of
proprietary or consumer information or disruptions in service,
which could have a material adverse effect on their
businesses.
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 debtholders. 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.
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.
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.
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 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.
New Fund Risk
The
Fund is a new fund with a
limited operating history. As a new Fund, there can
be no assurance that it will grow to or maintain an economically
viable size, in which case it may experience greater tracking error
to its Underlying Index than it otherwise would at higher asset
levels or it could ultimately liquidate.
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.
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.
Satellite Companies Concentration Risk
The
Fund is considered to be concentrated in securities of companies
that operate or utilize satellites which are subject to
manufacturing delays, launch delays or failures, and operational
and environmental risks (such as signal interference or space
debris) that could limit their ability to utilize the satellites
needed to deliver services to customers. Some companies that
operate or utilize satellites do not carry commercial launch or
in-orbit insurance for the full value of their satellites and could
face significant impairment charges if the satellites experience
full or partial failures. Rapid and significant technological
changes in the satellite communications industry or in competing
terrestrial industries may impair a company’s competitive
position and require significant additional capital expenditures.
There are also regulatory risks associated with the allocation of
orbital positions and spectrum under the International
Telecommunication Union (“ITU”) and the regulatory
bodies in each of the countries in which companies provide service.
In addition, the ground facilities used for controlling satellites
or relaying data between Earth and the satellites may be subject to
operational and environmental risks (such as natural disasters) or
licensing and regulatory risks. If a company does not obtain or
maintain regulatory authorizations for its satellites and
associated ground facilities, it may not be able to operate its
existing satellites or expand its operations.
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.
Space Industry Risk
The
exploration of space by private industry and the utilization of
space assets is a business focused on the future and is witnessing
new entrants into the market. This is a global event with a growing
number of corporate participants looking to meet the future needs
of a growing global population. Therefore, investments in the Fund
will be riskier than traditional investments in established
industry sectors and the growth of these companies may be slower
and subject to setbacks as new technology advancements are made to
expand into space.
In addition to the Principal Risks described above, the Fund may
also be exposed to the following Risks.
Asian
Economic Risk
Many Asian
economies have experienced rapid growth and industrialization in
recent years, but there is no
assurance that this growth rate will be maintained. Other Asian
economies, however, have experienced high inflation, high
unemployment, currency devaluations and restrictions, and
over-extension of credit. Economic events in any one Asian country
may have a significant economic effect on the entire Asian region,
as well as on major trading partners outside Asia. Any adverse
event in the Asian markets may have a significant adverse effect on
some or all of the economies of the countries in which the Fund
invests. Many Asian countries are subject to political risk,
including political instability, corruption and regional conflict
with neighboring countries. North Korea and South Korea each have
substantial military capabilities, and historical tensions between
the two countries present the risk of war; in the recent past,
these tensions have escalated. Any outbreak of hostilities between
the two countries could have a severe adverse effect on the entire
Asian region. In addition, many Asian countries are subject to
social and labor risks associated with demands for improved
political, economic and social conditions. These risks, among
others, may adversely affect the value of the Fund’s
investments.
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.
Dividend Paying Security Risk
Securities
that pay high dividends as a group can fall out of favor with the
market, causing such companies to underperform companies that do
not pay high dividends. Also, changes in the dividend policies of
the companies in the Underlying Index and the capital resources
available for such companies’ dividend payments may affect
the Fund.
European Economic Risk.
The European Union
(the “EU”) requires compliance by member countries with
restrictions on inflation rates, deficits, interest rates and debt
levels, as well as fiscal and monetary controls, each of which may
significantly affectevery country in Europe, including those
countries that are not members of the EU. Changes in imports or
exports, changes in governmental or EU regulations on trade, changes in the exchange rate of the
euro (the common currency of certain EU countries), the default or
threat of default by an EU member country on its sovereign debt
and/or an economic recession in an EU member country may have a
significant adverse effect on the economiesof EU member countries
and their trading partners. The European financial markets have
historically experienced volatility and adverse trends due to
concerns about economic downturns or rising government debt levels
in several European countries, including, but not limited to,
Austria, Belgium, Cyprus, France, Greece, Ireland, Italy, Portugal,
Spain and Ukraine. These events have adversely affected the
exchange rate of the euro and may continue to significantly affect
European countries. Responses to financial problems by European
governments, central banks and others, including austerity measures
and reforms, may not produce the desired results, may result in
social unrest, may limit future growth and economic recovery or may
have other unintended consequences. Further defaults or
restructurings by governments and other entities of their debt
could have additional adverse effects on economies, financial
markets and asset valuations around the world. In addition, one or
more countries may abandon the euro and/or withdraw from the EU. In
a referendum held on June 23, 2016, the U.K. resolved to leave the
EU. The referendum may introduce significant uncertainties and
instability in the financial markets as the U.K. negotiates its
exit from the EU. Secessionist movements, such as the Catalan
movement in Spain, as well as governmental or other responses to
such movements, may also create instability and uncertainty in the
region. The occurrence of terrorist incidents throughout Europe
also could impact financial markets. The impact of these events is
not clear but could be significant and far-reaching and adversely
affect the value of the Fund.
Geographic
Risk
Some of the
companies in which the Fund may invest are located in parts of the
world that have historically been prone to natural disasters such
as earthquakes, tornadoes, volcanic eruptions, droughts, floods,
hurricanes or tsunamis, and are economically sensitive to
environmental events. Any such event may adversely impact the
economies of these geographic areas or business operations of
companies in these geographic areas, causing an adverse impact on
the value of the Fund.
Governmental Slowdown or Shutdown Risk
Governmental
slowdowns or shutdowns can pose various risks for investors because
activities at many governmental agencies will slow down or stop
except for “essential services”. If regulators are
unable to work for the duration of the slowdown or shutdown,
government approvals are likely to remain on hold and other
functions will be similarly affected, possibly resulting in slower
economic growth. Also, such governmental inactivity may have an
effect on investor sentiment, thereby increasing volatility or
otherwise causing a market reaction. The longer a slowdown or
shutdown continues, the more disruptive it will be to industry in
general, particularly to those segments that are highly regulated,
as well as to the general economy, for example if businesses and
consumers curtail or stop spending.
Index Risk
The
Fund’s Underlying Index may not be successful in
replicating the performance of its target strategies. The
Underlying Index is relatively new and has limited historical
performance data that is not predictive of future
results.
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.
Consumer Discretionary Sector Risk
The
success of consumer product manufacturers and retailers is tied
closely to the performance of domestic and international economies,
interest rates, exchange rates, competition, consumer confidence,
changes in demographics and consumer preferences. Companies in the
consumer discretionary sector depend heavily on disposable
household income and consumer spending, and may be strongly
affected by social trends and marketing campaigns. These companies
may be subject to severe competition, which may have an adverse
impact on their profitability and in turn on the Fund.
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. Aerospace and defense companies, a component
of the industrials sector, can be significantly affected by
government spending policies because companies involved in this
industry rely, to a significant extent, on government demand for
their products and services. Thus, the financial condition of, and
investor interest in, aerospace and defense companies are heavily
influenced by governmental defense spending policies, which are
typically under pressure from efforts to control government
budgets.
New
industrial sectors may open as the growth in space exploration and
harvesting offers traditional industrial companies new and unique
opportunities for growth. The opportunities may not be addressed by
current large industrial complexes. This may cause a significant
secular shift which could lead to the decline or expansion of
industrial sector risks.
Information Technology Sector Risk.
Information
technology companies face intense competition, both domestically
and internationally, which may have an adverse effect on their
profit margins. Like other technology companies, information
technology companies may have limited product lines, markets,
financial resources or personnel. The products of information
technology companies may face obsolescence due to rapid
technological developments, frequent new product introduction,
unpredictable changes in growth rates and competition for the
services of qualified personnel. Companies in the information
technology sector are heavily dependent on patent and intellectual
property rights. The loss or impairment of any of these rights may
adversely affect the profitability of these companies or the
Fund’s performance.
Materials Sector Risk
Companies
in the materials sector may be adversely affected by commodity
price volatility, exchange rates, import controls, increased
competition, depletion of resources, technical advances, labor
relations, over-production, litigation and government regulations,
among other factors. Companies in the materials sector are also at
risk of liability for environmental damage and product liability
claims. Production of materials may exceed demand as a result of
market imbalances or economic downturns, leading to poor investment
returns.
Telecommunications Sector
Risk
The
telecommunications sector is subject to extensive government
regulation. The costs of complying with governmental regulations,
delays or failure to receive required regulatory approvals or the
enactment of new adverse regulatory requirements may adversely
affect the business of the telecommunications companies. The
telecommunications sector can also be significantly affected by
intense competition, including competition with alternative
technologies such as wireless communications, product
compatibility, consumer preferences, rapid obsolescence and
research and development of new products. Other risks include those
related to regulatory changes, such as the uncertainties resulting
from such companies’ diversification into new domestic and
international businesses, as well as agreements by any such
companies linking future rate increases to inflation or other
factors not directly related to the actual operating profits of the
otherwise.
Utilities Sector Risk
The
rates that traditional regulated utility companies may charge their
customers generally are subject to review and limitation by
governmental regulatory commissions. Although rate changes of a
utility usually fluctuate in approximate correlation with financing
costs due to political and regulatory factors, rate changes
ordinarily occur only following a delay after the changes in
financing costs. This factor will tend to favorably affect a
regulated utility company’s earnings and dividends in times
of decreasing costs, but conversely, will tend to adversely affect
earnings and dividends when costs are rising. The value of
regulated utility debt securities (and, to a lesser extent, equity
securities) tends to have an inverse relationship to the movement
of interest rates. Certain utility companies have experienced full
or partial deregulation in recent years. These utility companies
are frequently more like industrial companies in that they are
subject to greater competition and have been permitted by
regulators to diversify outside of their original geographic
regions and their traditional lines of business. These
opportunities may permit certain utility companies to earn more
than their traditional regulated rates of return. Some companies,
however, may be forced to defend their core business and may be
less profitable.
Among
the risks that may affect utility companies are the following:
risks of increases in fuel and other operating costs; the high cost
of borrowing to finance capital construction during inflationary
periods; restrictions on operations and increased costs and delays
associated with compliance with environmental and nuclear safety
regulations; and the difficulties involved in obtaining natural gas
for resale or fuel for generating electricity at reasonable prices.
Other risks include those related to the construction and operation
of nuclear power plants, the effects of energy conservation and the
effects of regulatory changes.
Liquidity
Risk Management Rule Risk
In October 2016,
the SEC adopted a liquidity risk management rule requiring open-end
funds, including ETFs such as the Fund, to establish a liquidity
risk management program and enhance disclosures regarding fund
liquidity. There are exclusions from certain portions of the
liquidity risk management program requirements for
“in-kind” ETFs. The effect the rule will have on the
Fund, if any, including the Fund’s ability to rely on the
exclusions, is not yet known, but the rule 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 develop or 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.
Mid-Capitalization Securities Risk
The
Fund may be subject to the risk that mid-capitalization securities
may underperform other segments of the equity market or the equity
market. Securities of 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 mid-capitalization securities at a
desired time or price. Mid-capitalization companies tend to have
inexperienced management as well as limited product and market
diversification and financial resources. 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.
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.
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.
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.
Additional 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 one million dollars 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.
Continuous Offering
The
method by which Creation Units are purchased and traded may raise
certain issues under applicable securities laws. Because new
Creation Units are issued and sold by the 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(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(3)(a)
of the Securities Act would be unable to take advantage of the
prospectus delivery exemption provided by Section 4(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.
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.
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. 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.
Management
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:
Fund Name
|
Management Fee
|
Procure
Space 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
adviser, 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 Semi-Annual Report to
shareholders for the period ended April 30,
2019.
Under
the Advisory Agreement, the Advisor agrees 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 voluntarily 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%.
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 exchange-traded
funds. 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. As of
December 31, 2019, the Sub-Advisor managed
approximately $1.6 billion in assets.
The
Sub-Advisor has been registered as an investment adviser 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.
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 Vice President with Penserra since 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.
Other Service Providers
Index Provider to the Procure Space ETF
S-Network
Global Indexes, Inc. (“S-Network Global Indexes”)
located at 267 Fifth Avenue,
Suite 508, New York, New York
10016, developed and sponsors the
Underlying Index for the Procure Space ETF. The Fund is not
sponsored, endorsed, sold or promoted by S-Network
Global
Indexes.
S-NETWORK GLOBAL INDEXES DOES
NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S-NETWORK
GLOBAL INDEX(ES) OR ANY DATA INCLUDED THEREIN AND S-NETWORK GLOBAL
INDEXES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS THEREIN. S-NETWORK GLOBAL INDEXES 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 S-NETWORK GLOBAL INDEX(ES) OR ANY DATA INCLUDED THEREIN.
S-NETWORK GLOBAL INDEXES 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
S-NETWORK GLOBAL INDEX(ES) OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S-NETWORK GLOBAL
INDEXES 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
Space ETF:
U.S.
Bancorp Fund Services, LLC (“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.
Calculation Agent
S-Network
Global Indexes is the calculation agent and real-time calculation
is provided by Thomson Reuters. Closing index values and weights
are provided to data vendors between 6PM and 7PM Eastern Standard
Time, Monday through Friday, except on official New York Stock
Exchange holidays. The Underlying Index values are distributed at
15-second intervals throughout the days on which the Underlying
Index is calculated.
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
Chapman and Cutler LLP, 1270 Avenue of the Americas, New York, New
York 10020, serves as counsel to the Trust and the
Fund.
Frequent Trading
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.
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.
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 Advisor under procedures
established by and under the general supervision and responsibility
of the Trust’s Board of Trustees. 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.
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. 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.
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.
Dividends, Distributions and Taxes
Net Investment Income and Capital Gains
As
the 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.”
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 a 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 a 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 a 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 90% of the sum of (i) its
“investment company taxable income” (which includes
dividends, interest and net short-term capital gains) and (ii)
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 a 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, a
Fund may not be able to deduct currently a loss on a disposition of
a portfolio security. As a result, a 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, provided such dividend is
actually paid during January of the following calendar
year.
Distributions of a 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 a Fund, distributions of a
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 a 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 a
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 a
Fund pays a dividend that would be “qualified” dividend
income for individuals, 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, a 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 a 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 a 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 a 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 one 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 a 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.
TheFund
(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 with a correct taxpayer
identification number or make required certifications, or if the
IRS notifies the Fund 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 a
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 a Fund as attributable to such Fund’s
U.S.-source interest income, other than certain contingent interest
and interest from obligations of a corporation or partnership in
which such 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 a Fund as
attributable to the excess of such 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 a 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, (i)
U.S.-source interest and dividends, and (ii) gross proceeds from
the sale or disposition, occurring on or after January 1, 2019, of
property of a type that can produce U.S.-source interest or
dividends.
However, proposed
regulations may eliminate the requirement to withhold on payments
of gross proceeds from
dispositions.
A
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 with the
information, certifications or documentation required under FATCA,
including information, certification or documentation necessary for
the Fund 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. A Fund will not pay any additional amounts to
shareholders in respect of any amounts withheld. The Fund 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.
Code of Ethics
The
Trust, the Advisor, Sub-Advisor and the Distributor 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,
the Sub-Advisor, and the Distributor 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). 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.
Fund Website and Disclosure of Portfolio Holdings
The Advisor maintains a website for the Fund at www.procuream.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.
A description of the Fund’s policies and procedures with
respect to the disclosure of the Fund’s portfolio securities
is available on the Fund’s website.
Other Information
The
Fund is not sponsored, endorsed, sold or promoted by S-Network
Global Indexes Inc. 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.
Financial Highlights
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 2019 Annual Report to
Shareholders, which is available upon request.
|
Period
Ended
October
31,
20191
|
Net
Asset Value, Beginning of Period
|
$25.00
|
Income
from Investment Operations:
|
|
Net investment
income (loss)2
|
0.04
|
Net realized and
unrealized gain (loss) on investments
|
0.946
|
Total from
investment operations
|
0.98
|
Less
Distributions:
|
|
Dividends from net
investment income
|
(0.03)
|
Distributions from
return of capital
|
(0.02)
|
Total
distributions
|
(0.05)
|
Capital
Share Transactions:
|
—
|
Net asset value,
end of period
|
$25.93
|
Total
Return
|
3.91%3
|
|
|
Ratios/Supplemental
Data:
|
|
Net assets at end
of period (000’s)
|
$12,315
|
Ratio of expenses
to Average Net Assets:
|
|
Before waivers and
reimbursements of expenses
|
1.71%4
|
After waivers and
reimbursements of expenses
|
0.75%4
|
Net Investment
Income to Average Net Assets
|
0.28%4
|
Portfolio Turnover
Rate5
|
17%3
|
1
Commencement
of operations on April 10, 2019.
2
Calculated
based on average shares outstanding during the
period.
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 for the period.
Privacy Policy
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.
Frequently Used Terms
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 28, 2020
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 is 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:
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:
publicinfo@sec.gov.
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.
STATEMENT OF ADDITIONAL INFORMATION
PROCURE ETF TRUST II
c/o ProcureAM, LLC
16 Firebush Road
Levittown, Pennsylvania
19056
PHONE: 215-454-2540
February 28,
2020
This Statement of Additional Information (this “SAI”)
is not a prospectus. It should be read in conjunction with and is
incorporated by reference into the prospectus dated
February 28, 2020 (the “Prospectus”) for Procure ETF
Trust II (the “Trust”), relating to the fund
(“Fund”) set forth in the table below, as it may be
revised from time to time.
Fund Name
Procure Space ETF (UFO)
A copy of the Trust’s Prospectus relating to the Fund and the
Fund’s annual or semi-annual reports, may be obtained without
charge by writing to the Trust, c/o ProcureAM, LLC, 16 Firebush
Road, Levittown, Pennsylvania 19056, by calling
1-866-690-3837, or by visiting the
Trust’s website at www.ProcureETFs.com.
Capitalized terms used but not defined herein have the same meaning
as in the Prospectus, unless otherwise noted.
Table
of Contents
GENERAL
DESCRIPTION OF THE TRUST AND THE FUND
|
S-1
|
EXCHANGE
LISTING AND TRADING
|
S-1
|
INVESTMENT
OBJECTIVES AND POLICIES
|
S-2
|
INVESTMENT
STRATEGIES AND RISKS
|
S-3
|
MANAGEMENT
|
S-6
|
PROXY
VOTING POLICIES
|
S-13
|
CONTROL
PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
|
S-13
|
MANAGEMENT
SERVICES
|
S-13
|
OTHER
SERVICE PROVIDERS
|
S-12
|
PORTFOLIO
TRANSACTIONS AND BROKERAGE
|
S-14
|
DISCLOSURE
OF PORTFOLIO HOLDINGS
|
S-15
|
INDICATIVE
INTRA-DAY VALUE
|
S-16
|
ADDITIONAL
INFORMATION CONCERNING SHARES
|
S-16
|
PURCHASE
AND REDEMPTION OF CREATION UNITS
|
S-17
|
CONTINUOUS
OFFERING
|
S-24
|
DIVIDENDS
AND DISTRIBUTIONS
|
S-30
|
U.S.
FEDERAL INCOME TAXATION
|
S-30
|
OTHER
INFORMATION
|
S-33
|
FINANCIAL
STATEMENTS
|
S-33
|
APPENDIX
A
|
A-1
|
APPENDIX
B
|
B-1
|
No
person has been authorized to give any information or to make any
representations other than those contained in this SAI and the
Prospectus and, if given or made, such information or
representations may not be relied upon as having been authorized by
the Trust.
The
SAI does not constitute an offer to sell securities.
The information
contained herein regarding the index underlying the Fund (the
“Underlying Index”) S-Network Global Indexes, Inc. (the
“Index Provider”) was provided by the Index Provider,
while the information contained herein regarding the securities
markets and The Depository Trust Company was obtained from publicly
available sources.
The Underlying
Index is the S-Network Space Index".
The product(s) is
not sponsored, endorsed, sold or promoted by S-Network Global
Indexes, Inc. or its respective affiliates, (with its affiliates,
are referred to as the “Corporation”). The
Corporation has not passed on the legality or suitability of, or
the accuracy or adequacy of descriptions and disclosures relating
to, the Fund. The Corporation makes no representation or
warranty, express or implied to the owners of the Fund or any
member of the public regarding the advisability of investing in
securities generally or in the Product(s) particularly, or the
ability of the Index Provider to track general stock market
performance. The Corporation’s only relationship to
ProcureAM, LLC (“Licensee”) is in the licensing of the
Underlying Index and certain trade names of the Corporation and the
use of the S-Network Space Index which is determined, composed and
calculated by S-Network Global Indexes,
Inc. without regard to Licensee or the product(s).
S-Network Global Indexes,
Inc. has no obligation to take the needs of the Licensee or
the owners of the product(s) into consideration in determining,
composing or calculating the Underlying Index. The Corporation is
not responsible for and has not participated in the determination
of the timing of, prices at, or quantities of the product(s) to be
issued or in the determination or calculation of the equation by
which the product(s) is to be converted into cash. The
Corporation has no liability in connection with the administration,
marketing or trading of the product(s).
The Corporation does not guarantee the accuracy
and/or uninterrupted calculation of S-Network Space Index, or any data included
therein. The Corporation 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 S-Network Space
Index or any data included
therein. The Corporation makes no express or implied
warranties, and expressly disclaim 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 Corporation
have any liability for any lost profits or special, incidental,
punitive, indirect, or consequential damages, even if notified of
the possibility of such damages.
GENERAL DESCRIPTION OF THE TRUST AND THE
FUND
The Trust was organized as a Delaware statutory trust on December
19, 2017 and is authorized to have multiple segregated series
or portfolios. The Trust is an open-end management investment
company registered under the Investment Company Act of 1940 (the
“1940 Act”). The Trust currently consists of a number
of separate investment portfolios, of which one is in operation.
This SAI addresses the following investment of the Trust, which is
deemed to be non-diversified for the purposes of the
1940 Act (the
“Fund”).
Procure
Space ETF (UFO)
Other portfolios may be added to the Trust in the future. The
shares of the Fund are referred to herein as “Fund
Shares” or “Shares.” The offering of Shares is
registered under the Securities Act of 1933, as amended (the
“Securities Act”).
ProcureAM, LLC (the “Advisor”) is the investment
advisor for the Fund. The Advisor is registered as an
investment adviser with the Securities and Exchange Commission (the
“SEC”). Penserra Capital Management LLC serves as the
investment sub-advisor (the
“Sub-Advisor”) for the Fund.
The Fund offers and issues Shares at net asset value (the
“NAV”) only in aggregations of a specified number of
Shares (each, a “Creation Unit” or a “Creation
Unit Aggregation”), generally in exchange for a basket of
equity securities included in the Underlying Index (the
“Deposit Securities”), together with the deposit of a
specified cash payment (the “Cash Component”). The
Shares of the Fund trade or are expected to trade on the
Nasdaq Stock Market (the “Exchange” or
“NASDAQ”). Fund Shares will trade on the
Exchange at market prices that may be below, at, or above NAV.
Shares are redeemable only in Creation Unit Aggregations and,
generally, in exchange for Deposit Securities and a Cash Component.
Creation Units are aggregations of 25,000 Shares of the Fund. In
the event of the liquidation of the Fund, the Trust may lower the
number of Shares in a Creation Unit.
If the Fund presently creates and redeems Fund Shares in kind, the
Trust reserves the right to offer a “cash” option for
creations and redemptions of Fund Shares. Fund Shares may be issued
in advance of receipt of Deposit Securities subject to various
conditions, including a requirement to maintain on deposit with the
Trust cash at least equal to 115% of the market value of the
missing Deposit Securities. See the “Creation and Redemption
of Creation Units” section. In each instance of such cash
creations or redemptions, transaction fees may be imposed that will
be higher than the transaction fees associated with in kind
creations or redemptions. In all cases, such fees will be limited
in accordance with the requirements of the SEC applicable to
management investment companies offering redeemable
securities.
EXCHANGE LISTING AND TRADING
There can be no assurance that the requirements of the Exchange
necessary for the Fund to maintain the listing of its Shares will
continue to be met. The Exchange will consider the suspension of
trading and delisting of the Shares of the Fund from listing if (i)
following the initial 12-month period beginning at the commencement
of trading of the Fund, there are fewer than 50 beneficial owners
of the Shares of the Fund for 30 or more consecutive trading days;
(ii) the value of the Underlying Index is no longer calculated or
available; or (iii) such other event shall occur or condition exist
that, in the opinion of the Exchange, makes further trading on the
Exchange inadvisable. The Exchange will remove the Shares of the
Fund from listing and trading upon termination of the
Fund.
The Fund’s continued listing on the Exchange or another stock
exchange or market system is a condition of the exemptive relief
the Fund obtained from the SEC to operate as exchange-traded funds
(“ETFs”). The Fund’s failure to be so listed
would result in the termination of the Fund.
As in the case of other stocks traded on the Exchange,
brokers’ commissions on transactions will be based on
negotiated commission rates at customary levels.
The Trust reserves the right to adjust the price levels of the
Shares in the future to maintain convenient trading ranges for
investors. Any adjustments would be accomplished through stock
splits or reverse stock splits, which would have no effect on the
net assets of the Fund.
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
The Fund has a distinct investment objective and
policies. There can be no assurance that the Fund’s objective
will be achieved. The investment objective of the Fund is to
provide investment results that correspond generally to the price
and yield (before the Fund’s fees and expenses) of a
particular index (“Underlying Index”) created by
S-Network Global Indexes, Inc.
(“Index Provider”).
All
investment objectives and investment policies not specifically
designated as fundamental may be changed without shareholder
approval. Additional information about the Fund, its policies, and
the investment instruments it holds, is provided
below.
The
Fund’s share prices will fluctuate with market, economic and,
to the extent applicable, foreign exchange conditions. The Fund
should not be relied upon as a complete investment
program.
Investment Restrictions
The
investment restrictions set forth below have been adopted by the
Board of Trustees of the Trust (the “Board”) as
fundamental policies that cannot be changed with respect to the
Fund without the affirmative vote of the holders of a majority (as
defined in the 1940 Act) of the outstanding voting securities of
the Fund. The investment objective of the Fund and all other
investment policies or practices of the Fund are considered by the
Trust not to be fundamental and accordingly may be changed without
shareholder approval. For purposes of the 1940 Act, a
“majority of the outstanding voting securities” means
the lesser of the vote of (i) 67% or more of the Shares of the Fund
present at a meeting, if the holders of more than 50% of the
outstanding Shares of the Fund are present or represented by proxy,
or (ii) more than 50% of the Shares of the Fund.
All
of the percentage limitations below and in the investment
restrictions recited in the Prospectus apply to the Fund on an
individual basis, and apply only at the time a transaction is
entered into, except that any borrowing by the Fund that exceeds
applicable limitations must be reduced to meet such limitations
within the period required by the 1940 Act. Therefore, a change in
the percentage that results from a relative change in values or
from a change in the Fund’s assets will not be considered a
violation of the Fund’s policies or restrictions.
“Valueˮ for the purposes of all investment restrictions
shall mean the value used in determining the Fund’s net asset
value (“NAVˮ). With respect to the Fund’s
fundamental investment restriction B, asset coverage of at least
300% (as defined in the 1940 Act), inclusive of any amounts
borrowed, must be maintained at all times.
As
a matter of fundamental policy, the Fund:
A.
May not invest 25% of its total assets in the securities of one or
more issuers conducting their principal business activities in the
same industry or group of industries (excluding the United States
(“U.S.”) government or any of its agencies or
instrumentalities). Nonetheless, to the extent the Fund’s
Underlying Index is concentrated in a particular industry or group
of industries, the Fund’s investments will exceed this 25%
limitation to the extent that it is necessary to gain exposure to
Underlying Index Components (as defined below) to track its
Underlying Index.
B.
May borrow money, to the extent permitted under the 1940 Act, as
such may be interpreted or modified by regulatory authorities
having jurisdiction, from time to time.
C.
May make loans to the extent permitted under the 1940 Act, as such
may be interpreted or modified by regulatory authorities having
jurisdiction, from time to time.
D.
May act as an underwriter of securities within the meaning of the
Securities Act of 1933 (the “1933 Act”), to the extent
permitted under the 1933 Act, as such may be
interpreted or modified by regulatory authorities having
jurisdiction, from time to time.
E.
May purchase or sell real estate or any interest therein to the
extent permitted under the 1940 Act, as such may be interpreted or
modified by regulatory authorities having jurisdiction, from time
to time.
F.
May not purchase physical commodities or contracts relating to
physical commodities, except as permitted under the 1940 Act and
other applicable laws, rules and regulations, as such may be
interpreted or modified by regulatory authorities having
jurisdiction, from time to time.
G.
May issue senior securities, to the extent permitted under the 1940
Act, as such may be interpreted or modified by regulatory
authorities having jurisdiction, from time to time.
The
Fund may, notwithstanding any other fundamental investment
restriction or policy, invest some or all of its assets in a single
ETF, open-end investment company or series thereof with
substantially the same fundamental investment objective,
restrictions and policies as the Fund.
INVESTMENT STRATEGIES AND RISKS
A
discussion of the risks associated with an investment in the Fund
is contained in the Fund’s Prospectus under the headings
“Principal Risk Factors,” “Description of the
Principal Risks of the Fund” and “Additional
Risks.” The discussion below supplements, and should be read
in conjunction with, such sections of the Fund’s
Prospectus.
General
Investments
in the Fund should be made with an understanding that the value of
the portfolio of securities held by the Fund may fluctuate in
accordance with changes in the financial condition of the issuers
of the portfolio securities, the value of common stocks generally
and other factors.
The
Fund is not actively managed by traditional methods and therefore
the adverse financial condition of any one issuer will not result
in the elimination of its securities from the portfolio securities
held by the Fund unless the securities of such issuer are removed
from its respective Underlying Index.
An
investment in the Fund should also be made with an understanding
that the Fund will not be able to replicate exactly the performance
of its Underlying Index because the total return generated by its
portfolio securities will be reduced by transaction costs incurred
in adjusting the actual balance of such securities and other Fund
expenses, whereas such transaction costs and expenses are not
included in the calculation of its Underlying Index. It is also
possible that for short periods of time, the Fund may not fully
replicate the performance of its Underlying Index due to the
temporary unavailability of certain Underlying Index securities in
the Secondary Market or due to other extraordinary
circumstances.
Such
events are unlikely to continue for an extended period of time
because the Fund is required to correct such imbalances by means of
adjusting the composition of its portfolio securities. It is also
possible that the composition of the Fund may not exactly replicate
the composition of its Underlying Index if the Fund has to adjust
its portfolio securities in order to continue to qualify as a
“regulated investment company” under the Internal
Revenue Code of 1986, as amended (the
“Code”).
Under
normal circumstances, at least 80% of the Fund’s net assets,
plus the amount of any borrowings for investment purposes, will be
invested in its Underlying Index Components and in depositary
receipts based on the securities in its Underlying Index. In
addition, the Fund may invest up to 20% of its net assets in
investments not included in its Underlying Index, but which the
Advisor believes will help the Fund track its Underlying Index. For
example, there may be instances in which the Advisor may choose to
purchase (or sell) securities not in the Underlying Index that the
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.
Furthermore,
the Fund may invest in one or more financial instruments, including
but not limited to futures contracts, swap agreements and forward
contracts, reverse repurchase agreements, and options on
securities, indices and futures contracts (collectively,
“Financial Instruments”). As an example of the use of
such Financial Instruments, the Fund may use total return swaps on
one or more Underlying Index Components in order to achieve
exposures that are similar to those of the Underlying
Index.
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 the 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.
To
the extent that the value of assets denominated in foreign
currencies is converted into U.S. dollars using exchange rates
selected by the Advisor that differ from the exchange rates
selected by the index provider for use in calculating the
Underlying Index, the Fund’s ability to track the Underlying
Index may be adversely impacted. In addition, the Fund may not be
able to invest in certain securities included in the Underlying
Index due to restrictions or limitations imposed by, or a lack of
liquidity in, certain countries and stock exchanges in which such
securities trade or may be delayed in purchasing or selling
securities included in the Underlying Index. In addition, if the
Fund utilizes depositary receipts and/or derivative instruments,
its return may not correlate as well with the Underlying Index as
would be the case if the Fund purchased all the securities in the
Underlying Index directly. Additionally, the Fund may fair value
the foreign securities it holds. To the extent the Fund calculates
its NAV based on fair value prices and the value of the Underlying
Index is based on the securities’ closing price on local
foreign markets (i.e., the value of the Underlying Index is not
based on fair value prices), the Fund’s ability to track the
Underlying Index may be adversely affected.
Index Risk
An
underlying index may not be successful in replicating the
performance of its target strategies. Each underlying index is
partially based on an assessment of historical data sets. To the
extent that data turns out not to be predictive of future events,
the return of the Underlying Index may deviate from its
objective.
Common Stock
The
Fund may invest in common stock. Common stock is issued by
companies principally to raise cash for business purposes and
represents a residual interest in the issuing company. The Fund
participates in the success or failure of any company in which it
holds stock. The prices of equity securities change in response to
many factors, including the historical and prospective earnings of
the issuer, the value of its assets, general economic conditions,
interest rates, investor perceptions and market
liquidity.
Communication Services Risk
The
communication services sector consists of both companies in the
telecommunication services industry as well as those in the media
and entertainment industry. Examples of companies in the
telecommunication services industry group include providers of
fiber-optic, fixed-line, cellular and wireless telecommunications
networks. Companies in the media and entertainment industry group
encompass a variety of services and products including television
broadcasting, gaming products, social media, networking platforms,
online classifieds, online review websites and Internet search
engines. The communication services sector of a country’s
economy is often subject to extensive government regulation. The
costs of complying with governmental regulations, delays or failure
to receive required regulatory approvals, or the enactment of new
regulatory requirements may negatively affect the business of
communications companies. Companies in the communication services
sector may encounter distressed cash flows due to the need to
commit substantial capital to meet increasing competition,
particularly in developing new products and services using new
technology. Communication services companies are particularly
vulnerable to the potential obsolescence of products and services
due to technological advancement and the innovation of competitors.
While all companies may be susceptible to network security
breaches, certain companies in the communication services sector
may be particular targets of hacking and potential theft of
proprietary or consumer information or disruptions in service,
which could have a material adverse effect on their
businesses.
Small Cap Stock Risk
Stock
prices of small-capitalization companies may be more volatile than
those of larger companies and therefore the Fund’s share
price may be more volatile than those of funds that invest a larger
percentage of their assets in stocks issued by large-capitalization
or mid-capitalization companies. Stock prices of
small-capitalization companies are generally more vulnerable than
those of large-capitalization or mid-capitalization companies to
adverse business and economic developments. The stocks of
small-capitalization companies may be thinly traded, making it
difficult for the Fund to buy and sell them. In addition,
small-capitalization companies are typically less financially
stable than larger, more established companies and may depend on a
small number of essential personnel, making them more vulnerable to
loss of personnel. Small-capitalization companies also normally
have less diverse product lines than those of large-capitalization
companies and are more susceptible to adverse developments
concerning their products.
Consumer
Goods Risk
The consumer goods
industry includes companies involved in the design, production or
distribution of goods for consumers, including food, household,
home, personal and office products, clothing and textiles. The
success of the consumer goods industry is tied closely to the
performance of the domestic and international economy, interest
rates, exchange rates, competition, consumer confidence and
consumer disposable income. The consumer goods industry may be
affected by trends, marketing campaigns and other factors affecting
consumer demand. Governmental regulation affecting the use of
various food additives may affect the profitability of certain
companies in the consumer goods industry. Moreover, international
events may affect food and beverage companies that derive a
substantial portion of their net income from foreign countries. In
addition, tobacco companies may be adversely affected by new laws,
regulations and litigation. Many consumer goods may be marketed
globally, and consumer goods companies may be affected by the
demand and market conditions in other countries and regions.
Companies in the consumer goods industry may be subject to severe
competition, which may also have an adverse impact on their
profitability. Changes in demographics and consumer preferences may
affect the success of consumer products.
Consumer
Services Risk
The success of
consumer product manufacturers and retailers (including food and
drug retailers, general retailers, media, and travel and leisure)
is tied closely to the performance of the domestic and
international economy, interest rates, exchange rates, competition
and consumer confidence. The consumer services industry depends
heavily on disposable household income and consumer spending.
Companies in the consumer services industry may be subject to
severe competition, which may also have an adverse impact on their
profitability. Changes in demographics and consumer preferences may
affect the success of consumer service providers.
Industrials
Sector Risk
The value of
securities issued by companies in the industrials sector may be
adversely affected by supply of and demand for both their specific
products or services and for industrials sector products in
general. The products of manufacturing companies may face
obsolescence due to rapid technological developments and frequent
new product introduction. Government regulations, world events and
economic conditions affect the performance of companies in the
industrials sector. The industrials sector may also be adversely
affected by changes or trends in commodity prices, which may be
influenced by unpredictable factors. Aerospace and defense
companies, a component of the industrials sector, can be
significantly affected by government spending policies because
companies involved in this industry rely, to a significant extent,
on government demand for their products and services. Thus, the
financial condition of, and investor interest in, aerospace and
defense companies are heavily influenced by governmental defense
spending policies, which are typically under pressure from efforts
to control government budgets. Transportation stocks, a component
of the industrials sector, are cyclical and can be significantly
affected by economic changes, fuel prices, labor relations and
insurance costs. Transportation companies in certain countries may
also be subject to significant government regulation and oversight,
which may adversely affect their businesses. For example, commodity
price declines and unit volume reductions resulting from an
over-supply of materials used in the industrials sector can
adversely affect the sector. Furthermore, companies in the
industrials sector may be subject to liability for environmental
damage, product liability claims, depletion of resources, and
mandated expenditures for safety and pollution
control.
Securities Lending
Although
the Fund has no present intent to do so, the Fund may lend
portfolio securities to brokers, dealers and other financial
institutions. In a portfolio securities lending transaction, the
Fund receives from the borrower an amount equal to the interest
paid or the dividends declared on the loaned securities during the
term of the loan as wellas the interest on the collateral
securities, less any fees (such as finders or administrative fees)
the Fund pays in arranging the loan. The Fund may share the
interest it receives on the collateral securities with the
borrower. Loans are subject to termination at the option of the
Fund or the borrower at any time, and the borrowed securities must
be returned when the loan is terminated. The Fund may pay fees to
arrange for securities loans.
The
SEC currently requires that the following conditions must be met
whenever a Fund’s portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from
the borrower; (2) the borrower must increase such collateral
whenever the market value of the securities rises above the level
of such collateral; (3) the Fund must be able to terminate the
loan at any time; (4) the Fund must receive reasonable
interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market
value; (5) the Fund may pay only reasonable custodian fees
approved by the Board in connection with the loan; (6) while
voting rights on the loaned securities may pass to the borrower,
the Board must terminate the loan and regain the right to vote the
securities if a material event adversely affecting the investment
occurs, and (7) the Fund may not loan its portfolio securities
so that the value of the loaned securities is more than one-third
of its total asset value, including collateral received from such
loans. These conditions may be subject to future modification. The
Fund might experience the risk of loss if the institution with
which it has engaged in a portfolio loan transaction breaches its
agreement with the Fund. In addition, the Fund will not enter into
any portfolio security lending arrangement having a duration of
longer than one year. The principal risk of portfolio lending is
potential default or insolvency of the borrower. In either of these
cases, a Fund could experience delays in recovering securities or
collateral or could lose all or part of the value of the loaned
securities. As part of participating in a lending program, the Fund
may be required to invest in collateralized debt or other
securities that bear the risk of loss of principal. In addition,
all investments made with the collateral received are subject to
the risks associated with such investments. If such investments
lose value, the Fund will have to cover the loss when repaying the
collateral.
Money Market Instruments
The
Fund may invest a portion of its assets in high-quality money
market instruments on an ongoing basis rather than in Underlying
Index Components, when it would be more efficient or less expensive
for the Fund to do so, or as collateral for Financial Instruments,
for liquidity purposes, or to earn interest. The instruments in
which the Fund may invest include: (1) short-term obligations
issued by the U.S. government; (2) negotiable certificates of
deposit (“CDs”), fixed time deposits and bankers’
acceptances of U.S. and foreign banks and similar institutions; (3)
commercial paper rated at the date of purchase
“Prime-1” by Moody’s Investors Service, Inc. or
“A-1+” or “A-1” by Standard &
Poor’s Ratings Group, Inc., a division of The McGraw-Hill
Companies, Inc., or, if unrated, of comparable quality as
determined by the Advisor; (4) repurchase agreements; and (5) money
market mutual funds. CDs are short-term negotiable obligations of
commercial banks. Time deposits are non-negotiable deposits
maintained in banking institutions for specified periods of time at
stated interest rates. Banker’s acceptances are time drafts
drawn on commercial banks by borrowers, usually in connection with
international transactions.
Cyber
Security
With
the increasing use of the Internet and technology in connection
with the Fund’s operations, the Fund has become potentially
more susceptible to greater operational and information security
risks through breaches in cyber security. Cyber security breaches
include, without limitation, infection by computer viruses and
unauthorized access to the Fund’s systems through
“hacking” or other means for the purpose of
misappropriating assets or sensitive information, corrupting data,
or causing operations to be disrupted. Cyber security breaches may
also occur in a manner that does not require gaining unauthorized
access, such as denial-of-service attacks or situations where
authorized individuals intentionally or unintentionally release
confidential information stored on the Fund’s systems. A
cyber security breach may cause disruptions and impact the
Fund’s business operations, which could potentially result in
financial losses, inability to determine the Fund’s NAV,
impediments to trading, the inability of shareholders to transact
business, violation of applicable law, regulatory penalties and/or
fines, compliance and other costs.
The
Fund and its shareholders could be negatively impacted as a result.
Further, substantial costs may be incurred in order to prevent
future cyber incidents. In addition, because the Fund works closely
with third-party service providers (e.g., custodians and
unaffiliated sub-advisers), indirect cyber security breaches at
such third-party service providers may subject Fund shareholders to
the same risks associated with direct cyber security breaches.
Further, indirect cyber security breaches at an issuer of
securities in which the Fund invests may similarly negatively
impact Fund shareholders because of a decrease in the value of
these securities. While the Fund has established risk management
systems designed to reduce the risks associated with cyber security
breaches, there can be no assurances that such measures will be
successful particularly since the Fund does not control the cyber
security systems of issuers or third-party service providers. The
Fund and its shareholders could be negatively impacted as a
result.
Liquidation of the Fund
The
Board may determine to close and liquidate the Fund at any time,
which may have adverse consequences for shareholders. In the event
of the liquidation of the Fund, shareholders will receive a
liquidating distribution in cash or in-kind equal to their
proportionate interest in the Fund. A liquidating distribution may
be a taxable event to shareholders, resulting in a gain or loss for
tax purposes, depending upon a shareholder's basis in his or her
shares of the Fund. A shareholder of a liquidating Fund will not be
entitled to any refund or reimbursement of expenses borne, directly
or indirectly, by the shareholder (such as sales loads, account
fees, or fund expenses), and a shareholder may receive an amount in
liquidation less than the shareholder’s original
investment.
Tax Risks
As
with any investment, you should consider how your investment in
Shares of the Fund will be taxed. The tax information in the
Prospectus and this SAI is provided as general information. You
should consult your own tax professional about the tax consequences
of an investment in Shares of the Fund.
MANAGEMENT
Board
Responsibilities. The
business of the Trust is managed under the direction of the Board.
The Board has considered and approved contracts, as described
herein, under which certain companies provide essential management
and administrative services to the Trust. The day-to-day business
of the Trust, including the day-to-day management of risk, is
performed by the service providers of the Trust, such as the
Advisor, Sub-Advisor, Distributor and Administrator. The Board is
responsible for overseeing the Trust’s service providers and,
thus, has oversight responsibility with respect to the risk
management performed by those service providers. Risk management
seeks to identify and eliminate or mitigate the potential effects
of risks such as events or circumstances that could have material
adverse effects on the business, operations, shareholder services,
investment performance or reputation of the Trust or the Fund. The
Board’s role in risk management oversight begins before the
inception of an investment portfolio, at which time the Advisor
presents the Board with information concerning the investment
objectives, strategies and risks of the investment portfolio.
Additionally, the Advisor provides the Board with an overview of,
among other things, the firm’s investment philosophy,
brokerage practices and compliance infrastructure. Thereafter, the
Board oversees the risk management of the investment
portfolio’s operations, in part, by requesting periodic
reports from and otherwise communicating with various personnel of
the service providers, including the Trust’s Chief Compliance
Officer and the independent registered public accounting firm of
the Trust. The Board and, with respect to identified risks that
relate to its scope of expertise, the Audit Committee of the Board,
oversee efforts by management and service providers to manage risks
to which the Fund may be exposed.
Under
the overall supervision of the Board and the Audit Committee
(discussed in more detail below), the service providers to the
Trust employ a variety of processes, procedures and controls to
identify risks relevant to the operations of the Trust and the Fund
to lessen the probability of their occurrence and/or to mitigate
the effects of such events or circumstances if they do occur. Each
service provider is responsible for one or more discrete aspects of
the Trust’s business and, consequently, for managing the
risks associated with that activity.
The
Board is responsible for overseeing the nature, extent and quality
of the services provided to the Fund by the Advisor and receives
information about those services at its regular meetings. In
addition, on at least an annual basis, in connection with its
consideration of whether to renew the Advisory Agreement with the
Advisor and the Sub-Advisory Agreement with the Sub-Advisor, the
Board receives detailed information from the Advisor. Among other
things, the Board regularly considers the Advisor’s and
Sub-Advisor's adherence to the Fund’s investment restrictions
and compliance with various policies and procedures of the Trust
and with applicable securities regulations. The Board also reviews
information about the Fund’s performance and
investments.
The
Trust’s Chief Compliance Officer meets regularly with the
Board to review and discuss compliance and other issues. At least
annually, the Trust’s Chief Compliance Officer provides the
Board with a report reviewing the adequacy and effectiveness of the
Trust’s policies and procedures and those of its service
providers, including the Advisor and the Sub-Advisor. The report
addresses the operation of the policies and procedures of the Trust
and each service provider since the date of the last report,
material changes to the policies and procedures since the date of
the last report, any recommendations for material changes to the
policies and procedures, and material compliance matters since the
date of the last report.
The
Board receives reports from the Trust’s service providers
regarding operational risks, portfolio valuation and other matters.
Annually, the independent registered public accounting firm reviews
with the Audit Committee its audit of the financial statements of
the Fund, focusing on major areas of risk encountered by the Trust
and noting any significant deficiencies or material weaknesses in
the Trust’s internal controls.
The
Board recognizes that not all risks that may affect the Fund can be
identified, that it may not be practical or cost-effective to
eliminate or mitigate certain risks, that it may be necessary to
bear certain risks (such as investment-related risks) to achieve
the Fund’s goals, and that the processes, procedures and
controls employed to address certain risks may be limited in their
effectiveness. Moreover, despite the periodic reports the Board
receives and the Board’s discussions with the service
providers to the Trust, it may not be made aware of all of the
relevant information of a particular risk. Most of the
Trust’s investment management and business affairs are
carried out by or through the Advisor or the Sub-Advisor and other
service providers, each of which has an independent interest in
risk management but whose policies and the methods by which one or
more risk management functions are carried out may differ from the
Trust’s and each other’s in the setting of priorities,
the resources available or the effectiveness of relevant controls.
As a result of the foregoing and other factors, the Board’s
risk management oversight is subject to substantial
limitations.
Members of the Board and Officers of the
Trust. Set forth below are
the names, years of birth, position with the Trust, term of office,
portfolios supervised and the principal occupations and other
directorships for a minimum of the last five years of each of the
persons currently serving as members of the Board and as Executive
Officers of the Trust. Also included below is the term of office
for each of the Executive Officers of the Trust. The members of the
Board serve as Trustees for the life of the Trust or until
retirement, removal, or their office is terminated pursuant to the
Trust’s Declaration of Trust.
The Chairman of the Board, Robert Tull, is an interested person of the Trust as that
term is defined under Section 2(a)(19) of the 1940 Act (the
“Interested Trustee”) because of his affiliation with
the Advisor. Three of the Trustees, John Jacobs, Erik Liik and James Brenner, and their immediate family
members have no affiliation or business connection with the Advisor
or the Fund’s principal underwriter or any of their
affiliated persons and do not own any stock or other securities
issued by the Advisor or the Fund’s principal underwriter.
These Trustees are not Interested Persons of the Trust and are
referred to herein as “Independent
Trustees.”
There is an Audit Committee and a Nominating and Governance
Committee of the Board, each of which is chaired by an Independent
Trustee and comprised solely of Independent Trustees. The Committee
chair for each is responsible for running the Committee meeting,
formulating agendas for those meetings, and coordinating with
management to serve as a liaison between the Independent Trustees
and management on matters within the scope of the responsibilities
of such Committee as set forth in its Board-approved
charter.
There is a Valuation Committee, which is comprised of the
Independent Trustees and representatives of the Advisor to take
action in connection with the valuation of portfolio securities
held by the Fund in accordance with the Board-approved Valuation
Procedures. The Board has determined that this leadership structure
is appropriate given the specific characteristics and circumstances
of the Fund. The Board made this determination in consideration of,
among other things, the fact that the Independent Trustees
constitute a majority of the Board, the assets under management of
the Fund, the number of portfolios overseen by the Board and the
total number of trustees on the Board.
Independent Trustees
Name and Year of
Birth(1)
|
|
Position(s) Held
with Trust
|
|
Term of Office
and Length of Time Served(2)
|
|
Principal
Occupation(s) During Past 5 Years
|
|
Number of
Portfolios in Fund Complex Overseen by
Trustee(3)
|
|
Other
Directorships Held by Trustee During Past 5
Years
|
|
|
|
|
|
|
|
|
|
|
|
John L. Jacobs
(1959)
|
|
Trustee
|
|
Term: Unlimited
Served
as
Trustee:
since
October
2018
|
|
Alerian (Chairman, June 2018 to
Present);Georgetown University (Academic Staff, 2015 to
Present);
Nasdaq (Executive Vice President
and Senior Advisor, 2013-2016)
|
|
1
|
|
Horizons Trust ETFs (Independent Trustee);
AWA ETFs (Independent Trustee); Listed Funds Trust (Independent
Trustee)
|
|
|
|
|
|
|
|
|
|
|
|
Erik A. Liik
(1958)
|
|
Trustee
|
|
Term: Unlimited
Served
as
Trustee:
since
October
2018
|
|
ETF Development & Distribution
Consultant (2012 to Present)
|
|
1
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
James H.
Brenner
(1984)
|
|
Trustee
|
|
Term: Unlimited
Served
as
Trustee:
since
October
2018
|
|
Triton
Partners (Investor Relations, 2019 to Present); Patria
Investments
(Business
Development/Investor Relations, 2016 to
2019);
PineBridge
Investments (Asset Manager, 2010-2016)
|
|
2
|
|
Procure ETF
Trust I (Independent Trustee)
|
Interested Trustee
Name and Year of
Birth(1)
|
|
Position(s) Held
with Trust
|
|
Term of Office
and Length of Time Served(2)
|
|
Principal
Occupation(s)
During Past 5
Years
|
|
Number of
Portfolios in Fund Complex Overseen by
Trustee(3)
|
|
Other
Directorships Held by Trustee During Past 5
Years
|
|
|
|
|
|
|
|
|
|
|
|
Robert Tull (4)
(1952)
|
|
Chairman and Trustee and
President
|
|
Term: Unlimited
Served
since
October
2018
|
|
ProcureAM, LLC
(President, 2017 to Present), Procure Holdings LLC (President, 2018
to Present); Robert Tull & Co. (President, 2005 to
Present
|
|
2
|
|
Virtus ETFs
Procure
ETF Trust I (Interested
Trustee)
|
Other Officers
Name and Year of
Birth(1)
|
|
Position(s) Held
with Trust
|
|
Term of Office
and Length of Time Served(2)
|
|
Principal
Occupation(s)
During Past 5
Years
|
|
|
|
|
|
|
|
Stacey
Gillespie
(1974)
|
|
Chief
Compliance Officer
|
|
Term: Unlimited
Served since November 2019
|
|
Cipperman
Compliance Services, LLC (Managing Director, 2015 to Present);
Boenning & Scattergood, Inc. (Chief Compliance Officer, 2007 to
2015)
|
|
|
|
|
|
|
|
Andrew
Chanin
(1985)
|
|
Secretary
|
|
Term: Unlimited
Served since October 2018
|
|
Procure
Holdings LLC (Chief Executive Officer, 2018 to Present); ProcureAM,
LLC (CEO, 2017 to Present); PureShares, LLC (CEO/COO 2011 to
Present)
|
|
|
|
|
|
|
|
Adrienne
Binik-Chanin
(1951)
|
|
Treasurer,
Chief Financial Officer and Principal Accounting
Officer
|
|
Term: Unlimited
Served since October 2018
|
|
Procure
Holdings, LLC (CFO, 2018 to Present), ProcureAM LLC (CFO, 2017 to
Present); PureShares, LLC (Accountant, 2015 to Present); Chester
Medical Associates (Comptroller, 1990 to
Present)
|
(1)
The
address of each Trustee or officer is c/o ProcureAM, LLC, 16
Firebush Road, Levittown, Pennsylvania 19056.
(2)
Trustees
and Officers serve until their successors are duly elected and
qualified.
(3)
The
Fund is part of a “fund complex” as defined in the 1940
Act. The fund complex includes all open-end funds (including all of
their portfolios) advised by the Advisor and any funds that have an
investment advisor that is an affiliated person of the Advisor. As
of the date of this SAI, the fund complex consists of the
Trust’s Fund and the funds of Procure ETF Trust
I.
(4)
Robert
Tull is an “interested person” of the Trust (as that
term is defined in the 1940 Act) because of his affiliation with
the Advisor.
Description of Standing Board Committees
Audit Committee. The principal responsibilities of the Audit
Committee are the appointment, compensation and oversight of the
Trust’s independent auditors, including the resolution of
disagreements regarding financial reporting between Trust
management and such independent auditors. The Audit
Committee’s responsibilities include, without limitation, to
(i) oversee the accounting and financial reporting processes of the
Trust and its internal control over financial reporting and, as the
Committee deems appropriate, to inquire into the internal control
over financial reporting of certain third-party service providers;
(ii) oversee the quality and integrity of the Fund’s
financial statements and the independent audits thereof; (iii)
oversee, or, as appropriate, assist Board oversight of, the
Trust’s compliance with legal and regulatory requirements
that relate to the Trust’s accounting and financial
reporting, internal control over financial reporting and
independent audits; (iv) approve prior to appointment the
engagement of the Trust’s independent auditors and, in
connection therewith, to review and evaluate the qualifications,
independence and performance of the Trust’s independent
auditors; and (v) act as a liaison between the Trust’s
independent auditors and the full Board. The Board has adopted a
written charter for the Audit Committee. John Jacobs
serves as the Chairman of the Audit Committee and all
of the Independent Trustees serve on the Trust’s Audit
Committee. During
the fiscal period ended October 31, 2019, the Audit Committee met
one time.
Nominating and Governance Committee. The Nominating and
Governance Committee has been established to: (i) assist the Board
in matters involving mutual fund governance and industry practices;
(ii) select and nominate candidates for appointment or election to
serve as Trustees who are not “interested persons” of
the Trust or its Advisor or distributor (as defined by the 1940
Act); and (iii) advise the Board on ways to improve its
effectiveness. Erik Liik serves as the Chairman of the
Nominating and Governance Committee and all of the Independent
Trustees serve on the Nominating and Governance Committee. As
stated above, each Trustee holds office for an indefinite term
until the occurrence of certain events. In filling Board vacancies,
the Nominating Committee considers nominees
recommended by shareholders. Nominee recommendations should be
submitted to the Trust at its mailing address stated in the
Fund’s Prospectus and should be directed to the attention of
the Procure ETF Trust II Nominating Committee. During the
fiscal period ended October 31, 2019, the Nominating and Governance
Committee did not meet.
Valuation Committee. The
Valuation Committee is authorized to act for the Board in
connection with the valuation of portfolio securities held by the
Fund in accordance with the Trust’s Valuation
Procedures. James Brenner serves as the
Chairman of the Valuation Committee and all of the Independent
Trustees serve on the Valuation
Committee, which meets on an ad hoc basis. During the
fiscal period ended October 31, 2019, the Valuation Committee met
three times.
Individual Trustee Qualifications
The Trust has concluded that each of the Trustees should serve on
the Board because of their ability to review and understand
information about the Trust and the Fund provided to them by
management, to identify and request other information they may deem
relevant to the performance of their duties, to question management
and other service providers regarding material factors bearing on
the management and administration of the Fund, and to exercise
their business judgment in a manner that serves the best interests
of the Fund’s shareholders. The Trust has concluded that each
of the Trustees should serve as a Trustee based on their own
experience, qualifications, attributes and skills as described
below.
The Trust has concluded that Robert Tull should serve as Trustee of the Fund
because of the experience he has gained as President of
the Advisor, his extensive knowledge
of and experience in the financial services and ETF industry, and
the experience he has gained serving as President
of the Trust since
its inception.
The Trust has concluded that John Jacobs should serve as Trustee of the Fund
because he is an experienced executive and board member in the
financial services industry and has intimate knowledge of the
operations of the ETF industry and his general expertise with
respect to financial matters and accounting
principles.
The Trust has concluded that Erik Liik should serve as Trustee of the Fund
because of the experience he has gained as a Financial
Services/Asset Management Executive, and, in particular, his prior
service in the financial services industry specializing in all
aspects of distribution, issuance and operations of
ETFs.
The Trust has concluded that James Brenner should serve as Trustee of the Fund
because of his experience in the financial services industry,
including his experience as a Certified Financial
Advisor.
Board Compensation
No
officer, director or employee of the Adviser, its parent or
subsidiaries receives any compensation from the Trust for serving
as an officer or Trustee of the Trust. The Trust pays, in the
aggregate, each Independent Trustee an annual fee of $12,000. The
Chairmen of the Audit Committee, the Valuation Committee and the
Nominating and Governance Committee each receive an additional
annual fee of $1,000. In addition, the Independent Trustees are
reimbursed for all reasonable travel expenses relating to their
attendance at the Board Meetings. The following table sets forth
certain information with respect to the compensation of each
Trustee for the fiscal period ended October 31,
2019:
Name and
Position
|
|
Aggregate
Compensation
From the
Trust
|
|
Pension or
Retirement Benefits Accrued As Part of Trust
Expenses
|
|
Estimated Annual
Benefits Upon Retirement
|
|
Total
Compensation From Trust and Fund Complex Paid to
Trustees(1)
|
|
|
|
|
|
|
|
|
|
John
Jacobs, Trustee
|
|
$
7,266
|
|
$
0
|
|
$
0
|
|
$
7,266
|
Erik
Liik, Trustee & Chairman
|
|
$
7,266
|
|
$
0
|
|
$
0
|
|
$
7,266
|
James
Brenner, Trustee
|
|
$
7,266
|
|
$
0
|
|
$
0
|
|
$
7,266
|
Robert Tull, Trustee
|
|
$
0
|
|
$
0
|
|
$
0
|
|
$
0
|
(1)
“Fund
Complex” consists of all ETFs advised by the Advisor and its
affiliate advisors.
Code of Ethics
The
Trust, its Advisor, Sub-Advisor, and principal
underwriter have each adopted a code of ethics under Rule 17j-1 of
the 1940 Act that permit personnel subject to their particular
codes of ethics to invest in securities, including securities that
may be purchased or held by the Fund, subject to certain
conditions.
PROXY VOTING POLICIES
The Board believes that the voting of proxies on securities held by
the Fund is an important element of the overall investment process.
As such, the Board has delegated responsibility for decisions
regarding proxy voting for securities held by the Fund to the
Advisor. The Advisor will vote such proxies in accordance with its
proxy policies and procedures, a summary of which is included
in Appendix A
to this Statement of Additional
Information. The Board will periodically review the Fund’s
proxy voting record.
The Trust is required to disclose annually the Fund’s
complete proxy voting record on Form N-PX covering the period July
1 through June 30 and file it with the SEC no later than August 31
of each year. The Fund’s Form N-PX will be available at no
charge upon request by calling 1-866-690-3837. It will also be available on the SEC’s EDGAR
website at www.sec.gov.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF
SECURITIES
A principal shareholder is any person who owns of record or
beneficially 5% or more of the outstanding shares of a Fund. A
control person is one who owns beneficially or through controlled
companies more than 25% of the voting securities of a company or
acknowledges the existence of control. Shareholders with a
controlling interest could affect the outcome of voting or the
direction of management of the Fund.
As
of January 31, 2020, and the following shareholders were considered
to be principal shareholders and control persons of the
Fund:
Name and Address
|
Parent Company
|
Jurisdiction
|
% Ownership
|
Type of Ownership
|
National
Financial Services, LLC
200
Liberty Street
New
York, NY 10281
|
Fidelity
Global Brokerage Group, Inc.
|
DE
|
18.32%
|
Record
|
U.S.
Bank
FBO
Clients
PO
Box 1787
Milwaukee,
WI 53202
|
U.S.
Bancorp
|
DE
|
18.18%
|
Record
|
Charles
Schwab & Co., Inc.
211
Main Street
San
Francisco, CA 94105-1905
|
Charles
Schwab Corporation
|
DE
|
13.89%
|
Record
|
TD
Ameritrade, Inc.
200
South 108th Avenue
Omaha,
NE 68103
|
TD
Ameritrade Clearing, Inc.
|
NE
|
12.89%
|
Record
|
E*Trade
Savings Bank
P.O.
Box 6503
Englewood,
CO 80155-6503
|
ETB
Holdings, Inc.
|
DE
|
6.58%
|
Record
|
MANAGEMENT SERVICES
The
following information supplements and should be read in conjunction
with the section in the Prospectus entitled
“Management.”
Investment Advisor
ProcureAM,
LLC, the Advisor, serves as investment advisor to the Fund and
along with the Board has overall responsibility for the general
management and administration of the Trust, pursuant to the
Investment Advisory Agreement between the Trust and the Advisor
(the “Advisory Agreement”). Under the Advisory
Agreement, the Advisor, subject to the supervision of the Board,
provides an investment program for the Fund and is responsible for
the investment of the Fund’s assets in conformity with the
stated investment policies of the Fund. The Advisor is responsible
for placing purchase and sale orders and providing continuous
supervision of the investment portfolio of the Fund. The Advisor
also arranges for the provision of distribution, transfer agency,
custody, administration and all other services necessary for the
Fund to operate.
The
Advisory Agreement will continue in effect with respect to the Fund
from year to year provided such continuance is specifically
approved at least annually by (i) the vote of a majority of the
Fund’s outstanding voting securities or a majority of the
Trustees of the Trust, and (ii) the vote of a majority of the
Independent Trustees of the Trust, cast in person at a meeting
called for the purpose of voting on such approval.
The
Advisory Agreement will terminate automatically if assigned (as
defined in the 1940 Act). The Advisory Agreement is also terminable
at any time without penalty by the Trustees of the Trust or by vote
of a majority of the outstanding voting securities of the Fund on
60 days’ written notice to the Advisor or by the Advisor on
60 days’ written notice to the Trust.
Pursuant
to the Advisory Agreement, the Advisor is entitled to receive a
fee, payable monthly, at the annual rate for the Fund based on a
percentage of the Fund’s average daily net assets as
follows:
Fund
Name
|
Management
Fee
|
Procure
Space ETF
|
0.75%
|
In
consideration of the fees paid with respect to the Fund, 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
hereunder.
The
following table shows the dollar amount of the fees payable by the
Fund to the Advisor, the amount of fees waived by the Advisor, if
any, and the actual fees received by the
Advisor.
|
|
Advisory Fee Waived and/or Expenses Reimbursed
|
Net Advisory Fee Received
|
Fiscal
Period Ended October 31, 2019*
|
$ 38,038
|
$ 48,597
|
$ 0
|
*
The Fund commenced operations on April 10,
2019.
In
addition to providing advisory services under the Advisory
Agreement, the Advisor also: (i) supervises all non-advisory
operations of the Fund; (ii) provides personnel to perform such
executive, administrative and clerical services as are reasonably
necessary to provide effective administration of the Fund; (iii)
arranges for (a) the preparation of all required tax returns, (b)
the preparation and submission of reports to existing shareholders,
(c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be
filed with the SEC and other regulatory authorities; (iv) maintains
the Fund’s records; and (v) provides office space and all
necessary office equipment and services.
Sub-Advisor
Penserra Capital Management LLC (“Sub-Advisor”) with
its principal office located at 4 Orinda Way, 100-A, Orinda
California 94563, serves as the investment sub-adviser for the Fund
pursuant to an Investment Sub-Advisory Agreement between the
Advisor and Penserra Capital Management LLC, dated September 1,
2018 (referred to as a “Sub-Advisory Agreement”). The
Sub-Advisor is responsible for placing purchase and sale orders and
shall make investment decisions for the Fund, subject to the
supervision by the Advisor. For its services, the Sub-Advisor is
compensated by the Adviser.
Portfolio Managers
The
Sub-Advisor supervises and manages 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.
Dustin Lewellyn,
Ernesto Tong, and Anand Desai of Penserra Capital Management LLC
(“Penserra” or “Sub-Advisor”) 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.
Other Accounts Managed
The following
tables provide additional information about other portfolios or
accounts managed by the Fund’s portfolio managers as
of October 31, 2019. The portfolio managers did not manage
any accounts with performance-based
fees.
Total
number of other accounts managed by the portfolio managers within
each category below and the total assets in the accounts managed
within each category below.
Portfolio
Manager
|
|
Registered
Investment Companies
|
|
Other Pooled
Investment Vehicles
|
|
Other
Accounts
|
|
|
Number of
Accounts
|
|
Total
Assets
|
|
Number of
Accounts
|
|
Total
Assets
|
|
Number of
Accounts
|
|
Total
Assets
|
Dustin
Lewellyn
|
|
30
|
|
$1.6
billion
|
|
1
|
|
$7
|
|
N/A
|
|
N/A
|
Ernesto
Tong
|
|
30
|
|
$1.6
billion
|
|
1
|
|
$7
|
|
N/A
|
|
N/A
|
Anand
Desai
|
|
30
|
|
$1.6
billion
|
|
1
|
|
$7
|
|
N/A
|
|
N/A
|
Material Conflicts of
Interest
Because
the portfolio managers manage multiple portfolios for multiple
clients, the potential for conflicts of interest exists. Each
portfolio manager may manage portfolios having substantially the
same investment style as the Fund. However, the portfolios managed
by a portfolio manager may not have portfolio compositions
identical to those of the Fund managed by the portfolio manager
due, for example, to specific investment limitations or guidelines
present in some portfolios or accounts, but not others. The
portfolio managers may purchase securities for one portfolio and
not another portfolio, and the performance of securities purchased
for one portfolio may vary from the performance of securities
purchased for other portfolios. A portfolio manager may place
transactions on behalf of other accounts that are directly or
indirectly contrary to investment decisions made on behalf of the
Fund, or make investment decisions that are similar to those made
for the Fund, both of which have the potential to adversely impact
the Fund depending on market conditions. For example, a portfolio
manager may purchase a security in one portfolio while
appropriately selling that same security in another portfolio. In
addition, some of these portfolios have fee structures that are or
have the potential to be higher than the advisory fees paid by the
Fund, which can cause potential conflicts in the allocation of
investment opportunities between the Fund and the other accounts.
However, the compensation structure for portfolio managers does not
generally provide incentive to favor one account over another
because that part of a manager’s bonus based on performance
is not based on the performance of one account to the exclusion of
others. There are many other factors considered in determining the
portfolio managers’ bonus and there is no formula that is
applied to weight the factors listed (see
“Compensation”). In addition, current trading practices
do not allow the Advisor to intentionally favor one portfolio over
another as trades are executed as trade orders are received.
Portfolio’s rebalancing dates also generally vary between
fund families. Program trades created from the portfolio rebalance
are executed at market on close.
Compensation for the Portfolio Managers
The
portfolio managers receive a base pay and an annual bonus incentive
based on performance against individual and organizational unit
objectives, as well as overall Sub-Advisor results.
The plan is designed to align manager compensation with investors'
goals by rewarding portfolio managers who obtain results consistent
with the objectives of the products under the individual’s
management. In addition, these employees also participate in a
long-term incentive program. The long-term incentive plan is
eligible to senior level employees and is designed to reward
profitable growth in company value. An employee's total
compensation package is reviewed periodically to ensure that they
are competitive relative to the external marketplace.
Ownership of Securities
As of October 31, 2019 , the portfolio managers
did not own Shares of the Fund.
OTHER SERVICE PROVIDERS
Fund Administrator, Custodian and Transfer Agent
U.S. Bancorp Fund
Services LLC (“Fund Services”) serves as the
Fund’s administrator, accountant, and transfer agent. Fund
Services principal address is 615 East Michigan Street, Milwaukee,
WI 53202. Under the Fund Administration and Accounting Agreement
with the Trust, Fund Services provides necessary administrative,
legal, tax, accounting services, and financial reporting for the
maintenance and operations of the Trust and the Fund. Fund Services
is responsible for maintaining the books and records and
calculating the daily net asset value of the Fund. In addition,
Fund Services makes available the office space, equipment,
personnel and facilities required to provide such
services.
Under the Custody
Agreement with the Trust, U.S. Bank, National Association,
maintains in separate accounts cash, securities and other assets of
the Trust and the Fund, keeps all necessary accounts and records,
and provides other services. Under the Custody Agreement, U.S. Bank
is also authorized to appoint certain foreign custodians or foreign
custody managers for Fund investments outside the United
States.
Pursuant to a
Transfer Agency Services Agreement with the Trust, Fund Services
acts as transfer agent to the Fund, dividend disbursing agent and
shareholder servicing agent to the Fund. Fund Services and U.S.
Bank, National Association, are affiliates.
The Advisor
compensates Fund Services for the foregoing services out of the
Advisor’s unified management fee. During the fiscal period
ended October 31, 2019, the Advisor paid $42,889 in administration
fees.
Distributor
Quasar Distributors
LLC, the Distributor, is located at
777 E. Wisconsin Ave., Milwaukee, WI 53202. The Distributor, a wholly owned subsidiary of
U.S. Bancorp, is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”),
and a member of the Financial Industry Regulatory Authority
(“FINRA”). The Distributor has entered into a Services Agreement with
ProcureAM LLC to distribute the
Fund.
Shares
will be continuously offered for sale by the Trust through the
Distributor only in whole Creation Units, as described in the
section of this SAI entitled “Purchase and Redemption of
Creation Units.” The Distributor also acts as an agent for
the Trust. The Distributor will deliver a prospectus to persons
purchasing Shares in Creation Units and will maintain records of
both orders placed with it and confirmations of acceptance
furnished by it. The Distributor has no role in determining the
investment policies of the Fund or which securities are to be
purchased or sold by the Fund.
The
Board intends to adopt a Distribution and Service Plan pursuant to
Rule 12b-1 under the 1940 Act. In accordance with its Rule 12b-1
plan, the Fund will be 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.
Under
the Service and Distribution Plan, and as required by Rule 12b-1,
the Trustees will receive and review after the end of each calendar
quarter a written report provided by the Distributor of the amounts
expended under the Plan and the purpose for which such expenditures
were made.
The
Advisor and its affiliates may, out of their own resources, pay
amounts 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.
Compliance Services Company
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.
Calculation Agent
Real-time
calculation is provided by Thomson Reuters. Closing index values
and weights are provided to data vendors between 6PM and 7PM
Eastern Standard Time, Monday through Friday, except on official
New York Stock Exchange holidays. The Underlying Index values are
distributed at 15-second intervals throughout the days on which the
Underlying Index is calculated.
Independent Registered Public Accounting Firm
Cohen & Company Ltd., located at 1350 Euclid Ave., Suite 800,
Cleveland, Ohio 44115, serves as independent registered public
accounting firm. Cohen & Company will perform the annual audit of the Fund’s
financial statements, serve as tax advisor to the Trust and will
review the Fund’s federal, state and excise tax returns, and
advise the Trust on matters of accounting and federal and state
income taxation.
Legal Counsel
Chapman and Cutler LLP, 1270 Avenue of the Americas, New York, NY 10020, serves
as Legal Counsel to the Trust and the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject
to the general supervision by the Advisor and the Board, the
Sub-Advisor is responsible for decisions to buy and sell securities
for the Fund, the selection of brokers and dealers to effect the
transactions, which may be affiliates of the Advisor, and the
negotiation of brokerage commissions. The Fund may execute
brokerage or other agency transactions through registered
broker-dealers who receive compensation for their services in
conformity with the 1940 Act, the Exchange Act of 1934, and the
rules and regulations thereunder. Compensation may also be paid in
connection with riskless principal transactions (on Nasdaq or
over-the-counter securities and securities listed on an exchange)
and agency or over-the-counter transactions executed with an
electronic communications network or an alternative trading
system.
The
Fund will give primary consideration to obtaining the most
favorable prices and efficient executions of transactions in
implementing trading policy. Consistent with this policy, when
securities transactions are traded on an exchange, the Fund's
policy will be to pay commissions that are considered fair and
reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Sub-Advisor believes
that a requirement always to seek the lowest possible commission
cost could impede effective portfolio management and preclude the
Fund from obtaining a high quality of brokerage services. In
seeking to determine the reasonableness of brokerage commissions
paid in any transaction, the Sub-Advisor will rely upon its
experience and knowledge regarding commissions generally charged by
various brokers and on its judgment in evaluating the brokerage and
research services received from the broker effecting the
transaction. Such determinations will be necessarily subjective and
imprecise, as in most cases an exact dollar value for those
services is not ascertainable.
The
Sub-Advisor does not consider sales of Shares by broker-dealers as
a factor in the selection of broker-dealers to execute portfolio
transactions.
As
permitted by Section 28(e) of the 1934 Act, the Sub-Advisor may
cause the Fund to pay a broker-dealer a commission for effecting a
securities transaction for the Fund that is in excess of the
commission that another broker-dealer would have charged for
effecting the transaction, if the Sub-Advisor makes a good faith
determination that the broker’s commission paid by the Fund
is reasonable in relation to the value of the brokerage and
research services provided by the broker-dealer, viewed in terms of
either the particular transaction or the Advisor’s overall
responsibilities to the Fund and its other investment advisory
clients. The practice of using a portion of the Fund’s
commission dollars to pay for brokerage and research services
provided to the Sub-Advisor is sometimes referred to as “soft
dollars.” Section 28(e) is sometimes referred to as a
“safe harbor,” because it permits this practice,
subject to a number of restrictions, including the
Sub-Advisor’s compliance with certain procedural requirements
and limitations on the type of brokerage and research services that
qualify for the safe harbor.
Research
products and services may include, but are not limited to, general
economic, political, business and market information and reviews,
industry and company information and reviews, evaluations of
securities and recommendations as to the purchase and sale of
securities, financial data on a company or companies, performance
and risk measuring services and analysis, stock price quotation
services, computerized historical financial databases and related
software, credit rating services, analysis of corporate
responsibility issues, brokerage analysts’ earnings
estimates, computerized links to current market data, software
dedicated to research, and portfolio modeling. Research services
may be provided in the form of reports, computer-generated data
feeds and other services, telephone contacts, and personal meetings
with securities analysts, as well as in the form of meetings
arranged with corporate officers and industry spokespersons,
economists, academics and governmental representatives. Brokerage
products and services assist in the execution, clearance and
settlement of securities transactions, as well as functions
incidental thereto, including but not limited to related
communication and connectivity services and equipment, software
related to order routing, market access, algorithmic trading, and
other trading activities. On occasion, a broker-dealer may furnish
the Sub-Advisor with a service that has a mixed use (that is, the
service is used both for brokerage and research activities that are
within the safe harbor and for other activities). In this case, the
Sub-Advisor is required to reasonably allocate the cost of the
service, so that any portion of the service that does not qualify
for the safe harbor is paid for by the Sub-Advisor from its own
funds, and not by portfolio commissions paid by the
Fund.
Research
products and services provided to the Sub-Advisor by broker-dealers
that effect securities transactions for the Fund may be used by the
Advisor in servicing all of its accounts. Accordingly, not all of
these services may be used by the Sub-Advisor in connection with
the Fund. Some of these products and services are also available to
the Sub-Advisor for cash, and some do not have an explicit cost or
determinable value. The research received does not reduce the
advisory fees paid to the Sub-Advisor for services provided to the
Fund. The Advisor’s expenses would likely increase if the
Sub-Advisor had to generate these research products and services
through its own efforts, or if it paid for these products or
services itself.
For
the fiscal period ended October 31, 2019, the Fund paid $9,470 in
brokerage commissions.
DISCLOSURE OF PORTFOLIO HOLDINGS
Portfolio Disclosure Policy
The Trust has adopted a Portfolio Holdings Policy (the
“Policy”) designed to govern the disclosure of Fund
portfolio holdings and the use of material non-public information
about Fund holdings. The Policy applies to all officers, employees
and agents of the Fund, including the Advisor. The Policy is
designed to ensure that the disclosure of information about the
Fund’s portfolio holdings is consistent with applicable legal
requirements and otherwise in the best interest of the
Fund.
As an ETF, information about the Fund’s portfolio holdings is
made available on a daily basis in accordance with the provisions
of any Order of the Securities and Exchange Commission (the
“SEC”) applicable to the Fund, regulations of the
Fund’s listing Exchange and other applicable SEC regulations,
orders and no-action relief. Such information typically reflects
all or a portion of the Fund’s anticipated portfolio holdings
as of the next Business Day (as defined below). This information is
used in connection with the creation and redemption process and is
disseminated on a daily basis through the facilities of the
Exchange, the National Securities Clearing Corporation (the
“NSCC”) and/or third party service
providers.
The Fund will disclose on the Fund’s website
(www.ProcureETFs.com)
at the start of each Business Day the identities and quantities of
the securities and other assets held by the Fund that will form the
basis of the Fund’s calculation of its net asset value (the
“NAV”) on that Business Day. The portfolio holdings so
disclosed will be based on information as of the close of business
on the prior Business Day and/or trades that have been completed
prior to the opening of business on that Business Day and that are
expected to settle on the Business Day. Online disclosure of such
holdings is publicly available at no charge.
Daily access to the Fund’s portfolio holdings is permitted to
personnel of the Advisor, the Sub-Advisor, the Distributor and the
Fund’s administrator, custodian and accountant and other
agents or service providers of the Trust who have need of such
information in connection with the ordinary course of their
respective duties to the Fund. The Fund’s Chief Compliance
Officer may authorize disclosure of portfolio
holdings.
The Fund will disclose its complete portfolio holdings schedule in
public filings with the SEC on a quarterly basis, based on the
Fund’s fiscal year, within sixty (60) days of the end of the
quarter, and will provide that information to shareholders, as
required by federal securities laws and regulations
thereunder.
No person is authorized to disclose the Fund’s portfolio
holdings or other investment positions except in accordance with
the Policy. The Trust’s Board reviews the implementation of
the Policy on a periodic basis.
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 Indeces LLC every 15 seconds
during hours of trading on the Exchange. The IIV should not be
viewed as a “real-time” update of NAV because the IIV
will be calculated by an independent third party calculator and may
not be calculated in the exact same manner as NAV, which is
computed daily.
An independent third-party calculator calculates the IIV during
hours of trading on the Exchange by dividing the “Estimated
Fund Value” as of the time of the calculation by the total
number of outstanding Shares. “Estimated Fund Value” is
the sum of the estimated amount of cash held in the Fund’s
portfolio, the estimated amount of accrued interest owing to the
Fund and the estimated value of the securities held in the
Fund’s portfolio, minus the estimated amount of liabilities.
The IIV will be calculated based on the same portfolio holdings
disclosed on the Fund’s website. In determining the estimated
value for each of the component securities, the IIV will use last
sale, market prices or other methods that would be considered
appropriate for pricing equity securities held by registered
investment companies.
Although the Fund provides the independent third party calculator
with information to calculate the IIV, 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.
ADDITIONAL INFORMATION CONCERNING SHARES
Organization and Description of Shares of Beneficial
Interest
The
Trust is a Delaware statutory trust and registered investment
company. The Trust was organized on December 19, 2017 and has
authorized capital of an unlimited number of shares of beneficial
interest of no par value that may be issued in more than one class
or series.
Under
Delaware law, the Trust is not required to hold an annual
shareholders meeting if the 1940 Act does not require such a
meeting. Generally, there will not be annual meetings of Trust
shareholders. If requested by shareholders of at least 10% of the
outstanding Shares of the Trust, the Trust will call a meeting of
the Trust’s shareholders for the purpose of voting upon the
question of removal of a Trustee and will assist in communications
with other Trust shareholders. Shareholders holding two-thirds of
Shares outstanding may remove Trustees from office by votes cast at
a meeting of Trust shareholders or by written consent.
All
Shares will be freely transferable; provided, however, that Shares
may not be redeemed individually, but only in Creation Units. The
Shares will not have preemptive rights or cumulative voting rights,
and none of the Shares will have any preference to conversion,
exchange, dividends, retirements, liquidation, redemption or any
other feature. Shares have equal voting rights, except that, if the
Trust creates additional funds, only Shares of that fund may be
entitled to vote on a matter affecting that particular fund. Trust
shareholders are entitled to require the Trust to redeem Creation
Units if such shareholders are Authorized Participants. The
Declaration of Trust confers upon the Board the power, by
resolution, to alter the number of Shares constituting a Creation
Unit or to specify that Shares of the Trust may be individually
redeemable. The Trust reserves the right to adjust the stock prices
of Shares to maintain convenient trading ranges for investors. Any
such adjustments would be accomplished through stock splits or
reverse stock splits which would have no effect on the net assets
of the Fund.
The
Trust’s Declaration of Trust disclaims liability of the
shareholders or the officers of the Trust for acts or obligations
of the Trust which are binding only on the assets and property of
the Trust. The Declaration of Trust provides for indemnification by
the Trust for all loss and expense of the Fund's shareholders held
personally liable for the obligations of the Trust. The risk of a
Trust’s shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund
itself would not be able to meet the Trust’s obligations and
this risk should be considered remote. If the Fund does not grow to
a size to permit it to be economically viable, the Fund may cease
operations. In such an event, shareholders may be required to
liquidate or transfer their Shares at an inopportune time and
shareholders may lose money on their investment.
Book Entry Only System
DTC
will act as securities depositary for the Shares. The Shares of the
Fund is represented by global securities registered in the name of
DTC or its nominee and deposited with, or on behalf of, DTC. Except
as provided below, certificates will not be issued for
Shares.
DTC
has advised the Trust as follows: DTC, the world’s largest
securities depository, is a limited-purpose trust company organized
under the New York Banking Law, a member of the Federal Reserve
System, a “clearing corporation” within the meaning of
the New York Uniform Commercial Code and a “clearing
agency” registered pursuant to the provisions of Section 17A
of the Exchange Act. DTC holds and provides asset servicing for
over 3.5 million issues of U.S. and non-U.S. equity issues,
corporate and municipal debt issues and money market instruments
(from over 100 countries). DTC was created to hold securities of
its participants (the “DTC Participants”) and to
facilitate the clearance and settlement of securities transactions
among the DTC Participants in such securities through electronic
computerized book-entry transfers and pledges in accounts of DTC
Participants, thereby eliminating the need for physical movement of
securities certificates. DTC Participants include both U.S. and
non-U.S. securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is a
wholly-owned subsidiary of The Depository Trust & Clearing
Corporation (“DTCC”). DTCC is the holding company for
DTC, the NSCC and Fixed Income Clearing Corporation, all of which
are registered clearing agencies. DTCC is owned by the users of its
regulated subsidiaries.
Access
to the DTC system is also available to others such as both U.S. and
non-U.S. securities brokers and dealers, banks, trust companies and
clearing corporations that clear through or maintain a custodial
relationship with a DTC Participant, either directly or indirectly
(“Indirect Participants”). DTC agrees with and
represents to DTC Participants that it will administer its
book-entry system in accordance with its rules and bylaws and
requirements of law. Beneficial ownership of Shares will be limited
to DTC Participants, Indirect Participants and persons holding
interests through DTC Participants and Indirect Participants.
Ownership of beneficial interests in Shares (owners of such
beneficial interests are referred to herein as “Beneficial
Owners”) will be shown on, and the transfer of ownership will
be effected only through, records maintained by DTC (with respect
to DTC Participants) and on the records of DTC Participants (with
respect to Indirect Participants and Beneficial Owners that are not
DTC Participants). Beneficial Owners will receive from or through
DTC Participant a written confirmation relating to their purchase
of Shares. The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities
in definitive form. Such laws may impair the ability of certain
investors to acquire beneficial interests in Shares.
Beneficial
Owners of Shares will not be entitled to have Shares registered in
their names, will not receive or be entitled to receive physical
delivery of certificates in definitive form and are not considered
the registered holders of the Shares. Accordingly, each Beneficial
Owner must rely on the procedures of DTC, DTC Participants and any
Indirect Participants through which such Beneficial Owner holds its
interests in order to exercise any rights of a holder of Shares.
The Trust understands that under existing industry practice, in the
event the Trust requests any action of holders of Shares, or a
Beneficial Owner desires to take any action that DTC, as the record
owner of all outstanding Shares, is entitled to take, DTC would
authorize the DTC Participants to take such action and that the DTC
Participants would authorize the Indirect Participants and
Beneficial Owners acting through such DTC Participants to take such
action and would otherwise act upon the instructions of Beneficial
Owners owning through them. DTC, through its nominee Cede &
Co., is the record owner of all outstanding Shares.
Conveyance
of all notices, statements and other communications to Beneficial
Owners will be effected as follows. DTC will make available to the
Trust upon request and for a fee to be charged to the Trust a
listing of Shares holdings of each DTC Participant. The Trust shall
inquire of each such DTC Participant as to the number of Beneficial
Owners holding Shares, directly or indirectly, through such DTC
Participant. The Trust will provide each such DTC Participant with
copies of such notice, statement or other communication, in such
form, number and at such place as such DTC Participant may
reasonably request, in order that such notice, statement or
communication may be transmitted by such DTC Participant, directly
or indirectly, to such Beneficial Owners. In addition, the Trust
shall pay to each such DTC Participant a fair and reasonable amount
as reimbursement for the expenses attendant to such transmittal,
all subject to applicable statutory and regulatory requirements.
Beneficial Owners may wish to take certain steps to augment the
transmission to them of notices of significant events with respect
to Shares by providing their names and addresses to the DTC
registrar and request that copies of notices be provided directly
to them.
Distributions
of Shares shall be made to DTC or its nominee, Cede & Co., as
the registered holder of all Shares. DTC or its nominee, upon
receipt of any such distributions, shall immediately credit DTC
Participants’ accounts with payments in amounts proportionate
to their respective beneficial interests in Shares as shown on the
records of DTC or its nominee. Payments by DTC Participants to
Indirect Participants and Beneficial Owners of Shares held through
such DTC Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for
the accounts of customers in bearer form or registered in a
“street name,” and will be the responsibility of such
DTC Participants. The Trust has no responsibility or liability for
any aspects of the records relating to or notices to Beneficial
Owners, or payments made on account of beneficial ownership
interests in such Shares, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between DTC
and the DTC Participants or the relationship between such DTC
Participants and the Indirect Participants and Beneficial Owners
owning through such DTC Participants.
DTC
may determine to discontinue providing its service with respect to
Shares at any time by giving reasonable notice to the Trust and
discharging its responsibilities with respect thereto under
applicable law. Under such circumstances, the Trust shall take
action either to find a replacement for DTC to perform its
functions at a comparable cost or, if such a replacement is
unavailable, to issue and deliver printed certificates representing
ownership of Shares, unless the Trust makes other arrangements with
respect thereto satisfactory to the Exchange.
DTC
rules applicable to DTC Participants are on file with the SEC. More
information about DTC can be found at www.dtcc.com and
www.dtc.org.
PURCHASE AND REDEMPTION OF CREATION
UNITS
Creation
The Trust issues
and sells Shares of the Fund only in Creation Units on a continuous
basis on any Business Day (as defined below) through the
Distributor at the Shares’ NAV next determined after receipt
of an order in proper form. The Distributor processes purchase
orders only on a day that the Exchange is open for trading (a
“Business Day”). The Exchange is open for trading
Monday through Friday except for the following holidays: New
Year’s Day, Martin Luther King, Jr. Day, Presidents’
Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Deposit
of Securities and Deposit or Delivery of Cash
The consideration
for purchase of Creation Units of the Fund generally consists of
the Deposit Securities for each Creation Unit constituting a
substantial replication, or representation, of the securities
included in the Fund’s portfolio as selected by the Advisor
(“Fund Securities”) and the Cash Component computed as
described below. Together, the Deposit Securities and the Cash
Component constitute the “Fund Deposit,” which
represents the minimum investment amount for a Creation Unit of the
Fund.
The Cash Component
serves to compensate the Trust or the Authorized Participant, as
applicable, for any differences between the NAV per Creation Unit
and the Deposit Amount (as defined below). The Cash Component is an
amount equal to the difference between the NAV of the Fund Shares
(per Creation Unit) and the “Deposit Amount,” an amount
equal to the market value of the Deposit Securities. If the Cash
Component is a positive number (i.e., the NAV per Creation Unit exceeds
the Deposit Amount), the Authorized Participant will deliver the
Cash Component. If the Cash Component is a negative number
(i.e., the NAV per Creation
Unit is less than the Deposit Amount), the Authorized Participant
will receive the Cash Component.
The Custodian
through the NSCC (see the section of this SAI entitled
“Purchase and Redemption of Creation
Units—Creation—Procedures for Creation of Creation
Units”), makes available on each Business Day, prior to the
opening of business on the Exchange (currently 9:30 a.m. New York
time), the list of the name and the required number of shares of
each Deposit Security to be included in the current Fund Deposit
(based on information at the end of the previous Business Day) for
the Fund. This Fund Deposit is applicable, subject to any
adjustments as described below, to orders to effect creations of
Creation Units of the Fund until such time as the next-announced
composition of the Deposit Securities is made
available.
The identity and
number of shares of the Deposit Securities required for the Fund
Deposit for the Fund changes as rebalancing adjustments and
corporate action events are reflected within the Fund from time to
time by the Advisor, with a view to the investment objective of the
Fund. In addition, the Trust reserves the right to permit or
require the substitution of an amount of cash (that is a
“cash in lieu” amount) to be added to the Cash
Component to replace any Deposit Security that may not be available
in sufficient quantity for delivery or that may not be eligible for
transfer through the systems of DTC or the Clearing Process
(discussed below) or for other similar reasons. The Trust also
reserves the right to permit or require a “cash in
lieu” amount where the delivery of Deposit Securities by the
Authorized Participant (as described below) would be restricted
under the securities laws or where delivery of Deposit Securities
to the Authorized Participant would result in the disposition of
Deposit Securities by the Authorized Participant becoming
restricted under the securities laws, and in certain other
situations.
In addition to the
list of names and number of securities constituting the current
Deposit Securities of the Fund Deposit, the Custodian, through the
NSCC, also makes available on each Business Day the estimated Cash
Component, effective through and including the previous Business
Day, per outstanding Creation Unit of the Fund.
Procedures
for Creation of Creation Units
All orders to
create Creation Units must be placed with the Distributor either
(1) through Continuous Net Settlement System of the NSCC (the
“Clearing Process”), a clearing agency that is
registered with the SEC, by a “Participating Party,”
i.e., a broker-dealer or
other participant in the Clearing Process; or (2) outside the
Clearing Process by a DTC Participant (see the section of this SAI
entitled “Additional Information Concerning Shares —
Book Entry Only System”). In each case, the Participating
Party or the DTC Participant must have executed an agreement with
the Distributor with respect to creations and redemptions of
Creation Units (a “Participant Agreement”); such
parties are collectively referred to as “APs” or
“Authorized Participants.” Investors should contact the
Distributor for the names of Authorized Participants. All Fund
Shares, whether created through or outside the Clearing Process,
will be entered on the records of DTC in the name of Cede & Co.
for the account of a DTC Participant.
The Distributor
will process orders to purchase Creation Units received by U.S.
mail, telephone, facsimile and other electronic means of
communication by the closing time of the regular trading session on
the Exchange (the “Closing Time”) (normally 4:00 p.m.
New York time), as long as they are in proper form. Mail is
received periodically throughout the day. An order sent by U.S.
mail will be opened and time stamped when it is received. If an
order to purchase Creation Units is received in proper form by
Closing Time, then it will be processed that day. Purchase orders
received in proper form after Closing Time will be processed on the
following Business Day and will be priced at the NAV determined on
that day. Custom orders must be received by the Distributor no
later than 3:00 p.m. New York time on the trade date. A custom
order may be placed by an Authorized Participant in the event that
the Trust permits the substitution of an amount of cash to be added
to the Cash Component to replace any Deposit Security which may not
be available in sufficient quantity for delivery or which may not
be eligible for trading by such Authorized Participant or the
investor for which it is acting or other relevant reason. The date
on which an order to create Creation Units (or an order to redeem
Creation Units, as discussed below) is placed is referred to as the
“Transmittal Date.” Orders must be transmitted by an
Authorized Participant by telephone or other transmission method
acceptable to the Distributor pursuant to procedures set forth in
the Participant Agreement, as described below in the sections of
this SAI entitled “Purchase and Redemption of Creation
Units—Placement of Creation Orders Using the Clearing
Process” and “Purchase and Redemption of Creation
Units—Placement of Creation Orders Outside the Clearing
Process.”
All orders to
create Creation Units from investors who are not Authorized
Participants shall be placed with an Authorized Participant in the
form required by such Authorized Participant. In addition, the
Authorized Participant may request the investor to make certain
representations or enter into agreements with respect to the order,
e.g., to provide for
payments of cash, when required. Investors should be aware that
their particular broker may not have executed a Participant
Agreement and, therefore, orders to create Creation Units of the
Fund have to be placed by the investor’s broker through an
Authorized Participant that has executed a Participant Agreement.
In such cases there may be additional charges to such investor. At
any given time, there may be only a limited number of
broker-dealers that have executed a Participant
Agreement.
Those placing
orders for Creation Units through the Clearing Process should
afford sufficient time to permit proper submission of the order to
the Distributor prior to the Closing Time on the Transmittal Date.
Orders for Creation Units that are effected outside the Clearing
Process are likely to require transmittal by the DTC Participant
earlier on the Transmittal Date than orders effected using the
Clearing Process. Those persons placing orders outside the Clearing
Process should ascertain the deadlines applicable to DTC and the
Federal Reserve Bank wire system by contacting the operations
department of the broker or depository institution effectuating
such transfer of the Fund Deposit. For more information about
Clearing Process and DTC, see the sections of this SAI entitled
“Purchase and Redemption of Creation
Units—Creation—Placement of Creation Orders Using the
Clearing Process” and “Purchase and Redemption of
Creation Units—Creation—Placement of Creation Orders
Outside the Clearing Process.”
Placement
of Creation Orders Using the Clearing Process
The Clearing
Process is the process of creating or redeeming Creation Units
through the Continuous Net Settlement System of the NSCC. Fund
Deposits made through the Clearing Process must be delivered
through a Participating Party that has executed a Participant
Agreement. The Participant Agreement authorizes the Distributor to
transmit through the Custodian to NSCC, on behalf of the
Participating Party, such trade instructions as are necessary to
effect the Participating Party’s creation order. Pursuant to
such trade instructions to NSCC, the Participating Party agrees to
deliver the Fund Deposit to the Trust, together with such
additional information as may be required by the Distributor. An
order to create Creation Units through the Clearing Process is
deemed received by the Distributor on the Transmittal Date if (1)
such order is received by the Distributor not later than the
Closing Time on such Transmittal Date and (2) all other procedures
set forth in the Participant Agreement are properly
followed.
Placement
of Creation Orders Outside the Clearing Process
Fund Deposits made
outside the Clearing Process must be delivered through a DTC
Participant that has executed a Participant Agreement. A DTC
Participant who wishes to place an order creating Creation Units to
be effected outside the Clearing Process does not need to be a
Participating Party, but such orders must state that the DTC
Participant is not using the Clearing Process and that the creation
of Creation Units will instead be effected through a transfer of
securities and cash directly through DTC. The Fund Deposit transfer
must be ordered by the DTC Participant on the Transmittal Date in a
timely fashion so as to ensure the delivery of the requisite number
of Deposit Securities through DTC to the account of the Fund by no
later than 11:00 a.m. New York time on the next Business Day
following the Transmittal Date (the “DTC
Cut-Off-Time”).
All questions as to
the number of Deposit Securities to be delivered, and the validity,
form and eligibility (including time of receipt) for the deposit of
any tendered securities, will be determined by the Trust, whose
determination shall be final and binding. The amount of cash equal
to the Cash Component must be transferred directly to the Custodian
through the Federal Reserve Bank wire transfer system in a timely
manner so as to be received by the Custodian no later than 2:00
p.m. New York time on the next Business Day following the
Transmittal Date. An order to create Creation Units outside the
Clearing Process is deemed received by the Distributor on the
Transmittal Date if (1) such order is received by the Distributor
not later than the Closing Time on such Transmittal Date and (2)
all other procedures set forth in the Participant Agreement are
properly followed. However, if the Custodian does not receive both
the required Deposit Securities and the Cash Component by 11:00
a.m. and 2:00 p.m., respectively, on the next Business Day
following the Transmittal Date, such order will be canceled. Upon
written notice to the Distributor, such canceled order may be
resubmitted the following Business Day using the Fund Deposit as
newly constituted to reflect the then-current Deposit Securities
and Cash Component. The delivery of Creation Units so created will
occur no later than the third Business Day following the day on
which the purchase order is deemed received by the
Distributor.
Additional
transaction fees may be imposed with respect to transactions
effected through a DTC Participant outside the
Clearing Process and in the limited circumstances in which any cash
can be used in lieu of Deposit Securities to create Creation Units.
See the section of this SAI entitled “Purchase and Sale of
Creation Units—Creation—Creation Transaction
Fee.”
Creation Units may
be created in advance of receipt by the Trust of all or a portion
of the applicable Deposit Securities. In these circumstances, the
initial deposit will have a value greater than the NAV of the Fund
Shares on the date the order is placed in proper form since, in
addition to available Deposit Securities, cash must be deposited in
an amount equal to the sum of (1) the Cash Component plus (2) 125%
of the then-current market value of the undelivered Deposit
Securities (the “Additional Cash Deposit”). The order
shall be deemed to be received on the Business Day on which the
order is placed provided that the order is placed in proper form
prior to Closing Time and funds in the appropriate amount are
deposited with the Custodian by 11:00 a.m. New York time the
following Business Day. If the order is not placed in proper form
by Closing Time or funds in the appropriate amount are not received
by 11:00 a.m. the next Business Day, then the order may be deemed
to be canceled and the Authorized Participant shall be liable to
the Fund for losses, if any, resulting therefrom. An additional
amount of cash shall be required to be deposited with the Trust,
pending receipt of the undelivered Deposit Securities to the extent
necessary to maintain the Additional Cash Deposit with the Trust in
an amount at least equal to 125% of the daily marked-to-market
value of the undelivered Deposit Securities. To the extent that
undelivered Deposit Securities are not received by 1:00 p.m. New
York time on the third Business Day following the day on which the
purchase order is deemed received by the Distributor, or in the
event a marked-to-market payment is not made within one Business
Day following notification by the Distributor that such a payment
is required, the Trust may use the cash on deposit to purchase the
undelivered Deposit Securities. Authorized Participants will be
liable to the Trust and the Fund for the costs incurred by the
Trust in connection with any such purchases. These costs will be
deemed to include the amount by which the actual purchase price of
the Deposit Securities exceeds the market value of such Deposit
Securities on the day the purchase order was deemed received by the
Distributor plus the brokerage and related transaction costs
associated with such purchases. The Trust will return any unused
portion of the Additional Cash Deposit once all of the undelivered
Deposit Securities have been properly received by the Custodian or
purchased by the Trust and deposited into the Trust. In addition, a
transaction fee will be charged in all cases. See the section of
this SAI entitled “Purchase and Redemption of Creation
Units—Creation—Creation Transaction Fee.” The
delivery of Creation Units so created will occur no later than the
third Business Day following the day on which the purchase order is
deemed received by the Distributor.
Acceptance
of Orders for Creation Units
The Trust reserves
the absolute right to reject a creation order transmitted to it by
the Distributor if: (1) the order is not in proper form; (2) the
investor(s), upon obtaining the Fund Shares ordered, would own 80%
or more of the currently outstanding Shares of any Fund; (3) the
Deposit Securities delivered are not as disseminated for that date
by the Custodian, as described above; (4) acceptance of the Deposit
Securities would have certain adverse tax consequences to the Fund;
(5) acceptance of the Fund Deposit would, in the opinion of
counsel, be unlawful; (6) acceptance of the Fund Deposit would
otherwise, in the discretion of the Trust or the Advisor, have an
adverse effect on the Trust or the rights of beneficial owners; or
(7) there exist circumstances outside the control of the Trust, the
Custodian, the Distributor and the Advisor that make it for all
practical purposes impossible to process creation orders. Examples
of such circumstances include acts of God; public service or
utility problems such as fires, floods, extreme weather conditions
and power outages resulting in telephone, telecopy and computer
failures; market conditions or activities causing trading halts;
systems failures involving computer or other information systems
affecting the Trust, the Advisor, the Distributor, DTC, NSCC, the
Custodian or sub-custodian or any other participant in the creation
process and similar extraordinary events. The Distributor shall
notify a prospective creator of a Creation Unit and/or the
Authorized Participant acting on behalf of such prospective creator
of its rejection of the order. The Trust, the Custodian, any
sub-custodian and the Distributor are under no duty, however, to
give notification of any defects or irregularities in the delivery
of Fund Deposits nor shall any of them incur any liability for the
failure to give any such notification. All questions as to the
number of shares of each security in the Deposit Securities and the
validity, form, eligibility and acceptance for deposit of any
securities to be delivered shall be determined by the Trust and the
Trust’s determination shall be final and
binding.
Creation Units
typically are issued on a “T+2 basis” (that is two
Business Days after trade date). However, as discussed in Appendix
B, the Fund reserves the right to settle Creation Unit transactions
on a basis other than T+2 in order to accommodate foreign market
holiday schedules, to account for different treatment among foreign
and U.S. markets of dividend record dates and ex-dividend dates
(that is the last day the holder of a security can sell the
security and still receive dividends payable on the security), and
in certain other circumstances.
To the extent
contemplated by an Authorized Participant’s agreement with
the Distributor, the Trust will issue Creation Units to such
Authorized Participant notwithstanding the fact that the
corresponding Portfolio Deposits have not been received in part or
in whole, in reliance on the undertaking of the Authorized
Participant to deliver the missing Deposit Securities as soon as
possible, which undertaking shall be secured by such Authorized
Participant’s delivery and maintenance of collateral having a
value equal to 110%, which the Advisor may change from
time to time, of the value of the missing Deposit Securities in
accordance with the Trust’s then-effective procedures. Such
collateral must be delivered no later than 2:00 p.m., Eastern Time,
on the contractual settlement date. The only collateral that is
acceptable to the Trust is cash in U.S. Dollars or an irrevocable
letter of credit in form, and drawn on a bank, that is satisfactory
to the Trust. The cash collateral posted by the Authorized
Participant may be invested at the risk of the Authorized
Participant, and income, if any, on invested cash collateral will
be paid to that Authorized Participant. Information concerning the
Trust’s current procedures for collateralization of missing
Deposit Securities is available from the Distributor. The
Authorized Participant Agreement will permit the Trust to buy the
missing Deposit Securities at any time and will subject the
Authorized Participant to liability for any shortfall between the
cost to the Trust of purchasing such securities and the cash
collateral or the amount that may be drawn under any letter of
credit.
In certain cases,
Authorized Participants will create and redeem Creation Units on
the same trade date. In these instances, the Trust reserves the
right to settle these transactions on a net basis. All questions as
to the number of shares of each security in the Deposit Securities
and the validity, form, eligibility and acceptance for deposit of
any securities to be delivered shall be determined by the Trust,
and the Trust’s determination shall be final and
binding.
Creation
Transaction Fee
Investors will be
required to pay to the Custodian a fixed transaction fee (the
“Creation Transaction Fee”) to offset the transfer and
other transaction costs associated with the issuance of Creation
Units. The standard creation transaction fee will be the same
regardless of the number of Creation Units purchased by an investor
on the applicable Business Day. The Creation Transaction Fee for
each creation order is set forth below:
Fund
Name
|
Creation
Transaction Fee
|
Procure
Space ETF
|
$500
|
The Creation
Transaction Fee may be waived for the Fund when the Advisor or
Sub-Advisor believes that waiver of the Creation Transaction Fee is
in the best interest of the Fund. When determining whether to waive
the Creation Transaction Fee, the Advisor considers a number of
factors including, but not limited to, whether waiving the Creation
Transaction Fee will: facilitate the initial launch of the Fund;
reduce the cost of portfolio rebalancings; improve the quality of
the secondary trading market for the Fund's shares and not result
in the Fund’s bearing additional costs or expenses as a
result of the waiver.
An additional
variable fee of up to four times the fixed transaction fee
(expressed as a percentage of the value of the Deposit Securities)
may be imposed for (1) creations effected outside the Clearing
Process and (2) cash creations (to offset the Trust’s
brokerage and other transaction costs associated with using cash to
purchase the requisite Deposit Securities). Investors are
responsible for the costs of transferring the securities
constituting the Deposit Securities to the account of the
Trust.
In order to seek to
replicate the in-kind creation order process for creation orders
executed in whole or in part with cash, the Trust expects to
purchase, in the secondary market or otherwise gain exposure to,
the portfolio securities that could have been delivered as a result
of an in-kind creation order pursuant to local law or market
convention, or for other reasons (“Creation Market
Purchases”). In such cases where the Trust makes Creation
Market Purchases, the Authorized Participant will reimburse the
Trust for, among other things, any difference between the market
value at which the securities and/or financial instruments were
purchased by the Trust and the cash-in-lieu amount, applicable
registration fees, brokerage commissions and certain
taxes.
Redemption
The process to
redeem Creation Units is essentially the reverse of the process by
which Creation Units are created, as described above. To redeem
Shares directly from the Fund, an investor must be an Authorized
Participant or must redeem through an Authorized Participant. The
Trust redeems Creation Units on a continuous basis on any Business
Day through the Distributor at the Shares’ NAV next
determined after receipt of an order in proper form. The Fund will
not redeem Shares in amounts less than Creation Units. Authorized
Participants must accumulate enough Shares in the secondary market
to constitute a Creation Unit in order to have such Shares redeemed
by the Trust. There can be no assurance, however, that there will
be sufficient liquidity in the public trading market at any time to
permit assembly of a Creation Unit.
With respect to the
Fund, the Custodian, through the NSCC, makes available prior to the
opening of business on the Exchange (currently 9:30 a.m. New York
time) on each Business Day, the identity of the Fund Securities
that will be applicable (subject to possible amendment or
correction) to redemption requests received in proper form (as
described below) on that day. Fund Securities received on
redemption may not be identical to Deposit Securities that are
applicable to creations of Creation Units. Unless cash redemptions
are available or specified for the Fund, the redemption proceeds
for a Creation Unit generally consist of Fund Securities — as
announced on the Business Day the request for redemption is
received in proper form — plus or minus cash in an amount
equal to the difference between the NAV of the Fund Shares being
redeemed, as next determined after a receipt of a redemption
request in proper form, and the value of the Fund Securities (the
“Cash Redemption Amount”), less a redemption
transaction fee (see the section of this SAI entitled
“Purchase and Redemption of Creation
Units—Redemption—Redemption Transaction
Fee”).
The right of
redemption may be suspended or the date of payment postponed (1)
for any period during which the Exchange is closed (other than
customary weekend and holiday closings); (2) for any period during
which trading on the Exchange is suspended or restricted; (3) for
any period during which an emergency exists as a result of which
disposal of the Shares of the Fund or determination of the
Fund’s NAV is not reasonably practicable; or (4) in such
other circumstances as is permitted by the SEC.
Deliveries of
redemption proceeds by the Fund generally will be made within two
Business Days (that is “T+2”). However, as discussed in
Appendix B, the Fund reserves the right to settle redemption
transactions and deliver redemption proceeds on a basis other than
T+2 to accommodate foreign market holiday schedules, to account for
different treatment among foreign and U.S. markets of dividend
record dates and dividend ex-dates (that is the last date the
holder of a security can sell the security and still receive
dividends payable on the security sold), and in certain other
circumstances. For each country relating to the Fund, Appendix B
hereto identifies the instances where more than seven days would be
needed to deliver redemption proceeds. Pursuant to an order of the
SEC, in respect of the Fund, the Trust will make delivery of
in-kind redemption proceeds within the number of days stated in
Appendix B to be the maximum number of days necessary to deliver
redemption proceeds.
In the event that
cash redemptions are permitted or required by the Trust, proceeds
will be paid to the Authorized Participant redeeming shares on
behalf of the redeeming investor as soon as practicable after the
date of redemption (within seven calendar days thereafter, except
for the instances listed in Appendix B hereto where more than seven
calendar days would be needed).
Placement
of Redemption Orders Using the Clearing Process
Orders to redeem
Creation Units through the Clearing Process must be delivered
through an Authorized Participant that has executed a Participant
Agreement. Investors other than Authorized Participants are
responsible for making arrangements with an Authorized Participant
for an order to redeem. An order to redeem Creation Units is deemed
received by the Trust on the Transmittal Date if: (1) such order is
received by the Distributor not later than Closing Time on such
Transmittal Date; and (2) all other procedures set forth in the
Participant Agreement are properly followed. Such order will be
effected based on the NAV of the Fund as next determined. An order
to redeem Creation Units using the Clearing Process made in proper
form but received by the Distributor after Closing Time will be
deemed received on the next Business Day immediately following the
Transmittal Date and will be effected at the NAV determined on such
next Business Day. The requisite Fund Securities and the Cash
Redemption Amount will be transferred by the third NSCC business
day following the date on which such request for redemption is
deemed received.
Placement
of Redemption Orders Outside the Clearing Process
Orders to redeem
Creation Units outside the Clearing Process must be delivered
through a DTC Participant that has executed the Participant
Agreement. A DTC Participant who wishes to place an order for
redemption of Creation Units to be effected outside the Clearing
Process does not need to be a Participating Party, but such orders
must state that the DTC Participant is not using the Clearing
Process and that redemption of Creation Units will instead be
effected through transfer of Fund Shares directly through DTC. An
order to redeem Creation Units outside the Clearing Process is
deemed received by the Distributor on the Transmittal Date if (1)
such order is received by the Distributor not later than Closing
Time on such Transmittal Date; (2) such order is accompanied or
followed by the requisite number of Fund Shares, which delivery
must be made through DTC to the Custodian no later than the DTC
Cut-Off-Time, and the Cash Redemption Amount, if owed to the Fund,
which delivery must be made by 2:00 p.m. New York Time; and (3) all
other procedures set forth in the Participant Agreement are
properly followed. After the Distributor receives an order for
redemption outside the Clearing Process, the Distributor will
initiate procedures to transfer the requisite Fund Securities which
are expected to be delivered and the Cash Redemption Amount, if
any, by the third Business Day following the Transmittal
Date.
The calculation of
the value of the Fund Securities and the Cash Redemption Amount to
be delivered or received upon redemption (by the Authorized
Participant or the Trust, as applicable) will be made by the
Custodian according to the procedures set forth the section of this
SAI entitled “Determination
of Net Asset Value” computed on the Business Day on
which a redemption order is deemed received by the Distributor.
Therefore, if a redemption order in proper form is submitted to the
Distributor by a DTC Participant not later than Closing Time on the
Transmittal Date, and the requisite number of Shares of the Fund
are delivered to the Custodian prior to the DTC Cut-Off-Time, then
the value of the Fund Securities and the Cash Redemption Amount to
be delivered or received (by the Authorized Participant or the
Trust, as applicable) will be determined by the Custodian on such
Transmittal Date. If, however, either (1) the requisite number of
Shares of the Fund are not delivered by the DTC Cut-Off-Time, as
described above, or (2) the redemption order is not submitted in
proper form, then the redemption order will not be deemed received
as of the Transmittal Date. In such case, the value of the Fund
Securities and the Cash Redemption Amount to be delivered or
received will be computed on the Business Day following the
Transmittal Date provided that the Fund Shares of the Fund are
delivered through DTC to the Custodian by 11:00 a.m. New York time
the following Business Day pursuant to a properly submitted
redemption order.
If it is not
possible to effect deliveries of the Fund Securities, the Trust may
in its discretion exercise its option to redeem Fund Shares in
cash, and the redeeming Authorized Participant will be required to
receive its redemption proceeds in cash. In addition, an investor
may request a redemption in cash that the Trust may, in its sole
discretion, permit. In either case, the investor will receive a
cash payment equal to the NAV of its Fund Shares based on the NAV
of Shares of the Fund next determined after the redemption request
is received in proper form (minus a transaction fee which will
include an additional charge for cash redemptions to offset the
Fund’s brokerage and other transaction costs associated with
the disposition of Fund Securities). The Fund may also, in its sole
discretion, upon request of a shareholder, provide such redeemer a
portfolio of securities that differs from the exact composition of
the Fund Securities, or cash in lieu of some securities added to
the Cash Redemption Amount, but in no event will the total value of
the securities delivered and the cash transmitted differ from the
NAV. Redemptions of Fund Shares for Fund Securities will be subject
to compliance with applicable federal and state securities laws and
the Fund (whether or not it otherwise permits cash redemptions)
reserves the right to redeem Creation Units for cash to the extent
that the Trust could not lawfully deliver specific Fund Securities
upon redemptions or could not do so without first registering the
Fund Securities under such laws. An Authorized Participant or an
investor for which it is acting that is subject to a legal
restriction with respect to a particular security included in the
Fund Securities applicable to the redemption of a Creation Unit may
be paid an equivalent amount of cash. The Authorized Participant
may request the redeeming Beneficial Owner of the Fund Shares to
complete an order form or to enter into agreements with respect to
such matters as compensating cash payment, beneficial ownership of
shares or delivery instructions.
Redemption
Transaction Fee
Investors will be
required to pay to the Custodian a fixed transaction fee (the
“Redemption Transaction Fee”) to offset the transfer
and other transaction costs associated with the redemption of
Creation Units. The standard redemption transaction fee will be the
same regardless of the number of Creation Units redeemed by an
investor on the applicable Business Day. The Redemption Transaction
Fee for each redemption order is set forth below:
Fund
Name
|
Redemption
Transaction Fee
|
Procure
Space ETF
|
$500
|
The Redemption
Transaction Fee may be waived for the Fund when the Advisor or
Sub-Advisor believes that waiver of the Redemption Transaction Fee
is in the best interest of the Fund. When determining whether to
waive the Redemption Transaction Fee, the Advisor considers a
number of factors including, but not limited to, whether waiving
the Redemption Transaction Fee will: reduce the cost of portfolio
rebalancings; improve the quality of the secondary trading market
for the Fund's shares and not result in the Fund’s bearing
additional costs or expenses as a result of the
waiver.
An additional
variable fee of up to four times the fixed transaction fee
(expressed as a percentage value of the Fund Securities) may be
imposed for (1) redemptions effected outside the Clearing Process
and (2) cash redemptions (to offset the Trust’s brokerage and
other transaction costs associate with the sale of Fund
Securities). Investors will also bear the costs of transferring the
Fund Securities from the Trust to their account or on their
order.
In order to seek to
replicate the in-kind redemption order process for creation orders
executed in whole or in part with cash, the Trust expects to sell,
in the secondary market, the portfolio securities or settle any
financial instruments that may not be permitted to be re-registered
in the name of the Participating Party as a result of an in-kind
redemption order pursuant to local law or market convention, or for
other reasons (“Market Sales”). In such cases where the
Trust makes Market Sales, the Authorized Participant will reimburse
the Trust for, among other things, any difference between the
market value at which the securities and/or financial instruments
were sold or settled by the Trust and the cash-in-lieu amount,
applicable registration fees, brokerage commissions and certain
taxes.
Cash
Creations and Redemptions
The Trust reserves
the right to offer a “cash” option for creations and
redemptions of Shares, although it has no current intention of
doing so for the Fund. In each instance of such cash creations and
redemptions, transaction fees may be imposed that will be higher
than the transaction fees associated with in-kind creations and
redemptions. In all cases, such fees will be limited in accordance
with the requirements of the SEC applicable to management
investment companies offering redeemable securities.
CONTINUOUS OFFERING
The
method by which Creation Units are created and traded may raise
certain issues under applicable securities laws. Because new
Creation Units are issued and sold by the Trust 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 constituent
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 a
categorization as an underwriter.
Broker-dealers
who are not “underwriters” but are participating in a
distribution (as contrasted to ordinary secondary trading
transactions), and thus dealing with Shares that are part of an
“unsold allotment” within the meaning of Section
4(3)(C) of the Securities Act, would be unable to take advantage of
the prospectus-delivery exemption provided by Section 4(3) of the
Securities Act. This is because the prospectus delivery exemption
in Section 4(3) of the Securities Act is not available in respect
of 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 the Shares that are part of an over-allotment within
the meaning of Section 4(3)(A) of the Securities Act would be
unable to take advantage of the prospectus delivery exemption
provided by Section 4(3) of the Securities Act. Firms that incur a
prospectus delivery obligation with respect to Shares 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 the 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.
DIVIDENDS AND DISTRIBUTIONS
General Policies
The
following information supplements and should be read in conjunction
with the section in the Prospectus entitled “Dividends,
Distributions and Taxes.”
Dividends
from net investment income are declared and paid at least annually
by the Fund. Distributions of net realized capital gains, if any,
generally are declared and paid once a year, but the Trust may make
distributions on a more frequent basis for the Fund to improve its
Underlying Index tracking or to comply with the distribution
requirements of the Code, in all events in a manner consistent with
the provisions of the 1940 Act. In addition, the Trust may
distribute at least annually amounts representing the full dividend
yield on the underlying Portfolio Securities of the Fund, net of
expenses of the Fund, as if the Fund owned such underlying
Portfolio Securities for the entire dividend period in which case
some portion of each distribution may result in a return of capital
for tax purposes for certain shareholders.
Dividends
and other distributions on Shares are distributed, as described
below, on a pro rata basis to Beneficial Owners of such Shares.
Dividend payments are made through DTC Participants and Indirect
Participants to Beneficial Owners then of record with proceeds
received from the Trust. The Trust may make additional
distributions to the extent necessary (i) to distribute the entire
annual “investment company taxable income” of the
Trust, plus any net capital gains and (ii) to avoid imposition of
the excise tax imposed by Section 4982 of the Code. Management of
the Trust reserves the right to declare special dividends if, in
its reasonable discretion, such action is necessary or advisable to
preserve the status of the Fund as a “regulated investment
company” (a “RIC”) or to avoid imposition of
income or excise taxes on undistributed income.
Dividend Reinvestment Service
No
reinvestment service is provided by the Trust. Broker-dealers may
make available the DTC book-entry Dividend Reinvestment Service for
use by Beneficial Owners of the Fund through DTC Participants for
reinvestment of their dividend distributions. If this service is
used, dividend distributions of both income and realized gains will
be automatically reinvested in additional whole Shares of the Fund.
Beneficial Owners should contact their broker to determine the
availability and costs of the service and the details of
participation therein. Brokers may require Beneficial Owners to
adhere to specific procedures and timetables.
U.S. FEDERAL INCOME TAXATION
Set
forth below is a discussion of certain U.S. federal income tax
considerations affecting the Fund and the purchase, ownership and
disposition of Shares. It is based upon the U.S. Internal Revenue
Code of 1986, as amended (the “Code”), U.S. Treasury
Department regulations promulgated thereunder, judicial
authorities, and administrative rulings and practices, all as in
effect as of the date of
this SAI and all of which are subject to change, possibly with
retroactive effect. The following information supplements and
should be read in conjunction with the section in the
Prospectus entitled “Dividends, Distributions and
Taxes.”
Except
to the extent discussed below, this summary assumes that a
Fund’s 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, and does not address the tax consequences to
Fund shareholders subject to special tax rules, including, but not
limited to, partnerships and the partners therein, tax-exempt
shareholders, 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 a 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
advisers 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 (“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 or 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.
Tax
Treatment of the Fund
In General. The Fund intends to qualify and elect to be
treated as a RIC under the Code. As a RIC, a 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.
To
qualify and remain eligible for the special tax treatment accorded
to RICs, the Fund must meet certain income, asset and distribution
requirements, described in more detail below. Specifically, the
Fund must (i) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of
stock, securities or foreign currencies, other income (including,
but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in
such stock, securities or currencies and net income derived from
interests in qualified publicly traded partnerships
(“QPTPs”) (i.e., partnerships that are traded on
an established securities market or readily tradable on a secondary
market, other than partnerships that derive at least 90% of their
income from interest, dividends, and other qualifying RIC income
described above), and (ii) diversify its holdings so that, at the
end of each quarter of the Fund’s taxable year, (a) at least
50% of the value of the Fund’s assets is represented by cash,
securities of other RICs, U.S. government securities and other
securities, with such other securities limited, in respect of any
one issuer, to an amount not greater in value than 5% of the
Fund’s total assets and not greater than 10% of the
outstanding voting securities of such issuer, and (b) not more than
25% of the value of its assets is invested in the securities (other
than U.S. government securities or securities of other RICs) of any
one issuer, any two or more issuers of which 20% or more of the
voting stock of each such issuer is held by the Fund and that are
determined to be engaged in the same or similar trades or
businesses or related trades or businesses or in the securities of
one or more QPTPs. Furthermore, the Fund must distribute annually
at least 90% of the sum of (i) its “investment company
taxable income” (which includes dividends, interest and net
short-term capital gains) and (ii) certain net tax-exempt income,
if any.
Failure to Maintain RIC Status. If a 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 a Fund’s shareholders generally as ordinary
dividends to the extent of the Fund’s current and accumulated
earnings and profits, possibly eligible for (i) in the case of an
individual Fund shareholder, treatment as a qualified dividend (as
discussed below) subject to tax at preferential long-term capital
gains rates or (ii) in the case of a corporate Fund shareholder, a
dividends-received deduction. The remainder of this discussion
assumes that the Fund will qualify for the special tax treatment
accorded to RICs.
Excise Tax. A Fund will be subject to a 4% excise tax on
certain undistributed income generally 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, a 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 such
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.
Phantom Income. With respect to some or all of its
investments, a Fund may be required to recognize taxable income in
advance of receiving the related cash payment. For example, under
the “wash sale” rules, a Fund may not be able to deduct
currently a loss on a disposition of a portfolio security. As a
result, a 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 the Fund’s shareholders may receive a larger
capital gain distribution than they would in the absence of such
transactions. (See also — “Certain Debt
Instruments” below.)
Certain Debt Instruments. Some of the debt securities (with
a fixed maturity date of more than one year from the date of
issuance) that may be acquired by a Fund (such as zero-coupon debt
instruments or debt instruments with payment in-kind interest) may
be treated as debt securities that are issued originally at a
discount. Generally, the amount of original issue discount is
treated as interest income and is included in income over the term
of the debt security, even though payment of that amount is not
received until a later time, usually when the debt security
matures. If a Fund acquires debt securities (with a fixed maturity
date of more than one year from the date of issuance) in the
secondary market, such debt securities may be treated as having
market discount. Generally, any gain recognized on the disposition
of, and any partial payment of principal on, a debt security having
market discount is treated as ordinary income to the extent the
gain, or principal payment, does not exceed the “accrued
market discount” on such debt security. Market discount
generally accrues in equal daily installments. A Fund may make one
or more of the elections applicable to debt securities having
market discount, which could affect the character and timing of
recognition of income.
PFIC Investments. A Fund may purchase shares in a non-U.S.
corporation treated as a “passive foreign investment
company” (“PFIC”) for U.S. federal income tax
purposes. As a result, the Fund may be subject to increased U.S.
federal income tax (plus charges in the nature of interest on
previously-deferred income taxes on the PFIC’s income) on any
“excess distributions” made on, or gain from a sale (or
other disposition) of, the PFIC shares even if the Fund distributes
such income to its shareholders.
In lieu
of the increased income tax and deferred tax interest charges on
excess distributions on, and dispositions of, a PFIC’s
shares, the Fund can elect to treat the underlying PFIC as a
“qualified electing fund,” provided that the PFIC
agrees to provide the Fund with certain information on an annual
basis. With a “qualified electing fund” election in
place, the Fund must include in its income each year its share
(whether distributed or not) of the ordinary earnings and net
capital gain of the PFIC.
In the
alternative, a Fund can elect, under certain conditions, to
mark-to-market at the end of each taxable year its PFIC shares. The
Fund would recognize as ordinary income any increase in the value
of the PFIC shares and as an ordinary loss (up to any prior net
income resulting from the mark-to-market election) any decrease in
the value of the PFIC shares.
With a
“mark-to-market” or “qualified election
fund” election in place on a PFIC, a Fund might be required
to recognize in a year income in excess of the sum of the actual
distributions received by it on the PFIC shares and the proceeds
from its dispositions of the PFIC’s shares. Any such income
generally would be subject to the RIC distribution requirements and
would be taken into account for purposes of the 4% excise tax
(described above).
Section 1256 Contracts. A Fund’s investments in
so-called “Section 1256 contracts,” such as certain
futures contracts, most non-U.S. currency forward contracts traded
in the interbank market and options on most stock indices, are
subject to special tax rules. Section 1256 contracts held by a Fund
at the end of its taxable year are required to be marked to their
market value, and any unrealized gain or loss on those positions
will be included in a Fund’s income as if each position had
been sold for its fair market value at the end of the taxable year.
The resulting gain or loss will be combined with any gain or loss
realized by a Fund from positions in Section 1256 contracts closed
during the taxable year. Provided such positions were held as
capital assets and were not part of a “hedging
transaction” or a “straddle,” 60% of the
resulting net gain or loss will be treated as long-term gain or
loss, and 40% of such net gain or loss will be treated as
short-term capital gain or loss, regardless of the period of time
the positions were actually held by a Fund. In addition, a Fund may
be required to defer the recognition of losses on certain Section
1256 contracts to the extent of any unrecognized gains on related
positions held by the Fund. Income from Section 1256 contracts
generally would be subject to the RIC distribution requirements and
would be taken into account for purposes of the 4% excise tax
(described above).
Swaps. As a result of entering into swap contracts, a Fund
may make or receive periodic net payments. A Fund also may make or
receive a payment when a swap is terminated prior to maturity
through an assignment of the swap or other closing transaction.
Periodic net payments generally will constitute ordinary income or
deductions, while termination of a swap generally will result in
capital gain or loss (which will be a long-term capital gain or
loss if a Fund has been a party to the swap for more than one
year). With respect to certain types of swaps, a Fund may be
required to currently recognize income or loss with respect to
future payments on such swaps or may elect under certain
circumstances to mark such swaps to market annually for tax
purposes as ordinary income or loss. The tax treatment of many
types of credit default swaps is uncertain.
Short Sales. In general, gain or loss on a short sale is
recognized when a Fund closes the sale by delivering the borrowed
property to the lender, not when the borrowed property is sold. If,
however, a Fund already owns property that is identical to the kind
it borrows and sells pursuant to a short sale “against the
box,” and such pre-existing ownership position has
appreciated (i.e., the fair
market value exceeds the Fund’s tax basis), the Fund may be
required to recognize such gain at the time the borrowed stock is
sold. Any gain or loss realized upon closing out a short sale
generally is considered as capital gain or loss to the extent that
the property used to close the short sale constitutes a capital
asset in the Fund’s hands. Except with respect to certain
situations where the property used by a Fund to close a short sale
has a long-term holding period on the date of the short sale,
special rules generally would treat the gains on short sales as
short-term capital gains. These rules also may terminate the
running of the holding period of “substantially identical
property” held by a Fund. Moreover, a loss on a short sale
will be treated as long-term capital loss if, on the date of the
short sale, “substantially identical property” has been
held by a Fund for more than one year. In general, a Fund will not
be permitted to deduct payments made to reimburse the lender of
securities for dividends paid on borrowed stock if the short sale
is closed on or before the 45th day after the short sale is entered
into.
Foreign Currency Transactions. Gains or losses attributable
to fluctuations in exchange rates between the time a Fund accrues
income, expenses or other items denominated in a foreign currency
and the time the Fund actually collects or pays such items are
generally treated as ordinary income or loss. Similarly, gains or
losses on foreign currency forward contracts, certain foreign
currency options and futures contracts and the disposition of debt
securities denominated in a foreign currency, to the extent
attributable to fluctuations in exchange rates between the
acquisition and disposition dates, generally are also treated as
ordinary income or loss, unless a Fund were to elect otherwise
where such an election is permitted.
Non-U.S. Investments. Dividends, interest and proceeds from
the direct or indirect sale of non-U.S. securities may be subject
to non-U.S. withholding tax and other taxes, including financial
transaction taxes. Even if a Fund is entitled to seek a refund in
respect of such taxes, it may not have sufficient information to do
so or may choose not to do so. Tax treaties between certain
countries and the U.S. may reduce or eliminate such
taxes in some cases. Non-U.S. taxes paid by a Fund will reduce the
return from the Fund’s investments.
Special or Uncertain Tax Consequences. A Fund’s
investment or other activities could be subject to special and
complex tax rules that may produce differing tax consequences, such
as disallowing or limiting the use of losses or deductions, causing
the recognition of income or gain without a corresponding receipt
of cash, affecting the time as to when a purchase or sale of stock
or securities is deemed to occur or altering the characterization
of certain complex financial transactions.
A Fund
may engage in investment or other activities the treatment of which
may not be clear or may be subject to recharacterization by the
IRS. In particular, the tax treatment of certain swaps and other
derivatives and income from foreign currency transactions is
unclear for purposes of determining a Fund’s status as a RIC.
If a final determination on the tax treatment of a Fund’s
investment or other activities differs from the Fund’s
original expectations, the final determination could adversely
affect the Fund’s status as a RIC or the timing or character
of income recognized by the Fund, requiring the Fund to purchase or
sell assets, alter its portfolio or take other action in order to
comply with the final determination.
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 Shares
applicable to “U.S. shareholders.” For purposes of this
discussion, a “U.S. shareholder” is a beneficial owner
of Shares who, for U.S. federal income tax purposes, is (i) an
individual who is a citizen or resident of the U.S.;
(ii) a corporation (or an entity treated as a corporation for U.S.
federal income tax purposes) created or organized in the
U.S. or under the laws of the U.S., 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
(a) 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 (b)
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, provided
such dividend is actually paid during January of the following
calendar year.
Distributions
of a Fund’s net investment income and a Fund’s 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). Corporate
shareholders of a Fund may be eligible to take a dividends-received
deduction with respect to some of such distributions,
provided the distributions are attributable to dividends received
by the Fund on stock of U.S. corporations with respect to which the
Fund meets certain holding period and other requirements. To the
extent designated as “capital gain dividends” by a
Fund, distributions of a 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 a Fund shareholder’s holding period in
the Fund’s Shares. Such dividends will not be eligible for a
dividends-received deduction by corporate
shareholders.
A
Fund’s net capital gain is computed by taking into account
the Fund’s capital loss carryforwards, if any. Under the
Regulated Investment Company Modernization Act of 2010, capital
losses incurred in tax years beginning after December 22, 2010 can
be carried forward indefinitely and retain the character of the
original loss. To the extent that these carryforwards are available
to offset future capital gains, it is probable that the amount
offset will not be distributed to shareholders. In the event that a
Fund were to experience an ownership change as defined under the
Code, the Fund’s loss carryforwards, if any, may be subject
to limitation.
For the fiscal period
ended October 31, 2019, the Fund had accumulated short-term
carryforwards in the amount of $364,481. This amount does not
expire.
Distributions
of “qualified dividend income” (defined below) are
taxed to certain non-corporate shareholders at the reduced rates
applicable to long-term capital gain to the extent of the
Fund’s current and accumulated earnings and profits, 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 the dividend-paying stocks. Dividends
subject to these special rules, however, are not actually treated
as capital gains and, thus, are not included in the computation of
a non-corporate shareholder’s net capital gain and generally
cannot be used to offset capital losses. The portion of
distributions that a Fund may report as qualified dividend income
generally is limited to the amount of qualified dividend income
received by the Fund, but if for any Fund taxable year 95% or more
of the Fund’s gross income (exclusive of net capital gain
from sales of stock and securities) consists of qualified dividend
income, all distributions of such income for that taxable year may
be reported as qualified dividend income. For this purpose,
“qualified dividend income” generally means income from
dividends received by a Fund from U.S. corporations and qualified
non-U.S. corporations. Income from dividends received by a Fund
from a REIT or another RIC generally is qualified dividend income
only to the extent that the dividend distributions are made out of
qualified dividend income received by such REIT or other
RIC.
To the
extent that a Fund makes a distribution of income received by such
Fund in lieu of dividends with respect to securities on loan
pursuant to a securities lending transaction, such income will not
constitute qualified dividend income to individual shareholders and
will not be eligible for the dividends-received deduction for
corporate shareholders.
Distributions
in excess of a 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 as a capital gain thereafter
(assuming the shareholder holds its Shares of the Fund as capital
assets). Any
such distributions 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.
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, a 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. Organizations or
persons not subject to U.S. federal income tax on such net capital
gain will be entitled to a refund, if any, of their
pro rata share of such taxes paid by the Fund only
upon filing appropriate returns or claims for refund with the
IRS.
With
respect to non-corporate Fund shareholders (i.e., individuals, trusts and estates),
ordinary income and short-term capital gain are taxed at a current
maximum rate of 37% and long-term capital gain is
generally taxed at a current maximum rate of 20%.
Corporate shareholders are taxed at a current maximum rate of 21%
on their income and gain.
In
addition, individuals with adjusted gross incomes above
certain threshold amounts (and certain trusts and estates)
generally will be 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 a Fund and net gains from the redemption or other disposition
of Shares. Please consult your tax advisor regarding this
tax.
If a
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 value 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).
Exempt-Interest Dividends. If at the end of each quarter of
a Fund’s taxable year, (i) the Fund is a qualified fund of
funds (as defined above), or (ii) 50% or more of the Fund’s
assets, by value, consist of certain obligations exempt from U.S.
federal income tax under Section 103(a) of the Code (relating
generally to obligations of a state or local governmental unit),
the Fund shall be qualified to designate a portion of its dividends
as “exempt-interest dividends.” Exempt-interest
dividends generally will be excludable from a shareholder’s
gross income for U.S. federal income tax purposes. Exempt-interest
dividends will be included, however, in determining the portion, if any, of a person’s
social security and railroad retirement benefit payments subject to
U.S. federal income tax. Interest on indebtedness incurred to
purchase or carry shares of a Fund that pays exempt-interest
dividends will not be deductible by the shareholders for U.S.
federal income tax purposes to the extent attributable to
exempt-interest dividends.
If
a Fund invests in “private activity bonds,” a portion
of the exempt-interest dividends paid by such Fund may be treated
as an item of “tax preference” and, therefore, could
be subject to the U.S. federal alternative minimum
tax.
REIT/REMIC Investments. A Fund may invest in REITs owning
residual interests in REMICs. Certain income from a REIT that is
attributable to a REMIC residual interest (known as “excess
inclusion” income) is allocated to a Fund’s
shareholders in proportion to the dividends received from the Fund,
producing the same income tax consequences as if the Fund
shareholders directly received the excess inclusion income.
In general, the taxable income of any holder of a residual
interest cannot be less than the excess interest inclusion. For
example, excess inclusion income (i) cannot be offset
by net operating losses (subject to a limited exception for certain
thrift institutions), (ii) constitutes “unrelated business
taxable income” to certain entities (such as a qualified
pension plan, an individual retirement account, a 401(k) plan, a
Keogh plan or other tax-exempt entity), and (iii) in the case of a
non-U.S. shareholder, does not qualify for any withholding tax
reduction or exemption. In addition, if at any time during any
taxable year certain types of entities own Shares, the Fund will be
subject to a tax equal to the product of (i) the excess inclusion
income allocable to such entities and (ii) the highest U.S. federal
income tax rate imposed on corporations (currently
21%). A Fund also is subject to information reporting
with respect to any excess inclusion income.
Sales or Exchanges of Shares. Any capital gain or loss
realized upon a sale or exchange of Shares generally 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
such Shares. All or a portion of any loss realized upon a sale or
exchange of Shares will be disallowed if substantially identical
stock or securities are purchased (through
reinvestment of dividends or otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date
of disposition of the Shares. In such a case, the basis of
the newly purchased shares will be adjusted to reflect the
disallowed loss.
Legislation
passed by Congress requires reporting to the IRS and to taxpayers
of adjusted cost basis information for “covered
securities,” which generally include shares of a RIC acquired
on or after January 1, 2012. Shareholders should contact their
brokers to obtain information with respect to the available cost
basis reporting methods and available elections for their
accounts.
Creation Unit Issues and Redemptions. On an issue of Shares
as part of a Creation Unit, made by means of an in-kind deposit, 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 by a payment of Fund
Securities, 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 an issue 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 Fund
Shares.
Reportable Transactions. If a Fund shareholder recognizes a
loss with respect to Shares of $2 million or more (for an
individual Fund shareholder) or $10 million or more (for a
corporate shareholder) in any single taxable year (or a greater
loss over a combination of years), the Fund shareholder may be
required file a disclosure statement with the IRS. Significant
penalties may be imposed upon the failure to comply with these
reporting rules. Shareholders should consult their tax advisors to
determine the applicability of these rules in light of their
individual circumstances.
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 24%
rate from taxable distributions and redemption or sale proceeds
payable to the Fund shareholder if (i) the Fund shareholder fails
to provide the Fund with a correct taxpayer identification number
or make required certifications, or if the IRS notifies the Fund
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.
Dividends. With respect to non-U.S. shareholders of a 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). However,
ordinary income dividends that are “interest-related
dividends” or “short-term capital gain dividends”
(each as defined below) and capital gain dividends generally will
not be subject to U.S. federal withholding (or income) 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 a Fund as attributable to such Fund’s
U.S.-source interest income, other than certain contingent interest
and interest from obligations of a corporation or partnership in
which such 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 a Fund as
attributable to the excess of such Fund’s net short-term
capital gain over its net long-term capital loss. Depending on its
circumstances, a Fund may treat such dividends, in whole or in
part, as ineligible for these exemptions from
withholding.
Notwithstanding
the foregoing, special rules apply in certain cases, including as
described below. For example, in cases where dividend income from a
non-U.S. shareholder’s investment in a Fund is effectively
connected with a trade or business of the non-U.S. shareholder
conducted in the U.S., the non-U.S. shareholder
generally will be exempt from the withholding tax
discussed above, but will be subject to U.S. federal
income tax at the graduated rates applicable to U.S. shareholders.
Such income generally must be reported on a U.S. federal income tax
return. Furthermore, such income also may be subject to the 30%
branch profits tax in the case of a non-U.S. shareholder that is a
corporation. In addition, if a non-U.S. shareholder is an
individual who is present in the U.S. for 183 days or
more during the taxable year any gain incurred by such shareholder
with respect to his or her capital gain dividends and short-term
capital gain dividends would be subject to a 30% U.S. federal
income tax (which, in the case of short-term capital gain
dividends, may, in certain instances, be withheld at source by a
Fund). Lastly, special rules apply with respect to dividends that
are subject to the Foreign Investment in Real Property Act
(“FIRPTA”), discussed below (see—
“Investments in U.S. Real Property”).
Sales or Exchanges of Fund Shares. Under current law, gain on a sale
or exchange of Shares generally will be exempt from U.S. federal
income tax (including withholding at the source) unless (i) the
non-U.S. shareholder is an individual who was physically present in
the U.S. for 183 days or more during the taxable year,
in which case the non-U.S. shareholder would incur a 30% U.S.
federal income tax on his capital gain, (ii) the gain is
effectively connected with a U.S. trade or business conducted by
the non-U.S. shareholder (in which case the non-U.S. shareholder
generally would be taxable on such gain at the same graduated rates
applicable to U.S. shareholders, would be required to file a U.S.
federal income tax return and, in the case of a corporate non-U.S.
shareholder, may also be subject to the 30% branch profits tax), or
(iii) the gain is subject to FIRPTA, as discussed below
(see—“Investments in U.S. Real
Property”).
Credits or Refunds. To claim a credit or refund for any
Fund-level taxes on any undistributed long-term capital gains (as
discussed above) or any taxes collected through withholding, a
non-U.S. Fund shareholder must obtain a U.S. taxpayer
identification number and file a U.S. federal income tax return
even if the non-U.S. Fund shareholder would not otherwise be
required to do so.
Investments in U.S. Real Property. Subject to the exemptions
described below, a non-U.S. shareholder generally will be subject
to U.S. federal income tax under FIRPTA on any gain from the sale
or exchange of Shares if the Fund is a “U.S. real property
holding corporation” (as defined below) at any time during
the shorter of the period during which the non-U.S. shareholder
held such Shares and the five-year period ending on the date of the
disposition of those Shares. Any such gain will be taxed in the
same manner as income that is effectively connected
with a trade or business of the non-U.S.
shareholder conducted in the U.S. and in certain cases
will be collected through withholding at the source in an amount
equal to 15% of the sales proceeds. A Fund will be a “U.S.
real property holding corporation” if the fair market value
of its “U.S. real property interests”
(“USRPIs”) (which includes shares of U.S. real property
holding corporations and certain participating debt securities)
equals or exceeds 50% of the fair market value of such interests
plus its interests in real property located outside the
U.S. plus any other assets used or held for use in a
business.
An
exemption from FIRPTA applies if either (i) the class of Shares
disposed of by the non-U.S. shareholder is regularly traded on an
established securities market (as determined for U.S. federal
income tax purposes) and the non-U.S. shareholder did not actually
or constructively hold more than 5% of such class of Shares at any
time during the five-year period prior to the disposition, or (ii)
the Fund is a “domestically-controlled RIC.” A
“domestically-controlled RIC” is any RIC in which at
all times during the relevant testing period 50% or more in value
of the RIC’s stock is owned by U.S. persons.
Furthermore,
special rules apply under FIRPTA in respect of distributions
attributable to gains from USRPIs. In general, if a Fund is a U.S.
real property holding corporation (taking certain special rules
into account), distributions by such Fund attributable to gains
from USRPIs will be treated as income effectively connected with a
trade or business within the United States, subject generally to
tax at the same graduated rates applicable to U.S. shareholders
and, in the case of a corporation that is a non-U.S. shareholder, a
“branch profits” tax at a rate of 30% (or other
applicable lower treaty rate). Such distributions will be subject
to U.S. federal withholding tax and generally will give rise to an
obligation on the part of the non-U.S. shareholder to file a U.S.
federal income tax return.
Even if
a Fund is treated as a U.S. real property holding corporation,
distributions on the Fund’s Shares will not be treated, under
the rule described above, as income effectively connected with a
U.S. trade or business in the case of a non-U.S. shareholder that
owns (for the applicable period) 5% or less (by class) of Shares
and such class is regularly traded on an established securities
market for U.S. federal income tax purposes (but such distribution
will be treated as ordinary dividends, which may be
subject to a U.S. tax and withholding. Non-U.S.
shareholders that engage in certain “wash sale” and/or
substitute dividend payment transactions the effect of which is to
avoid the receipt of distributions from the Fund that would be
treated as gain effectively connected with a U.S. trade or business
will be treated as having received such distributions.
All
shareholders of the Fund should consult their tax advisers
regarding the application of the rules described
above.
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 to the withholding
agent about certain of its direct and indirect “substantial
U.S. owners” 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 several 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, (i)
U.S.-source interest and dividends, and (ii) gross proceeds from
the sale or disposition of property of a type that can produce
U.S.-source interest or dividends. However, proposed regulation may
eliminate the requirement to withhold on payments of gross proceeds
from dispositions.
The
Fund or a 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 with the
information, certifications or documentation required under FATCA,
including information, certification or documentation necessary for
the Fund 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 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.
Section 351
The
Trust, on behalf of the Fund, has the right to reject an order for
a purchase of Shares of the Fund if the purchaser (or any group of
purchasers) would, upon obtaining the shares so ordered, own 80% or
more of the outstanding Shares of a given Fund and if, pursuant to
Section 351 of the Code, that Fund would have a basis in the
Deposit Securities different from the market value of such
securities on the date of deposit. The Trust also has the right to
require information necessary to determine beneficial share
ownership for purposes of the 80% determination.
OTHER INFORMATION
The
Fund is not sponsored, endorsed, sold or promoted by the Exchange.
The Exchange 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 its
objective. The Exchange 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.
Shareholder inquiries may be made by writing to
the Trust, c/o ProcureAM, LLC, at 16 Firebush Road, Levittown, PA
19056.
FINANCIAL STATEMENTS
The
annual report for the Fund for the fiscal period ended October
31, 2019 is a separate document and the financial statements
and accompanying notes appearing therein are incorporated by
reference into this SAI. Copies of the Annual Report to
Shareholders may be obtained, without charge, upon request by
contacting U.S. Bank Global Fund Services at the address or
telephone number listed on the cover of this
SAI.
APPENDIX A
SUMMARY OF PROXY VOTING POLICY AND PROCEDURES
The
Advisor exercises its proxy voting rights with regard to the
holdings in the Fund’s investment portfolio with the goals of
maximizing the value of the Fund’s investments, promoting
accountability of a company’s management and board of
directors (collectively, the “Management”) to its
shareholders, aligning the interests of management with those of
shareholders, and increasing transparency of a company’s
business and operations.
The
Advisor seeks to avoid material conflicts of interest through its
use of a third party proxy services vendor (the “Proxy
Vendor”), which applies detailed, pre-determined proxy voting
guidelines (the “Voting Guidelines”) in an objective
and consistent manner across client accounts, based on research and
recommendations provided by a third party vendor, and without
consideration of any client relationship factors. The Advisor
engages a third party as an independent fiduciary to vote all
proxies for the Fund.
All
proxy voting proposals are reviewed, categorized, analyzed and
voted in accordance with the Voting Guidelines. These guidelines
are reviewed periodically and updated as necessary to reflect new
issues and any changes in our policies on specific issues. Items
that can be categorized under the Voting Guidelines will be voted
in accordance with any applicable guidelines. Proposals that cannot
be categorized under the Voting Guidelines will be referred to the
Portfolio Oversight Committee for discussion and vote.
Additionally, the Portfolio Oversight Committee may review any
proposal where it has identified a particular company, industry or
issue for special scrutiny. With regard to voting proxies of
foreign companies, the Advisor weighs the cost of voting, and
potential inability to sell the securities (which may occur during
the voting process) against the benefit of voting the proxies to
determine whether or not to vote.
APPENDIX B
SECURITIES SETTLEMENTS FOR CREATIONS AND REDEMPTIONS
The Fund generally
intends to effect deliveries of Creation Units and Deposit
Securities on a basis of “T” plus two business days.
The Fund may effect deliveries of Creation Units and Deposit
Securities on a basis other than T plus two in order to accommodate
local holiday schedules, to account for different treatment among
foreign and U.S. markets of dividend record dates and ex-dividend
dates, or under certain other circumstances. The ability of the
Fund to effect in-kind creations and redemptions within two
business days of receipt of an order in good form is subject, among
other things, to the condition that, within the time period from
the date of the order to the date of delivery of the securities,
there are no days that are holidays in the applicable foreign
market. For every occurrence of one or more intervening holidays in
the applicable foreign market that are not holidays observed in the
U.S. equity market, the redemption settlement cycle will be
extended by the number of such intervening holidays, but not more
than twelve calendar days. In the event that a delay in a
redemption settlement cycle will extend to more than twelve
calendar days, the Fund will effect a cash-in-lieu redemption to
the extent necessary. In addition to holidays, other unforeseeable
closings in a foreign market due to emergencies may also prevent
the Trust from delivering securities within the normal settlement
period.
The securities
delivery cycles currently practicable for transferring Deposit
Securities to redeeming investors, coupled with foreign market
holiday schedules, will require a delivery process longer than
seven calendar days in certain circumstances.
The holidays
applicable to the Fund during such periods are listed below, as are
instances where more than seven days will be needed to deliver
redemption proceeds. Although certain holidays may occur on
different dates in subsequent years, the number of days required to
deliver redemption proceeds in any given year is not expected to
exceed the maximum number of days listed below for the Fund. The
proclamation of new holidays, the treatment by market participants
of certain days as “informal holidays” (e.g., days on which no or limited
securities transactions occur, as a result of substantially
shortened trading hours), the elimination of existing holidays, or
changes in local securities delivery practices, could affect the
information set forth herein at some time in the
future.
The dates of the
Regular Holidays in calendar year 2020
are:
ARGENTINA
|
|
|
|
January
1
|
April
10
|
July
9
|
December
8
|
February
24
|
May
1
|
August
17
|
December
25
|
February
25
|
May
25
|
October
12
|
December
31
|
March
24
|
June
17
|
November
23
|
|
April
2
|
June
20
|
December
7
|
|
AUSTRALIA
|
|
|
|
January
1
|
April
10
|
April
13
|
December
25
|
January
26
|
April
11
|
April
25
|
December
26
|
January
27
|
April
12
|
April
27
|
December
28
|
AUSTRIA
|
|
|
|
January
1
|
June
1
|
December
31
|
January
1
|
April
10
|
October
26
|
|
April
10
|
April
13
|
December
24
|
|
April
13
|
May
1
|
December
25
|
|
May
1
|
AZERBAIJAN
|
|
|
|
January
1
|
March
20
|
March
26
|
June
15
|
January
2
|
March
21
|
March
27
|
June
16
|
January
3
|
March
22
|
May
11
|
July
31
|
January
6
|
March
23
|
May
24
|
August
1
|
January
20
|
March
24
|
May
25
|
November
9
|
BELGIUM
|
|
|
|
January
1
|
May
1
|
June
1
|
November
1
|
April
12
|
May
21
|
July
21
|
November
11
|
April
13
|
May
31
|
August
15
|
December
25
|
BERMUDA
|
|
|
|
January
1
|
June
15
|
September
7
|
December
28
|
April
10
|
July
30
|
November
11
|
|
May
29
|
July
31
|
December
25
|
|
BRAZIL
|
|
|
|
January
1
|
April
21
|
September
7
|
November
15
|
February
25
|
May
1
|
October
12
|
December
25
|
April
10
|
June
11
|
November
2
|
|
CANADA
|
|
|
|
January
1
|
May
18
|
September
7
|
December
25
|
April
10
|
July
1
|
October
12
|
|
April
13
|
August
3
|
November
11
|
|
CHILE
|
|
|
|
January
1
|
May
21
|
September
18
|
November
1
|
April
10
|
June
29
|
September
19
|
November
2
|
April
11
|
July
16
|
October
12
|
December
8
|
May
1
|
August
15
|
October
31
|
December
25
|
CHINA
|
|
|
|
January
1
|
January
29
|
May
1
|
October
5
|
January
14
|
January
30
|
June
25
|
October
6
|
January
25
|
January
31
|
October
1
|
October
7
|
January
26
|
April
4
|
October
2
|
|
January
27
|
April
5
|
October
3
|
|
January
28
|
April
6
|
October
4
|
|
COLOMBIA
|
|
|
|
January
1
|
May
1
|
July
20
|
November
16
|
January
6
|
May
25
|
August
7
|
December
8
|
March
19
|
June
15
|
August
17
|
December
25
|
April
9
|
June
22
|
October
12
|
|
April
10
|
June
29
|
November
2
|
|
CZECH REPUBLIC
|
|
|
|
January
1
|
May
8
|
October
28
|
December
26
|
April
10
|
July
5
|
November
17
|
|
April
13
|
July
6
|
December
24
|
|
May
1
|
September
28
|
December
25
|
|
DENMARK
|
|
|
|
January
1
|
April
12
|
May
21
|
December
24
|
April
9
|
April
13
|
May
31
|
December
25
|
April
10
|
May
8
|
June
1
|
December
26
|
DOMINICAN REPUBLIC
|
|
|
|
January
1
|
February
27
|
June
11
|
December
25
|
January
6
|
April
10
|
August
16
|
|
January
21
|
April
12
|
September
24
|
|
January
26
|
May
1
|
November
6
|
|
FINLAND
|
|
|
|
January
1
|
May
1
|
November
1
|
|
January
6
|
May
21
|
December
6
|
|
April
10
|
June
19
|
December
24
|
|
April
13
|
June
20
|
December
25
|
|
FRANCE
|
|
|
|
January
1
|
May
21
|
November
1
|
|
April
13
|
June
1
|
November
11
|
|
May
1
|
July
14
|
December
25
|
|
May
8
|
August
15
|
|
|
GERMANY
|
|
|
|
January
1
|
May
1
|
October
3
|
|
April
10
|
May
21
|
December
25
|
|
April
13
|
June
1
|
December
26
|
|
GREECE
|
|
|
|
January
1
|
April
10
|
May
1
|
December
25
|
January
6
|
April
13
|
June
8
|
December
31
|
March
2
|
April
17
|
October
28
|
|
March
25
|
April
20
|
December
24
|
|
HONG KONG
|
|
|
|
January
1
|
April
30
|
October
2
|
|
January
27
|
May
1
|
October
26
|
|
January
28
|
June
25
|
December
25
|
|
April
10
|
July
1
|
|
|
April
13
|
October
1
|
|
|
HUNGARY
|
|
|
|
January
1
|
April
13
|
August
20
|
December
25
|
March
15
|
May
1
|
August
21
|
December
26
|
April
10
|
May
31
|
October
23
|
|
April
12
|
June
1
|
November
1
|
|
INDIA
|
|
|
|
January
26
|
April
14
|
August
15
|
October
29
|
February
21
|
May
7
|
August
29
|
November
14
|
April
6
|
July
31
|
October
2
|
November
30
|
April
10
|
August
12
|
October
25
|
December
25
|
INDONESIA
|
|
|
|
January
1
|
May
1
|
June
1
|
December
25
|
January
25
|
May
7
|
July
31
|
|
March
22
|
May
21
|
August
17
|
|
March
25
|
May
24
|
August
20
|
|
April
10
|
May
26
|
October
29
|
|
IRELAND
|
|
|
|
January
1
|
May
4
|
October
26
|
December
28
|
March
17
|
June
1
|
December
25
|
|
April
13
|
August
3
|
December
26
|
|
ISRAEL
|
|
|
|
March
10
|
April
16
|
July
30
|
September
28
|
March
11
|
April
29
|
August
19
|
October
3
|
April
4
|
May
8
|
August
20
|
October
10
|
April
9
|
May
29
|
September
19
|
October
11
|
April
15
|
May
31
|
September
20
|
|
ITALY
|
|
|
|
January
1
|
April
25
|
August
15
|
December
25
|
January
6
|
May
1
|
November
1
|
December
26
|
April
13
|
June
2
|
December
8
|
|
JAPAN
|
|
|
|
January
1
|
May
3
|
August
11
|
November
23
|
January
13
|
May
4
|
September
21
|
December
23
|
February
11
|
May
5
|
September
22
|
|
March
20
|
May
6
|
October
12
|
|
April
29
|
July
20
|
November
3
|
|
KAZAKHSTAN
|
|
|
|
January
1
|
March
21
|
May
7
|
December
16
|
January
2
|
March
22
|
May
11
|
December
17
|
January
7
|
March
23
|
July
6
|
|
March
9
|
March
24
|
July
31
|
|
March
20
|
May
1
|
December
1
|
|
LUXEMBOURG
|
|
|
|
January
1
|
May
1
|
June
10
|
November
1
|
April
19
|
May
9
|
June
23
|
December
25
|
April
22
|
May
30
|
August
15
|
December
26
|
MALAYSIA
|
|
|
|
January
25
|
May
7
|
July
31
|
September
16
|
January
26
|
May
24
|
August
20
|
October
29
|
January
27
|
May
25
|
August
31
|
December
25
|
May
1
|
May
26
|
September
9
|
|
MEXICO
|
|
|
|
January
1
|
April
9
|
September
16
|
November
16
|
February
3
|
April
10
|
October
12
|
November
20
|
March
16
|
May
1
|
November
2
|
December
25
|
NETHERLANDS
|
|
|
|
January
1
|
April
27
|
May
31
|
December
26
|
April
12
|
May
5
|
June
1
|
|
April
13
|
May
21
|
December
25
|
|
NORWAY
|
|
|
|
January
1
|
April
13
|
May
21
|
December
26
|
April
9
|
May
1
|
June
1
|
|
April
10
|
May
17
|
December
25
|
|
OMAN
|
|
|
|
January
1
|
May
26
|
July
31
|
August
20
|
March
22
|
May
27
|
August
1
|
October
29
|
May
24
|
July
23
|
August
2
|
November
18
|
May
25
|
July
30
|
August
3
|
November
19
|
PERU
|
|
|
|
January
1
|
June
29
|
August
30
|
December
25
|
April
9
|
July
27
|
October
8
|
|
April
10
|
July
28
|
November
1
|
|
May
1
|
July
29
|
December
8
|
|
PHILIPPINES
|
|
|
|
January
1
|
May
1
|
August
31
|
December
25
|
January
25
|
May
24
|
November
1
|
December
30
|
April
9
|
June
12
|
November
30
|
December
31
|
April
10
|
July
31
|
December
8
|
|
April
11
|
August
21
|
December
24
|
|
POLAND
|
|
|
|
January
1
|
May
1
|
August
15
|
December
26
|
January
6
|
May
3
|
November
1
|
|
April
12
|
May
31
|
November
11
|
|
April
13
|
June
11
|
December
25
|
|
PORTUGAL
|
|
|
|
January
1
|
May
1
|
December
31
|
|
April
10
|
December
24
|
|
|
April
13
|
December
25
|
|
|
QATAR
|
|
|
|
February
11
|
May
26
|
July
31
|
August
4
|
March
11
|
May
27
|
August
1
|
December
18
|
May
24
|
May
28
|
August
2
|
|
May
25
|
July
30
|
August
3
|
|
*The
Qatari market is closed every Friday.
|
|
|
REPUBLIC OF KOREA
|
|
|
|
January
1
|
January
27
|
May
1
|
October
1
|
January
24
|
March
1
|
May
5
|
October
3
|
January
25
|
April
15
|
June
6
|
October
9
|
January
26
|
April
30
|
August
15
|
December
25
|
|
|
September
30
|
|
ROMANIA
|
|
|
|
January
1
|
April
20
|
June
8
|
December
25
|
January
2
|
May
1
|
August
15
|
December
26
|
January
24
|
June
1
|
November
30
|
|
April
17
|
June
7
|
December
1
|
|
RUSSIA
|
|
|
|
January
1
|
January
7
|
May
1
|
May
12
|
January
2
|
February
23
|
May
4
|
November4
|
January
3
|
February
24
|
May
9
|
|
January
6
|
March
9
|
May
11
|
|
SAUDI ARABIA
|
|
|
|
May
24
|
July
16
|
July
31
|
August
5
|
May
25
|
July
17
|
August
1
|
September
23
|
May
26
|
July
28
|
August
2
|
|
May
27
|
July
29
|
August
3
|
|
May
28
|
July
30
|
August
4
|
|
*The
Saudi market is closed every Friday.
|
|
|
SINGAPORE
|
|
|
|
January
1
|
May
1
|
August
9
|
October
28
|
February
5
|
May
19
|
August
11
|
December
25
|
February
6
|
May
20
|
August
12
|
|
April
19
|
June
5
|
October
27
|
|
SOUTH AFRICA
|
|
|
|
January
1
|
April
27
|
September
24
|
|
March
21
|
May
1
|
December
16
|
|
April
10
|
June
16
|
December
25
|
|
April
13
|
August
9
|
December
26
|
|
SOUTH KOREA
|
|
|
|
January
1
|
May
1
|
October
2
|
|
January
24
|
May
5
|
October
9
|
|
January
27
|
September
30
|
December
25
|
|
April
30
|
October
1
|
December
31
|
|
SPAIN
|
|
|
|
January
1
|
May
1
|
November
1
|
December
25
|
January
6
|
August
15
|
December
6
|
|
April
19
|
October
12
|
December
8
|
|
SWEDEN
|
|
|
|
January
1
|
April
13
|
June
6
|
December
24
|
January
6
|
May
1
|
June
19
|
December
25
|
April
10
|
May
21
|
June
20
|
December
26
|
April
12
|
May
31
|
November
1
|
December
31
|
SWITZERLAND
|
|
|
|
January
1
|
May
21
|
August
1
|
December
26
|
April
10
|
May
31
|
September
20
|
|
April
13
|
June
1
|
December
25
|
|
TAIWAN
|
|
|
|
January
1
|
January
29
|
May
1
|
October
10
|
January
24
|
February
28
|
June
25
|
|
January
27
|
April
3
|
October
1
|
|
January
28
|
April
4
|
October
9
|
|
THAILAND
|
|
|
|
January
1
|
April
13
|
May
21
|
October
23
|
January
2
|
April
14
|
July
5
|
December
7
|
January
25
|
April
15
|
July
28
|
December
10
|
March
9
|
May
1
|
August
12
|
December
31
|
April
6
|
May
7
|
October
13
|
|
TURKEY
|
|
|
|
January
1
|
May
24
|
July
15
|
August
3
|
April
23
|
May
25
|
July
31
|
August
30
|
May
1
|
May
26
|
August
1
|
October
29
|
May
19
|
May
27
|
August
2
|
|
UKRAINE
|
|
|
|
January
1
|
April
20
|
June
29
|
December
31
|
January
7
|
May
1
|
August
24
|
|
March
9
|
May
11
|
October
14
|
|
April
19
|
June
8
|
December
25
|
|
UNITED ARAB EMIRATES
|
|
|
|
January
1
|
May
26
|
August
2
|
December
2
|
March
22
|
July
30
|
August
20
|
December
3
|
May
24
|
July
31
|
October
29
|
|
May
25
|
August
1
|
November
30
|
|
*The
United Arab Emirates markets are closed every
Friday.
|
|
|
UNITED KINGDOM
|
|
|
|
January
1
|
May
4
|
August
31
|
December
26
|
April
10
|
May
25
|
December
25
|
December
28
|
UNITED STATES
|
|
|
|
January
1
|
April
10
|
September
7
|
|
January
20
|
May
25
|
November
26
|
|
February
17
|
July
3
|
December
25
|
|
URUGUAY
|
|
|
|
January
1
|
April
9
|
May
1
|
August
28
|
February
24
|
April
10
|
June
19
|
October
12
|
February
25
|
April
20
|
July
18
|
December
25
|
ZAMBIA
|
|
|
|
January
1
|
April
11
|
July
6
|
October
24
|
March
9
|
April
13
|
July
7
|
December
25
|
March
12
|
May
1
|
August
3
|
|
April
10
|
May
25
|
October
19
|
|
Redemptions: The longest redemption cycle for the Fund
is a function of the longest redemption cycle among the countries
and regions whose securities comprise the Fund. In the calendar
year 2020
(the only year for which holidays are known at the time of this
filing), the dates of regular holidays affecting the following
securities markets present the worst-case redemption cycles* for
the Fund as follows:
SETTLEMENT PERIODS
|
Beginning of
|
End of
|
Number of Days in
|
GREATER THAN
|
Settlement
|
Settlement
|
Settlement
|
SEVEN DAYS FOR YEAR 2020
|
Period
|
Period
|
Period
|
Australia
|
4/6/2020
|
4/14/2020
|
8
|
|
|
4/7/2020
|
4/15/2020
|
8
|
|
|
4/8/2020
|
4/16/2020
|
8
|
|
|
4/9/2020
|
4/17/2020
|
8
|
|
|
12/21/2020
|
12/29/2020
|
8
|
|
|
12/22/2020
|
12/30/2020
|
8
|
|
|
12/23/2020
|
12/31/2020
|
8
|
|
|
12/24/2020
|
1/2/2021
|
11
|
|
|
|
|
|
|
China
|
1/22/2020
|
2/3/2020
|
12
|
|
|
1/23/2020
|
2/3/2020
|
12
|
|
|
1/24/2020
|
2/5/2020
|
12
|
|
|
1/27/2020
|
2/5/2020
|
9
|
|
|
1/28/2020
|
2/5/2020
|
8
|
|
|
9/28/20
|
10/8/20
|
10
|
|
|
9/29/20
|
10/9/20
|
10
|
|
|
9/30/20
|
10/12/20
|
12
|
|
|
|
|
|
|
Israel
|
3/3/2020
|
3/12/2020
|
9
|
|
|
3/4/2020
|
3/16/2020
|
12
|
|
|
3/5/2020
|
3/17/2020
|
12
|
|
|
3/9/2020
|
3/18/2020
|
9
|
|
|
4/2/2020
|
4/13/2020
|
11
|
|
|
4/6/2020
|
4/14/2020
|
8
|
|
|
4/7/2020
|
4/20/2020
|
13
|
|
|
4/8/2020
|
4/21/2020
|
13
|
|
Japan
|
1/10/2020
|
1/20/2020
|
9
|
|
|
4/28/2020
|
5/7/2020
|
8
|
|
|
4/29/2020
|
5/8/2020
|
8
|
|
|
4/30/2020
|
5/11/2020
|
10
|
|
|
5/1/2020
|
5/12/2020
|
11
|
|
|
|
|
|
|
Mexico
|
1/31/2020
|
2/11/2020
|
10
|
|
|
4/3/2020
|
4/13/2020
|
10
|
|
|
4/6/2020
|
4/14/2020
|
8
|
|
|
4/7/2020
|
4/15/2020
|
8
|
|
|
4/8/2020
|
4/16/2020
|
8
|
|
|
|
|
|
|
Oman
|
5/19/2020
|
6/1/2020
|
12
|
|
|
5/20/2020
|
6/2/2020
|
12
|
|
|
5/21/2020
|
6/3/2020
|
12
|
|
|
|
|
|
|
Peru
|
7/24/2020
|
8/3/2020
|
9
|
|
|
|
|
|
|
Qatar
|
5/19/2020
|
5/28/2020
|
9
|
|
|
5/20/2020
|
6/1/2020
|
12
|
|
|
5/21/2020
|
6/2/2020
|
12
|
|
|
|
|
|
|
Russia
|
1/2/2020
|
1/14/2020
|
12
|
|
|
1/3/2020
|
1/14/2020
|
11
|
|
|
1/6/2020
|
1/14/2020
|
8
|
|
|
|
|
|
|
Saudi
Arabia
|
5/13/2020
|
6/2/2020
|
19
|
|
|
5/14/2020
|
6/3/2020
|
19
|
|
|
5/18/2020
|
6/4/2020
|
16
|
|
|
5/19/2020
|
6/8/2020
|
19
|
|
|
5/20/2020
|
6/9/2020
|
19
|
|
|
5/21/2020
|
6/10/2020
|
19
|
|
|
7/7/2020
|
7/20/2020
|
13
|
|
|
7/8/2020
|
7/21/2020
|
13
|
|
|
7/9/2020
|
7/22/2020
|
13
|
|
|
7/13/2020
|
7/23/2020
|
13
|
|
|
7/14/2020
|
7/27/2020
|
13
|
|
|
7/15/2020
|
8/6/2020
|
22
|
|
|
7/20/2020
|
8/10/2020
|
22
|
|
|
7/21/2020
|
8/11/2020
|
22
|
|
|
7/22/2020
|
8/12/2020
|
22
|
|
|
7/23/2020
|
8/13/2020
|
22
|
|
|
7/27/2020
|
8/17/2020
|
21
|
|
|
|
|
|
|
Spain
|
1/2/2020
|
1/14/2020
|
13
|
|
|
1/3/2020
|
1/15/2020
|
12
|
|
|
1/3/2020
|
1/16/2020
|
12
|
|
|
4/22/2020
|
5/4/2020
|
11
|
|
|
4/23/2020
|
5/5/2020
|
11
|
|
|
4/24/2020
|
5/6/2020
|
11
|
|
|
4/27/2020
|
5/7/2020
|
9
|
|
|
4/28/2020
|
5/8/2020
|
9
|
|
|
4/29/2020
|
5/11/2020
|
11
|
|
|
4/30/2020
|
5/12/2020
|
11
|
|
|
10/1/2020
|
10/13/2020
|
11
|
|
|
10/2/2020
|
10/14/2020
|
11
|
|
|
10/5/2020
|
10/15/2020
|
9
|
|
|
10/6/2020
|
10/16/2020
|
9
|
|
|
10/7/2020
|
10/19/2020
|
11
|
|
|
10/8/2020
|
10/20/2020
|
11
|
|
|
10/9/2020
|
10/21/2020
|
11
|
|
|
11/27/2020
|
12/9/2020
|
11
|
|
|
11/30/2020
|
12/10/2020
|
9
|
|
|
12/1/2020
|
12/11/2020
|
9
|
|
|
12/2/2020
|
12/14/2020
|
9
|
|
|
12/3/2020
|
12/15/2020
|
9
|
|
|
12/4/2020
|
12/16/2020
|
9
|
|
|
12/7/2020
|
12/17/2020
|
9
|
|
|
12/16/2020
|
12/28/2020
|
11
|
|
|
12/17/2020
|
12/29/2020
|
11
|
|
|
12/18/2020
|
12/30/2020
|
11
|
|
|
12/21/2020
|
12/31/2020
|
10
|
|
|
12/22/2020
|
1/4/2021
|
12
|
|
|
12/23/2020
|
1/5/2021
|
12
|
|
|
12/24/2020
|
1/6/2021
|
12
|
|
|
|
|
|
|
Switzerland
|
4/3/2020
|
4/15/2020
|
11
|
|
|
4/6/2020
|
4/16/2020
|
9
|
|
|
4/7/2020
|
4/17/2020
|
9
|
|
|
4/8/2020
|
4/20/2020
|
11
|
|
|
4/9/2020
|
4/21/2020
|
11
|
|
*These
worst-case redemption cycles are based on information regarding
regular holidays, which may be out of date. Based on changes in
holidays, longer (worse) redemption cycles are
possible.
PART C
OTHER INFORMATION
Item 28. Exhibits
|
Declaration
of Trust of Procure ETF Trust II (“Registrant”). (1)
|
|
|
|
By-Laws
of Registrant. (1)
|
|
|
(c)
|
Articles
IV, VII and VIII of the Declaration of Trust, Exhibit 28(a) above,
define the rights of holders of the securities being registered.
(Certificates for shares are not issued.)
|
|
|
|
Investment
Advisory Agreement, dated September 1, 2018 between the Registrant
and ProcureAM, LLC (“Advisor”), as investment adviser
for the Registrant and its investment portfolio (the
“Fund”).
(1)
|
|
|
|
Investment
Sub-Advisory Agreement between ProcureAM LLC and Penserra Capital
Management LLC (“Sub-Advisor”), as investment
sub-advisor. (1)
|
|
|
|
Distribution
Agreement by and between the Registrant and Quasar Distributors
LLC. (1)
|
|
|
(f)
|
Not
applicable.
|
|
|
|
Custody
Agreement by and between the Registrant and U.S. Bank National
Association. (1)
|
|
|
|
Fund
Administration Servicing Agreement by and between the Registrant
and U.S. Bancorp Fund Services, LLC. (1)
|
|
|
|
Fund
Accounting Servicing Agreement by and between the Registrant and
U.S. Bancorp Fund Services, LLC. (1)
|
|
|
|
Transfer
Agent Servicing Agreement by and between the Registrant and U.S.
Bancorp Fund Services, LLC. (1)
|
|
|
|
Form of
Authorized Participant Agreement. (1)
|
|
|
|
Form of
Purchasing Fund Agreement. (1)
|
|
|
|
Index
License Agreement between S-Network Global Indexes Inc. and
ProcureAM LLC. (1)
|
|
|
|
Compliance
Services Agreement by and between the Registrant and Cipperman
Compliance Services, LLC – filed herewith.
|
|
|
|
Opinion
and Consent of Chapman and Cutler LLP regarding the legality of
securities registered with respect to the Registrant – filed
herewith.
|
|
|
|
Consent
of independent registered public accounting firm – filed
herewith.
|
|
|
(k)
|
Not
applicable.
|
|
|
|
Initial
Capital Agreement. (1)
|
|
|
|
Plan of
Distribution Pursuant to Rule 12b-1. (1)
|
|
|
(n)
|
Not
applicable.
|
|
|
(o)
|
Reserved.
|
|
|
|
Code of
Ethics of the Advisor and the Registrant. (1)
|
|
|
|
Code of
Ethics of the Sub-Advisor. (1)
|
|
|
|
Code of
Ethics of the Distributor. (1)
|
|
|
|
Power
of Attorney executed by John Jacobs, Erik Liik, James Brenner and
Robert Tull. (1)
|
(1)
Incorporated by reference to exhibit previously filed as part of
Pre-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form N-1A (File Nos. 333-222463 and 811-23323) as
filed on January 29, 2019.
Item 29. Persons Controlled by or Under Common Control with
Registrant.
Not
Applicable.
Item 30. Indemnification
Under
Delaware law, Section 3817 of the Treatment of Delaware Statutory
Trusts empowers Delaware business trusts to indemnify and hold
harmless any trustee or beneficial owner or other person from and
against any and all claims and demands whatsoever, subject to such
standards and restrictions as may be set forth in the governing
instrument of the business trust. The Registrant’s
Declaration of Trust contains the following
provisions:
Section 8.1.1 General
Limitation of Liability. No
personal liability for any debt or obligation of the Trust shall
attach to any Trustee of the Trust. Without limiting the foregoing,
a Trustee shall not be responsible for or liable in any event for
any neglect or wrongdoing of any officer, agent, employee,
investment advisor, subadvisor, principle underwriter or custodian
of the Trust, nor shall any Trustee be responsible or liable for
the act or omission of any other Trustee. Every note, bond,
contract, instrument, certificate, Share or undertaking and every
other act or thing whatsoever executed or done by or on behalf of
the Trust or the Trustees or any Trustee in connection with Trust
shall be conclusively deemed to have been executed or done only in
or with respect to their, his or her capacity as Trustees or
Trustee and neither such Trustees or Trustee nor the Shareholders
shall be personally liable thereon.
Section 8.2 Liability of
Trustee. The exercise by the
Trustees of their powers and discretion hereunder shall be binding
upon the Trust, the Shareholders and any other person dealing with
the Trust. The liability of the Trustees, however, shall be limited
by this Section 8.2.
Section 8.2.1 Liability for
Own Actions. A Trustee shall be
liable to the Trust or the Shareholders only for his or her own
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of
Trustee, and for nothing else, and shall not be liable for errors
of judgment or mistakes of fact or law.
Section 8.2.2 Liability for
Actions of Others. The Trustees
shall not be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, consultant, advisor,
administrative distributor, principal underwriter, custodian,
transfer agent, dividend disbursing agent, Shareholder servicing
agent or accounting agent of the Trust, nor shall any Trustee be
responsible for any act or omission of any other
Trustee.
Section 8.2.3 Advice of
Experts and Reports of Others.
The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust
and their duties as Trustees hereunder, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice.
In discharging their duties, the Trustees, when acting in good
faith, shall be entitled to rely upon the books of account of the
Trust and upon written reports made to the Trustees by any officers
appointed by them, any independent public accountant and (with
respect to the subject matter of the contract involved) any
officer, partner or responsible employee of any other party to any
contract entered into hereunder.
Section 8.4 Liability of
Shareholders. Without
limiting
the provisions of this Section 8.4 or
the DSTA, the Shareholders shall be entitled to the same limitation
of personal liability extended to stockholders of private
corporations organized for profit under the General Corporation Law
of the State of Delaware.
Section 8.4.1 Limitation of
Liability. No personal
liability for any debt or obligation of the Trust shall attach to
any Shareholder or former Shareholder of the Trust, and neither the
Trustees, nor any officer, employee or agent of the Trust shall
have any power to bind any Shareholder personally or to call upon
any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time
personally agree to pay by way of subscription for any Shares or
otherwise.
Section 8.4.2 Indemnification
of Shareholders. In case any
Shareholder or former Shareholder of the Trust shall be held to be
personally liable solely by reason of being or having been a
Shareholder and not because of such Shareholder’s acts or
omissions or for some other reason, the Shareholder or former
Shareholder (or, in the case of a natural person, his or her heirs,
executors, administrators or other legal representatives or, in the
case of a corporation or other entity, its corporate or other
general successor) shall be entitled out of the assets of the Trust
to be held harmless from and indemnified against all loss and
expense arising from such liability; provided, however, there shall
be no liability or obligation of the Trust arising hereunder to
reimburse any Shareholder for taxes paid by reason of such
Shareholder’s ownership of any Shares or for losses suffered
by reason of any changes in value of any Trust assets. The Trust
shall, upon request by the Shareholder or former Shareholder,
assume the defense of any claim made against the Shareholder for
any act or obligation of the Trust and satisfy any judgment
thereon.
Section 8.5 Indemnification.
Section 8.5.1 Indemnification
of Covered Persons. Subject to
the exceptions and limitations contained in Section 8.5.2, every
person who is or has been a Trustee, officer, employee or agent of
the Trust, including persons who serve at the request of the Trust
as directors, trustees, officers, employees or agents of another
organization in which the Trust has an interest as a shareholder,
creditor or otherwise (each, a “Covered Person”), shall
be indemnified by the Trust to the fullest extent permitted by law
against liability and against all expenses reasonably incurred or
paid by him or her in connection with any claim, action, suit or
proceeding in which he or she becomes involved as a party or
otherwise by virtue of his or her being or having been such a
director, trustee, officer, employee or agent and against amounts
paid or incurred by him or her in settlement
thereof.
Section 8.5.2
Exceptions. No indemnification
shall be provided hereunder to a Covered
Person:
(a) for any liability to the Trust or its Shareholders
arising out of a final adjudication by the court or other body
before which the proceeding was brought that the Covered Persons
engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or
her office; (b) with respect to any matter as to which the
Covered Person shall have been finally adjudicated not to have
acted in good faith in the reasonable belief that his or her action
was in the best interests of the Trust; or (c) in the event
of a settlement or other disposition not involving a final
adjudication (as provided in paragraph (a) or (b) of this Section
8.5.2) and resulting in a payment by a Covered Person, unless there
has been either a determination that such Covered Person did not
engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or
her office or position by the court or other body approving the
settlement or other disposition, or a reasonable determination,
based on a review of readily available facts (as opposed to a full
trial-type inquiry), that he or she did not engage in such conduct,
such determination being made by: (i) a vote of a majority of the
Disinterested Trustees (as such term is defined in Section 8.5.2)
acting on the matter (provided that a majority of Disinterested
Trustees then in office act on the matter); or (ii) a written
opinion of independent legal counsel.
Section 8.5.3 Rights of
Indemnification. The rights of
indemnification herein provided may be insured against by policies
maintained by the Trust, and shall be severable, shall not affect
any other rights to which any Covered Person may now or hereafter
be entitled, shall continue as to a person who has ceased to be a
Covered Person, and shall inure to the benefit of
the heirs, executors and
administrators of such a person. Nothing contained herein shall
affect any rights to indemnification to which Trust personnel other
than Covered Persons may be entitled by contract or otherwise under
law.
Section 8.5.4 Expenses of
Indemnification. Expenses of
preparation and presentation of a defense to any claim, action,
suit or proceeding subject to a claim for indemnification under
this Section 8.5 shall be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf
of the recipient to repay such amount if it is ultimately
determined that he or she is not entitled to indemnification under
this Section 8.5, provided that either: (a) Such undertaking
is secured by a surety bond or some other appropriate security of
the Trust shall be insured against losses arising out of any such
advances; or (b) a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the Disinterested Trustees
then in office act on the matter) or independent legal counsel in a
written opinion shall determine, based upon a review of the readily
available facts (as opposed to the facts available upon a full
trial), that there is a reason to believe that the recipient
ultimately will be found entitled to
indemnification.
Section 8.5.5 Certain Defined
Terms Relating to Indemnification. As used in this Section 8.5, the following words
shall have the meanings set forth below: (a) “Claim,”
“action,” “suit” or
“proceeding” shall apply to all claims, actions, suits,
proceedings (civil, criminal, administrative or other, including
appeals), actual or threatened; (b) a “Disinterested
Trustee” is one (i) who is not an Interested Person of the
Trust (including anyone, as such Disinterested Trustee, who has
been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (ii) against whom none
of such actions, suits or other proceedings or another action, suit
or other proceeding on the same or similar grounds is then or has
been pending; and (c) “Liability” and
“expenses” shall include, without limitation,
attorneys’ fees, costs, judgments, amounts paid in
settlement, fines, penalties and other
liabilities.
Section 8.6 Jurisdiction,
Venue, and Waiver of Jury Trial. In accordance with Section 3804(e) of the DSTA,
any suit, action or proceeding brought by or in the right of any
Shareholder or any person claiming any interest in any Shares
seeking to enforce any provision of, or based on any matter arising
out of, or in connection with, this Declaration of Trust or the
Trust, any Series or Class or any Shares, including any claim of
any nature against the Trust, any Series or Class, the Trustees or
officers of the Trust, shall be brought exclusively in the Court of
Chancery of the State of Delaware to the extent there is subject
matter jurisdiction in such court for the claims asserted or, if
not, then in the Superior Court of the State of Delaware, and all
Shareholders and other such Persons hereby irrevocably consent to
the jurisdiction of such courts (and the appropriate appellate
courts therefrom) in any such suit, action or proceeding and
irrevocably waive, to the fullest extent permitted by law, any
objection they may make now or hereafter have to the laying of the
venue of any such suit, action or proceeding in such court or that
any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum and further, IN CONNECTION
WITH ANY SUCH SUIT, ACTION, OR PROCEEDING BROUGHT IN THE SUPERIOR
COURT IN THE STATE OF DELAWARE, ALL SHAREHOLDERS AND ALL OTHER SUCH
PERSONS HEREBY IRREVOCABLY WAIVE THE RIGHT TO A TRIAL BY JURY TO
THE FULLEST EXTENT PERMITTED BY LAW. All Shareholders and other
such persons agree that service of summons, complaint or other
process in connection with any proceedings may be made by
registered or certified mail or by overnight courier addressed to
such person at the address shown on the books and records of the
Trust for such person or at the address of the person shown on the
books and records of the Trust with respect to the Shares that such
person claims an interest in. Service of process in any such suit,
action or proceeding against the Trust or any Trustee or officer of
the Trust may be made at the address of the Trust’s
registered agent in the State of Delaware. Any service so made
shall be effective as if personally made in the State of
Delaware.
In
addition, the Registrant has entered into an Investment Advisory
Agreement with its Investment Advisor and a Distribution Agreement
with its Distributor. These agreements provide indemnification for
those entities and their affiliates. The Investment Advisor’s
and Distributor’s personnel may serve as trustees and
officers of the Trust. The Investment Advisory Agreement with the
Fund provides that the Investment Advisor will not be liable for
any error of judgment or mistake of law or for any loss suffered by
the Fund, except a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Investment Advisor or
from reckless disregard by the Investment Advisor of its
obligations or duties under the Agreement. Under the Distribution
Agreement, the Registrant will indemnify Quasar Distributors
LLC against certain liabilities.
Insofar as indemnification for liability arising
under the Securities Act of 1933, as amended
(“1933 Act”), may be permitted to trustees, officers
and controlling persons of the Registrant by the Registrant
pursuant to the Declaration of Trust or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by trustees, officers or controlling persons of the Registrant
in connection with the successful defense of any act, suit or
proceeding) is asserted by such trustees, officers or controlling
persons in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such
issues.
Trustees
and officers liability policies purchased by the Registrant insure
the Registrant and their respective trustees, partners, officers
and employees, subject to the policies’ coverage limits and
exclusions and varying deductibles, against loss resulting from
claims by reason of any act, error, omission, misstatement,
misleading statement, neglect or breach of duty.
Item 31. Business and Other Connections of Investment
Advisor.
The
description of the Investment Advisor is found under the caption
“Service Providers—Investment Advisor” in the
Prospectus and under the caption “Management
Services—Investment Advisor” in the Statement of
Additional Information constituting Parts A and B, respectively, of
this Registration Statement, which are incorporated by reference
herein. The Investment Advisor may also provide investment advisory
services to persons or entities other than the Registrant. With
respect to the Investment Advisor, the response to this Item is
incorporated by reference to ProcureAM, LLC’s Form ADV on
file with the SEC pursuant to the Investment Advisers Act of 1940,
as amended.
Penserra
Capital Management LLC (the “Sub-Advisor”) serves as
the investment sub-adviser for the Registrant with respect to the
Fund. The principal business address of the Sub-Advisor is 4 Orinda
Way, 100-A, Orinda California 94563. With respect to the
Sub-Advisor, the response to this Item is incorporated by reference
to Penserra Capital Management LLC’s Form ADV on file with
the SEC pursuant to the Investment Advisers Act of 1940, as amended
(File No. 801-80466).
The
Advisor’s and Sub-Advisor’s respective Form ADVs may be
obtained, free of charge, at the SEC’s website at
www.adviserinfo.sec.gov.
Item 32. Distributor
(a) Quasar Distributors, LLC acts as principal
underwriter for the following investment
companies:
Advisors
Series Trust
|
Managed
Portfolio Series
|
Aegis
Funds
|
Manager
Directed Portfolios
|
Allied
Asset Advisors Funds
|
Matrix
Advisors Fund Trust
|
Alpha
Architect ETF Trust
|
Matrix
Advisors Value Fund, Inc.
|
Angel
Oak Funds Trust
|
Monetta
Trust
|
Barrett
Opportunity Fund, Inc.
|
Nicholas
Equity Income Fund, Inc.
|
Bridges
Investment Fund, Inc.
|
Nicholas
Family of Funds, Inc.
|
Brookfield
Investment Funds
|
North
Capital Funds Trust
|
Buffalo
Funds
|
Permanent
Portfolio Family of Funds
|
CG
Funds Trust
|
Perritt
Funds, Inc.
|
Chestnut
Street Fund
|
PRIMECAP
Odyssey Funds
|
Cushing®
Mutual Funds Trust
|
Procure
ETF Trust I
|
DoubleLine
Funds Trust
|
Procure
ETF Trust II
|
ETF
Series Solutions
|
Professionally
Managed Portfolios
|
First
American Funds, Inc.
|
Prospector
Funds, Inc.
|
FundX
Investment Trust
|
Provident
Mutual Funds, Inc.
|
Glenmede
Fund, Inc.
|
Rainier
Investment Management Mutual Funds
|
Glenmede
Portfolios
|
RBB
Fund, Inc.
|
GoodHaven
Funds Trust
|
RBC
Funds Trust
|
Greenspring
Fund, Inc.
|
Series
Portfolios Trust
|
Harding
Loevner Funds, Inc.
|
Thompson
IM Funds, Inc.
|
Hennessy
Funds Trust
|
TIGERSHARES
Trust
|
Horizon
Funds
|
TrimTabs
ETF Trust
|
Hotchkis
& Wiley Funds
|
Trust
for Professional Managers
|
Intrepid
Capital Management Funds Trust
|
Trust
for Advised Portfolios
|
Jacob
Funds, Inc.
|
USA
Mutuals
|
Jensen
Quality Growth Fund Inc.
|
USCA
Fund Trust
|
Kirr
Marbach Partners Funds, Inc.
|
USQ
Core Real Estate Fund
|
LKCM
Funds
|
Wall
Street EWM Funds Trust
|
LoCorr
Investment Trust
|
Westchester
Capital Funds
|
Lord
Asset Management Trust
|
Wisconsin
Capital Funds, Inc.
|
MainGate
Trust
|
YCG
Funds
|
(b) To the best of Registrant’s
knowledge, the directors and executive officers of Quasar
Distributors, LLC are as follows:
Name
and Principal
Business
Address
|
|
Position
and Offices with Quasar
Distributors,
LLC
|
|
Positions
and Offices with Registrant
|
Teresa
Cowan(1)
|
|
President, Board
Member, Board Chairperson
|
|
None
|
Andrew
M. Strnad(2)
|
|
Vice
President, Secretary
|
|
None
|
Joseph
C. Neuberger(1)
|
|
Board
Member
|
|
None
|
Anita
M. Zagrodnik(1)
|
|
Board
Member
|
|
None
|
Stephanie J.
Parise(1)
|
|
Board
Member
|
|
None
|
Susan
LaFond(1)
|
|
Vice
President, Treasurer, Co-Chief Compliance Officer
|
|
None
|
Peter
A. Hovel(1)
|
|
Chief
Financial Officer
|
|
None
|
Jennifer
Brunner(1)
|
|
Vice
President, Co-Chief Compliance Officer
|
|
None
|
Brett
Scribner(3)
|
|
Assistant
Treasurer
|
|
None
|
Thomas
A. Wolden(3)
|
|
Assistant
Treasurer
|
|
None
|
(1) This
individual is located at 777 East Wisconsin Avenue, Milwaukee,
Wisconsin, 53202.
(2) This
individual is located at 10 West Market Street, Suite 1150,
Indianapolis, Indiana, 46204.
(3) This
individual is located at 800 Nicollet Mall, Minneapolis, Minnesota,
55402.
Item 33. Location of Accounts and Records.
All
accounts, books and other documents required by Section 31(a) of
the 1940 Act and the rules thereunder are maintained
at:
Advisor:
|
|
ProcureAM,
LLC
16
Firebush Road
Levittown,
PA 19056
|
|
|
Sub-Advisor:
|
|
Penserra
Capital Management LLC
4
Orinda Way, 100A
Orinda,
CA 94563
|
Administrator:
|
|
U.S.
Bancorp Fund Services LLC
615
East Michigan Street
Milwaukee,
WI 53202
|
|
|
Distributor:
|
|
Quasar
Distributors, LLC
777
East Wisconsin Avenue
Milwaukee,
WI 53202
|
|
|
|
Custodian
|
|
U.S.
Bank, National Association
1555
North Rivercenter Drive
Milwaukee,
WI 53212
|
Item 34. Management Services
Not
applicable.
Item 35. Undertakings
Not
applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended (the “Securities Act”) and the Investment
Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness of this
amendment to its Registration Statement under Rule 485(b) under the
Securities Act and has has duly caused
this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of Levittown and State of Pennsylvania on February 27,
2020.
|
Procure ETF Trust II
|
|
|
|
|
|
|
By:
|
/s/ Robert Tull
|
|
|
|
Robert
Tull
|
|
|
|
President
|
|
Pursuant to the requirements of the Securities Act, this amendment
to the Registration Statement has been signed below by the
following persons in the capacities and on the date
indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
John Jacobs*
|
|
Trustee
|
|
February
27, 2020
|
John
Jacobs
|
|
|
|
|
|
|
|
|
|
/s/
Erik Liik*
|
|
Trustee
|
|
February
27, 2020
|
Erik
Liik
|
|
|
|
|
|
|
|
|
|
/s/
James Brenner*
|
|
Trustee
|
|
February
27, 2020
|
James
Brenner
|
|
|
|
|
|
|
|
|
|
/s/
Robert Tull
|
|
Trustee
and President
|
|
February
27, 2020
|
Robert
Tull
|
|
|
|
|
|
|
|
|
|
/s/
Adrienne Binik-Chanin
|
|
Treasurer,
Chief Financial Officer
|
|
February
27, 2020
|
Adrienne
Binik-Chanin
|
|
and
Principal Accounting Officer
|
|
|
|
|
|
|
|
By: /s/
Robert Tull
|
|
|
|
|
Robert
Tull
Attorney-in-Fact*
|
|
|
|
|
|
|
|
|
|
* Attorney-in-Fact, pursuant to power of attorney previously filed
and incorporated herein by reference.
Exhibit
|
|
Description
|
|
|
Opinion
and Consent of Chapman and Cutler LLP
|
|
|
Consent
of independent registered public accounting firm.
|
|
|
Compliance
Services Agreement by and between the Registrant and Cipperman
Compliance Services, LLC.
|
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