Loncar China BioPharma ETF (CHNA)

Transcription

1 Lncar China BiPharma ETF (CHNA) Listed n The Nasdaq Stck Market LLC PROSPECTUS August 11, 2018 The U.S. Securities and Exchange Cmmissin ( SEC ) has nt apprved r disapprved f these securities r passed upn the accuracy r adequacy f this Prspectus. Any representatin t the cntrary is a criminal ffense.

2 Lncar China BiPharma ETF TABLE OF CONTENTS FUND SUMMARY...2 Investment Objective... 2 Fees and Expenses f the Fund... 2 Expense Example... 2 Prtfli Turnver... 2 Principal Investment Strategy... 2 Principal Investment Risks... 3 Perfrmance... 6 Prtfli Management... 6 Purchase and Sale f Shares... 6 Tax Infrmatin... 7 Financial Intermediary Cmpensatin... 7 ADDITIONAL INFORMATION ABOUT THE INDEX...7 ADDITIONAL INFORMATION ABOUT THE FUND...7 Investment Objective... 7 Principal Investment Strategy... 7 Principal Investment Risks... 7 PORTFOLIO HOLDINGS INFORMATION...13 MANAGEMENT...13 Investment Adviser Sub-Adviser Management f the Fund s Sub-Adviser Prtfli Managers HOW TO BUY AND SELL SHARES...14 Bk Entry Share Trading Prices n the Exchange Frequent Purchases and Redemptins f Shares Determinatin f NAV Fair Value Pricing Investments by Registered Investment Cmpanies DIVIDENDS, DISTRIBUTIONS, AND TAXES...16 DISTRIBUTION...18 PREMIUM/DISCOUNT INFORMATION...18 ADDITIONAL NOTICES...18 FINANCIAL HIGHLIGHTS...19

3 FUND SUMMARY Investment Objective The Lncar China BiPharma ETF (the Fund ) seeks t track the perfrmance, befre fees and expenses, f the Lncar China BiPharma Index (the Index ). Fees and Expenses f the Fund This table describes the fees and expenses that yu may pay if yu buy and hld shares f the Fund ( Shares ). This table and the example belw d nt include the brkerage cmmissins that investrs may pay n their purchases and sales f Shares. Annual Fund Operating Expenses (expenses that yu pay each year as a percentage f the value f yur investment) Management Fees 0.79% Distributin and/r Service (12b-1) Fees 0.00% Other Expenses* 0.00% Ttal Annual Fund Operating Expenses 0.79% * Estimated fr the current fiscal year. Expense Example This example is intended t help yu cmpare the cst f investing in the Fund with the cst f investing in ther funds. The example assumes that yu invest $10,000 in the Fund fr the time perids indicated and then redeem all f yur shares at the end f thse perids. The example als assumes that yur investment has a 5% return each year and that the Fund s perating expenses remain the same. Althugh yur actual csts may be higher r lwer, based n these assumptins yur csts wuld be: Prtfli Turnver 1 Year: $81 3 Years: $252 The Fund pays transactin csts, such as cmmissins, when it buys and sells securities (r turns ver its prtfli). A higher prtfli turnver rate may indicate higher transactin csts and may result in higher taxes when Shares are held in a taxable accunt. These csts, which are nt reflected in annual fund perating expenses r in the example, affect the Fund s perfrmance. Because the Fund is newly rganized, prtfli turnver infrmatin is nt yet available. Principal Investment Strategy The Fund uses a passive management (r indexing) apprach t track the perfrmance, befre fees and expenses, f the Index. The Index was develped in 2018 by Lncar Investments LLC, the Fund s index prvider (the Index Prvider ), and seeks t track the perfrmance f a mdified equal-weighted prtfli f cmpanies directly invlved in the grwth f China s pharmaceutical and bitech related industries (China s bipharma sectr ). The Index includes pharmaceutical cmpanies, bitech cmpanies, drug manufacturers, diagnstics cmpanies, whlesalers r distributrs f bipharma prducts, and bipharma service prviders ( Bipharma Cmpanies ). Lncar China BiPharma Index The Index is cnstructed frm the universe f Nasdaq- r Hng Kng Stck Exchange-listed cmpanies identified by the Index methdlgy as Bipharma Cmpanies. T maintain a fcus n innvatin in the Chinese bipharma sectr, cmpanies in the Index universe are screened t eliminate thse that fcus strictly n manufacturing active pharmaceutical ingredients. The remaining cmpanies are then screened accrding t the Index rules t include nly cmpanies (i) whse principal crprate headquarters is in China r (ii) fr which at least 51% f the value f their prduct revenue and pipeline is tied directly t the Chinese market (such remaining cmpanies, China Bipharma Cmpanies ). The pl f China Bipharma Cmpanies is then screened fr investibility leaving nly cmpanies having a market capitalizatin f at least USD$200 millin, meeting a minimum liquidity threshld, and that are nt publicly knwn t currently be under frmal investigatin by a gvernment r regulatry entity. At the time f each recnstitutin f the Index n the secnd Mnday f each February and August (beginning in February 2019), each cnstituent is weighted equally, subject t the fllwing adjustments applied depending n a cmpany s market capitalizatin t emphasize the rle f larger cmpanies in the Index: 2

4 Market Capitalizatin (USD$) Weight Adjustment Factr $10 billin r mre 140% Between $1 billin and $10 billin 100% Frm $200 millin t $1 billin 70% As f August 7, 2018, the Index cntained 30 cmpanies, 6 f which were listed n Nasdaq and 24 f which were listed n the Hng Kng Stck Exchange. As f August 7, 2018, the three largest cmpnents f the Index were CSPC Pharmaceutical Grup Ltd (5.37%), Guangzhu Baiyunshan Pharmaceutical Hldings C Ltd (5.16%), and Sin Bipharmaceutical Ltd (4.94%). The Fund s Investment Strategy The Fund attempts t invest all, r substantially all, f its assets in the cmpnent securities and depsitary receipts that make up the Index. Under nrmal circumstances, at least 80% f the Fund s ttal assets (exclusive f any cllateral held frm securities lending) will be invested in the cmpnent securities f the Index r in depsitary receipts representing such cmpnent securities. Exchange Traded Cncepts, LLC ( ETC r the Adviser ), the Fund s investment adviser, expects that, ver time, the crrelatin between the Fund s perfrmance and that f the Index, befre fees and expenses, will be 95% r better. The Fund will generally use a replicatin strategy t achieve its investment bjective, meaning it generally will invest in all f the cmpnent securities f the Index in apprximately the same prprtin as in the Index. Hwever, the Fund may use a representative sampling strategy, meaning it may invest in a sample f the securities in the Index whse risk, return, and ther characteristics clsely resemble the risk, return, and ther characteristics f the Index as a whle, when the Fund s sub-adviser believes it is in the best interests f the Fund (e.g., when replicating the Index invlves practical difficulties r substantial csts, an Index cnstituent becmes temprarily illiquid, unavailable r less liquid, r as a result f legal restrictins r limitatins that apply t the Fund but nt t the Index). The Fund generally may invest up t 20% f its ttal assets (exclusive f any cllateral held frm securities lending) in securities r ther investments nt included in the Index, but which the Fund s sub-adviser believes will help the Fund track the Index. Fr example, the Fund may invest in securities that are nt cmpnents f the Index t reflect varius crprate actins and ther changes t the Index (such as recnstitutins, additins and deletins). T the extent the Index cncentrates (i.e., hlds mre than 25% f its ttal assets) in the securities f a particular industry r grup f related industries, the Fund will cncentrate its investments t apprximately the same extent as the Index. The Adviser expects that the Index, and cnsequently the Fund, will generally be cncentrated in the securities f bitech and pharmaceutical cmpanies. Principal Investment Risks Yu can lse mney n yur investment in the Fund. The Fund is subject t the risks described belw. Sme r all f these risks may adversely affect the Fund s net asset value per share ( NAV ), trading price, yield, ttal return, and/r ability t meet its bjective. Fr mre infrmatin abut the risks f investing in the Fund, see the sectin in the Fund s Prspectus titled Additinal Infrmatin Abut the Fund Principal Investment Risks. China Bipharma Risk. The bipharmaceutical industry in China is strictly regulated and changes in such regulatins, including banning r limiting certain prducts, may have a material adverse effect n the peratins, revenues, and prfitability f Bipharma Cmpanies. The laws and regulatins applicable t the prcess f administrative apprval f medicine and its prductin in China require entities prducing bipharma prducts t cmply strictly with certain standards and specificatins prmulgated by the gvernment. In the event that a prduct is discvered t be nt cmpliant with the gvernment s standards and specificatins, the health department may revke its apprval f such prduct, r therwise limit the use f such prduct. Additinally, the prcess f cnducting research and varius tests n new prducts befre btaining a new medicine certificate frm the China Natinal Drug Administratin ( CNDA ) and subsequent prcedures may take several years, and the price f certain bipharma prducts may be regulated in China. Changes in these laws and regulatins, including banning r limiting certain prducts, culd have a material adverse effect n the peratins, revenues, and prfitability f Bipharma Cmpanies held by the Fund. Currency Exchange Rate Risk. The Fund s assets include investments denminated in nn-u.s. currencies r in securities that prvide expsure t such currencies. Changes in currency exchange rates and the relative value f nn- U.S. currencies will affect the value f the Fund s investment and the value f yur Shares. Currency exchange rates can be very vlatile and can change quickly and unpredictably. As a result, the value f an investment in the Fund may change quickly and withut warning and yu may lse mney. 3

5 Depsitary Receipt Risk. Depsitary Receipts invlve risks similar t thse assciated with investments in freign securities, such as changes in plitical r ecnmic cnditins f ther cuntries and changes in the exchange rates f freign currencies. Depsitary Receipts listed n U.S. exchanges are issued by banks r trust cmpanies, and entitle the hlder t all dividends and capital gains that are paid ut n the underlying freign shares ( Underlying Shares ). When the Fund invests in Depsitary Receipts as a substitute fr an investment directly in the Underlying Shares, the Fund is expsed t the risk that the Depsitary Receipts may nt prvide a return that crrespnds precisely with that f the Underlying Shares. Equity Market Risk. The equity securities held in the Fund s prtfli may experience sudden, unpredictable drps in value r lng perids f decline in value. This may ccur because f factrs that affect securities markets generally r factrs affecting specific issuers, industries, r sectrs in which the Fund invests. The trading prices f equity securities and ther instruments fluctuate in respnse t a variety f factrs. The Fund s NAV and market price may fluctuate significantly in respnse t these and ther factrs. As a result, an investr culd lse mney ver shrt r lng perids f time. ETF Risks. Authrized Participants, Market Makers, and Liquidity Prviders Cncentratin Risk. The Fund has a limited number f financial institutins that may act as APs. In additin, there may be a limited number f market makers and/r liquidity prviders in the marketplace. T the extent either f the fllwing events ccur, Shares may trade at a material discunt t NAV and pssibly face delisting: (i) APs exit the business r therwise becme unable t prcess creatin and/r redemptin rders and n ther APs step frward t perfrm these services, r (ii) market makers and/r liquidity prviders exit the business r significantly reduce their business activities and n ther entities step frward t perfrm their functins. Csts f Buying r Selling Shares. Due t the csts f buying r selling Shares, including brkerage cmmissins impsed by brkers and bid/ask spreads, frequent trading f Shares may significantly reduce investment results and an investment in Shares may nt be advisable fr investrs wh anticipate regularly making small investments. Shares f the Fund May Trade at Prices Other Than NAV. As with all exchange traded funds ( ETFs ), Fund shares may be bught and sld in the secndary market at market prices. Althugh it is expected that the market price f the shares f the Fund will apprximate the Fund s NAV, there may be times when the market price f the shares is mre than the NAV intra-day (premium) r less than the NAV intra-day (discunt) due t supply and demand f the Fund s shares r during perids f market vlatility. This risk is heightened in times f market vlatility r perids f steep market declines. Because certain securities held by the Fund trade n freign exchanges that are clsed when the Fund s primary listing exchange is pen, the Fund is likely t experience premiums and discunts greater than thse f dmestic ETFs. Trading. Althugh Shares are listed fr trading n The Nasdaq Stck Market LLC (the Exchange ) and may be traded n U.S. exchanges ther than the Exchange, there can be n assurance that Shares will trade with any vlume, r at all, n any stck exchange. In stressed market cnditins, the liquidity f Shares may begin t mirrr the liquidity f the Fund s underlying prtfli hldings, which can be significantly less liquid than Shares. Freign Securities Risk. Investments in nn-u.s. securities invlve certain risks that may nt be present with investments in U.S. securities. Fr example, investments in nn-u.s. securities may be subject t risk f lss due t freign currency fluctuatins r t plitical r ecnmic instability. Investments in nn-u.s. securities als may be subject t withhlding r ther taxes and may be subject t additinal trading, settlement, custdial, and peratinal risks. These and ther factrs can make investments in the Fund mre vlatile and ptentially less liquid than ther types f investments. Gegraphic Investment Risk. T the extent the Fund invests a significant prtin f its assets in the securities f cmpanies f a single cuntry r regin, such as China, it is mre likely t be impacted by events r cnditins affecting that cuntry r regin. China-Specific Risk. Investments in Chinese issuers subject the Fund t risks specific t China. China may be subject t cnsiderable degrees f ecnmic, plitical, and scial instability. China is a develping market and demnstrates significantly higher vlatility frm time t time in cmparisn t develped markets. Over the past 25 years, the Chinese gvernment has undertaken refrm f ecnmic and market practices and is expanding the sphere f private wnership f prperty in China. Hwever, Chinese markets generally cntinue 4

6 t experience inefficiency, vlatility, and pricing anmalies resulting frm gvernmental influence, a lack f publicly available infrmatin, and/r plitical and scial instability. Internal scial unrest r cnfrntatins with ther neighbring cuntries, including military cnflicts in respnse t such events, may als disrupt ecnmic develpment in China and result in a greater risk f currency fluctuatins, currency cnvertibility, interest rate fluctuatins, and higher rates f inflatin. Exprt grwth cntinues t be a majr driver f China s rapid ecnmic grwth. Reductin in spending n Chinese prducts and services, institutin f tariffs r ther trade barriers, r a dwnturn in any f the ecnmies f China s key trading partners may have an adverse impact n the Chinese ecnmy. Geplitical Risk. Sme cuntries and regins in which the Fund invests have experienced security cncerns, war r threats f war and aggressin, terrrism, ecnmic uncertainty, natural and envirnmental disasters and/r systemic market dislcatins that have led, and in the future may lead, t increased shrt-term market vlatility and may have adverse lng-term effects n the U.S. and wrld ecnmies and markets generally, each f which may negatively impact the Fund s investments. Market Capitalizatin Risk Large-Capitalizatin Investing. The securities f large-capitalizatin cmpanies may be relatively mature cmpared t smaller cmpanies and therefre subject t slwer grwth during times f ecnmic expansin. Large-capitalizatin cmpanies may als be unable t respnd quickly t new cmpetitive challenges, such as changes in technlgy and cnsumer tastes. Mid-Capitalizatin Investing. The securities f mid-capitalizatin cmpanies may be mre vulnerable t adverse issuer, market, plitical, r ecnmic develpments than securities f large-capitalizatin cmpanies. The securities f mid-capitalizatin cmpanies generally trade in lwer vlumes and are subject t greater and mre unpredictable price changes than large capitalizatin stcks r the stck market as a whle. Small-Capitalizatin Investing. The securities f small-capitalizatin cmpanies may be mre vulnerable t adverse issuer, market, plitical, r ecnmic develpments than securities f large- r mid-capitalizatin cmpanies. The securities f small-capitalizatin cmpanies generally trade in lwer vlumes and are subject t greater and mre unpredictable price changes than large- r mid-capitalizatin stcks r the stck market as a whle. There is typically less publicly available infrmatin cncerning smaller-capitalizatin cmpanies than fr larger, mre established cmpanies. New Fund Risk. The Fund is a recently rganized, nn-diversified management investment cmpany with n perating histry. As a result, prspective investrs have n track recrd r histry n which t base their investment decisin. Nn-Diversificatin Risk. The Fund is cnsidered t be nn-diversified, which means that it may invest mre f its assets in the securities f a single issuer r a smaller number f issuers than if it were a diversified fund. As a result, the Fund may be mre expsed t the risks assciated with and develpments affecting an individual issuer r a smaller number f issuers than a fund that invests mre widely. This may increase the Fund s vlatility and cause the perfrmance f a relatively smaller number f issuers t have a greater impact n the Fund s perfrmance. Passive Investment Risk. The Fund is nt actively managed and the Fund s sub-adviser wuld nt sell shares f an equity security due t current r prjected underperfrmance f a security, industry r sectr, unless that security is remved frm the Index r the selling f shares f that security is therwise required upn a recnstitutin f the Index in accrdance with the Index methdlgy. Prtfli Turnver Risk. The Fund may trade all r a significant prtin f the securities in its prtfli in cnnectin with each rebalance and recnstitutin f its Index. A high prtfli turnver rate increases transactin csts, which may increase the Fund s expenses. Frequent trading may als cause adverse tax cnsequences fr investrs in the Fund due t an increase in shrt-term capital gains. Sectr Risk. T the extent the Fund invests mre heavily in particular sectrs f the ecnmy, its perfrmance will be especially sensitive t develpments that significantly affect thse sectrs. The Fund s investments will be cncentrated in an industry r grup f industries t the extent the Index is s cncentrated. The Fund may be susceptible t an increased risk f lss, including lsses due t adverse ccurrences affecting the Fund mre than the market as a whle, t the extent that the Fund s investments are cncentrated in the securities f a particular industry, grup f industries, r sectr. A significant prtin f the Fund s assets will be invested in the bitechnlgy and pharmaceutical industries, which expse the Fund t the risks f the fllwing sectr: 5

7 Healthcare Sectr Risk. Cmpanies in the health care sectr are subject t extensive gvernment regulatin and their prfitability can be significantly affected by restrictins n gvernment reimbursement fr medical expenses, rising csts f medical prducts and services, pricing pressure (including price discunting), limited prduct lines, and an increased emphasis n the delivery f healthcare thrugh utpatient services. The csts assciated with develping new drugs can be significant, and the results are unpredictable. Newly develped drugs may be susceptible t prduct bslescence due t intense cmpetitin frm new prducts and less cstly generic prducts. Mrever, the prcess fr btaining regulatry apprval by the U.S. Fd and Drug Administratin ( FDA ), CNDA, r ther freign r dmestic gvernmental regulatry authrities is lng and cstly and there can be n assurance that the necessary apprvals will be btained r maintained. The values f many cmpanies in the health care sectr are als dependent n the develpment, prtectin and explitatin f intellectual prperty rights and ther prprietary infrmatin, and the prfitability f these cmpanies may be significantly affected by such things as the expiratin f patents r the lss f, r the inability t enfrce, intellectual prperty rights. Tax Risk. T qualify fr the favrable tax treatment generally available t a regulated investment cmpany ( RIC ), the Fund must satisfy, amng ther requirements described in the SAI, certain diversificatin requirements. Given the cncentratin f the Index in a relatively small number f securities, it may nt always be pssible fr the Fund t fully implement a replicatin strategy r a representative sampling strategy while satisfying these diversificatin requirements. The Fund s effrts t replicate r represent the Index may cause it inadvertently t fail t satisfy the diversificatin requirements. If the Fund were t fail t satisfy the diversificatin requirements, it culd be eligible fr relief prvisins if the failure is due t reasnable cause and nt willful neglect and if a penalty tax is paid with respect t each failure t satisfy the applicable requirements. Additinally, relief is prvided fr certain de minimis failures f the diversificatin requirements where the Fund crrects the failure within a specified perid. If the Fund were t fail t qualify as a RIC fr a tax year, and the relief prvisins are nt available, it wuld be taxed in the same manner as an rdinary crpratin, and distributins t its sharehlders wuld nt be deductible by the Fund in cmputing its taxable incme. In such case, its sharehlders wuld be taxed as if they received rdinary dividends, althugh crprate sharehlders culd be eligible fr the dividends received deductin (subject t certain limitatins) and individuals may be able t benefit frm the lwer tax rates available t qualified dividend incme. In additin, the Fund culd be required t recgnize unrealized gains, pay substantial taxes and interest, and make substantial distributins befre requalifying as a RIC. Tracking Errr Risk. As with all index funds, the perfrmance f the Fund and its Index may differ frm each ther fr a variety f reasns. Fr example, the Fund incurs perating expenses and prtfli transactin csts nt incurred by the Index. In additin, the Fund may nt be fully invested in the securities f the Index at all times r may hld securities nt included in the Index. Perfrmance The Fund is new and therefre des nt have a perfrmance histry fr a full calendar year. In the future, perfrmance infrmatin fr the Fund will be presented in this sectin. Updated perfrmance infrmatin is als available n the Fund s website at Prtfli Management Adviser Sub-Adviser Prtfli Managers Exchange Traded Cncepts, LLC Vident Investment Advisry, LLC ( VIA r the Sub-Adviser ) Denise M. Krisk, CFA, President f VIA, and Habib Mudachiru, FRM, Senir Prtfli Manager f VIA, have been prtfli managers f the Fund since its inceptin in 2018 Purchase and Sale f Shares Shares are listed n a natinal securities exchange, such as the Exchange, and mst investrs will buy and sell Shares thrugh brkers at market prices, rather than NAV. Because Shares trade at market prices rather than NAV, Shares may trade at a price greater than NAV (premium) r less than NAV (discunt). The Fund issues and redeems Shares at NAV nly in large blcks knwn as Creatin Units, which nly Authrized Participants ( APs ) (typically, brker-dealers) may purchase r redeem. Creatin Units generally cnsist f 50,000 Shares, thugh this may change frm time t time. The Fund generally issues and redeems Creatin Units in exchange fr a prtfli f securities clsely apprximating the hldings f the Fund (the Depsit Securities ) and/r a designated amunt f U.S. cash. 6

8 Tax Infrmatin Fund distributins are generally taxable as rdinary incme, qualified dividend incme, r capital gains (r a cmbinatin), unless yur investment is in an individual retirement accunt ( IRA ) r ther tax-advantaged accunt. Distributins n investments made thrugh tax-deferred arrangements may be taxed later upn withdrawal f assets frm thse accunts Financial Intermediary Cmpensatin If yu purchase Shares thrugh a brker-dealer r ther financial intermediary (such as a bank) (an Intermediary ), the Adviser r its affiliates may pay Intermediaries fr certain activities related t the Fund, including participatin in activities that are designed t make Intermediaries mre knwledgeable abut exchange traded prducts, including the Fund, r fr ther activities, such as marketing, educatinal training r ther initiatives related t the sale r prmtin f Shares. These payments may create a cnflict f interest by influencing the Intermediary and yur salespersn t recmmend the Fund ver anther investment. Any such arrangements d nt result in increased Fund expenses. Ask yur salespersn r visit the Intermediary s website fr mre infrmatin. ADDITIONAL INFORMATION ABOUT THE INDEX The Index Prvider is nt affiliated with the Adviser, the Sub-Adviser, the Fund s distributr, r any f their respective affiliates. The Index Prvider prvides infrmatin t the Fund abut the cnstituents f the Index and des nt prvide investment advice with respect t the desirability f investing in, purchasing, r selling securities. The Adviser has entered int a licensing agreement with the Index Prvider pursuant t which the Adviser pays a fee t use the Index. The Adviser is sub-licensing rights t the Index t the Fund at n charge. The Index Calculatin Agent is Indxx, LLC, which is nt affiliated with the Fund, the Adviser, the Sub-Adviser, the Index Prvider, r the Fund s distributr. The Index Calculatin Agent prvides infrmatin t the Fund abut the cnstituents f the Index and des nt prvide investment advice with respect t the desirability f investing in, purchasing, r selling securities. If an Index cnstituent s shares are tendered r discntinued due t a merger r acquisitin, any funds received frm the tendered r discntinued security will be distributed t the remaining Index cnstituents pr rata. ADDITIONAL INFORMATION ABOUT THE FUND Investment Objective The Fund s investment bjective is a nn-fundamental investment plicy and may be changed withut sharehlder apprval upn written ntice t sharehlders. Principal Investment Strategy The Fund has adpted the fllwing plicy t cmply with Rule 35d-1 under the Investment Cmpany Act f Such plicy has been adpted as a nn-fundamental investment plicy and may be changed withut sharehlder apprval upn 60 days written ntice t sharehlders. Under nrmal circumstances, at least 80% f the Fund s net assets, plus brrwings fr investment purpses, will be invested in cmpanies in the bitechnlgy r pharmaceutical sectrs and ecnmically tied t China (the 35d- 1 Plicy ). Fr purpses f the Fund s 35d-1 Plicy, the Fund cnsiders cmpanies that derive a majrity f their revenue r prfits frm prducts r services, r have a majrity f their assets invested in activities, that are predminantly tied t the develpment, sale, r distributin f regulated bilgic r pharmaceutical medicines intended fr human therapeutic use t be part f the bitechnlgy r pharmaceutical sectrs. Additinally, fr purpses f the Fund s 35d-1 Plicy, the Fund cnsiders the fllwing securities t be ecnmically tied t China: (i) securities f cmpanies that are rganized under the laws f China r that maintain their principal place f business in China; (ii) securities that are traded principally in China; and (iii) securities f issuers that derive at least 50% f their revenues r prfits frm gds prduced r sld, investments made, r services perfrmed in China, that have at least 50% f their assets in China, r that have at least 50% f the value f their prduct pipeline tied directly t the Chinese market. Principal Investment Risks As with any investment, there is a risk that yu culd lse all r a prtin f yur investment in the Fund. The fllwing risks culd affect the value f yur investment in the Fund: China Bipharma Risk. The bipharmaceutical industry in China is strictly regulated and changes in such regulatins, including banning r limiting certain prducts, may have a material adverse effect n the peratins, revenues, and 7

9 prfitability f Bipharma Cmpanies. The laws and regulatins applicable t the prcess f administrative apprval f medicine and its prductin in China require entities prducing bipharma prducts t cmply strictly with certain standards and specificatins prmulgated by the gvernment. In the event that a prduct is discvered t be nt cmpliant with the gvernment s standards and specificatins, the health department may revke its apprval f such prduct, r therwise limit the use f such prduct. Additinally, the prcess f cnducting research and varius tests n new prducts befre btaining a new medicine certificate frm the China Natinal Drug Administratin ( CNDA ) and subsequent prcedures may take several years, and the price f certain bipharma prducts may be regulated in China. Changes in these laws and regulatins, including banning r limiting certain prducts, culd have a material adverse effect n the peratins, revenues, and prfitability f Bipharma Cmpanies held by the Fund. Currency Exchange Rate Risk. Changes in currency exchange rates and the relative value f nn-u.s. currencies will affect the value f the Fund s investments and the value f yur Shares. Because the Fund s NAV is determined n the basis f U.S. dllars, the U.S. dllar value f yur investment in the Fund may g dwn if the value f the lcal currency f the nn-u.s. markets in which the Fund invests depreciates against the U.S. dllar. This is true even if the lcal currency value f securities in the Fund s hldings ges up. Cnversely, the dllar value f yur investment in the Fund may g up if the value f the lcal currency appreciates against the U.S. dllar. The value f the U.S. dllar measured against ther currencies is influenced by a variety f factrs. These factrs include: natinal debt levels and trade deficits, changes in balances f payments and trade, dmestic and freign interest and inflatin rates, glbal r reginal plitical, ecnmic r financial events, mnetary plicies f gvernments, actual r ptential gvernment interventin, and glbal energy prices. Plitical instability, the pssibility f gvernment interventin and restrictive r paque business and investment plicies may als reduce the value f a cuntry s currency. Gvernment mnetary plicies and the buying r selling f currency by a cuntry s gvernment may als influence exchange rates. Currency exchange rates can be very vlatile and can change quickly and unpredictably. As a result, the value f an investment in the Fund may change quickly and withut warning, and yu may lse mney. Depsitary Receipt Risk. The Fund may hld the securities f nn-u.s. cmpanies in the frm f American Depsitary Receipts ( ADRs ) and Glbal Depsitary Receipts ( GDRs ). ADRs are negtiable certificates issued by a U.S. financial institutin that represent a specified number f shares in a freign stck and trade n a U.S. natinal securities exchange, such as the New Yrk Stck Exchange. Spnsred ADRs are issued with the supprt f the issuer f the freign stck underlying the ADRs and carry all f the rights f cmmn shares, including vting rights. GDRs are similar t ADRs, but may be issued in bearer frm and are typically ffered fr sale glbally and held by a freign branch f an internatinal bank. The underlying issuers f certain depsitary receipts, particularly unspnsred r unregistered depsitary receipts, are under n bligatin t distribute sharehlder cmmunicatins t the hlders f such receipts, r t pass thrugh t them any vting rights with respect t the depsited securities. Issuers f unspnsred depsitary receipts are nt cntractually bligated t disclse material infrmatin in the U.S. and, therefre, such infrmatin may nt crrelate t the market value f the unspnsred depsitary receipt. The underlying securities f the ADRs and GDRs in the Fund s prtfli are usually denminated r quted in currencies ther than the U.S. Dllar. As a result, changes in freign currency exchange rates may affect the value f the Fund s prtfli. In additin, because the underlying securities f ADRs and GDRs trade n freign exchanges at times when the U.S. markets are nt pen fr trading, the value f the securities underlying the ADRs and GDRs may change materially at times when the U.S. markets are nt pen fr trading, regardless f whether there is an active U.S. market fr Shares. Equity Market Risk. Cmmn stcks are susceptible t general stck market fluctuatins and t vlatile increases and decreases in value as market cnfidence in and perceptins f their issuers change. These investr perceptins are based n varius and unpredictable factrs including: expectatins regarding gvernment, ecnmic, mnetary and fiscal plicies; inflatin and interest rates; ecnmic expansin r cntractin; and glbal r reginal plitical, ecnmic and banking crises. If yu held cmmn stck, r cmmn stck equivalents, f any given issuer, yu wuld generally be expsed t greater risk than if yu held preferred stcks and debt bligatins f the issuer because cmmn stckhlders, r hlders f equivalent interests, generally have inferir rights t receive payments frm issuers in cmparisn with the rights f preferred stckhlders, bndhlders, and ther creditrs f such issuers. ETF Risks. Authrized Participants, Market Makers, and Liquidity Prviders Cncentratin Risk. The Fund has a limited number f financial institutins that may act as APs. In additin, there may be a limited number f market makers and/r liquidity prviders in the marketplace. T the extent either f the fllwing events ccur, Shares may trade at a material discunt t NAV and pssibly face delisting: (i) APs exit the business r therwise becme unable t prcess creatin and/r redemptin rders and n ther APs step frward t perfrm these services, r (ii) market makers and/r liquidity prviders exit the business r significantly reduce their business activities and n ther entities step frward t perfrm their functins. 8

10 Csts f Buying r Selling Shares. Investrs buying r selling Shares in the secndary market will pay brkerage cmmissins r ther charges impsed by brkers, as determined by that brker. Brkerage cmmissins are ften a fixed amunt and may be a significant prprtinal cst fr investrs seeking t buy r sell relatively small amunts f Shares. In additin, secndary market investrs will als incur the cst f the difference between the price at which an investr is willing t buy Shares (the bid price) and the price at which an investr is willing t sell Shares (the ask price). This difference in bid and ask prices is ften referred t as the spread r bid/ask spread. The bid/ask spread varies ver time fr Shares based n trading vlume and market liquidity, and is generally lwer if Shares have mre trading vlume and market liquidity and higher if Shares have little trading vlume and market liquidity. Further, a relatively small investr base in the Fund, asset swings in the Fund and/r increased market vlatility may cause increased bid/ask spreads. Due t the csts f buying r selling Shares, including bid/ask spreads, frequent trading f Shares may significantly reduce investment results and an investment in Shares may nt be advisable fr investrs wh anticipate regularly making small investments. Shares f the Fund May Trade at Prices Other Than NAV. As with all ETFs, Fund shares may be bught and sld in the secndary market at market prices. Althugh it is expected that the market price f the shares f the Fund will apprximate the Fund s NAV, there may be times when the market price f the shares is mre than the NAV intra-day (premium) r less than the NAV intra-day (discunt) due t supply and demand f the Fund s shares r during perids f market vlatility. This risk is heightened in times f market vlatility r perids f steep market declines. The market price f Fund shares during the trading day, like the price f any exchange-traded security, includes a bid/ask spread charged by the exchange specialist, market makers r ther participants that trade the Fund shares. In times f severe market disruptin, the bid/ask spread can increase significantly. At thse times, Fund shares are mst likely t be traded at a discunt t NAV, and the discunt is likely t be greatest when the price f Fund shares is falling fastest, which may be the time that yu mst want t sell yur Fund shares. The Adviser believes that, under nrmal market cnditins, large market price discunts r premiums t NAV will nt be sustained because f arbitrage pprtunities. Because securities held by the Fund trade n freign exchanges that are clsed when the Fund s primary listing exchange is pen, there are likely t be deviatins between the current price f an underlying security and the security s last quted price frm the clsed freign market. This may result in premiums and discunts that are greater than thse experienced by dmestic ETFs. Trading. Althugh Shares are listed fr trading n the Exchange and may be listed r traded n U.S. and nn- U.S. stck exchanges ther than the Exchange, there can be n assurance that an active trading market fr such Shares will develp r be maintained. Trading in Shares may be halted due t market cnditins r fr reasns that, in the view f the Exchange, make trading in Shares inadvisable. In additin, trading in Shares n the Exchange is subject t trading halts caused by extrardinary market vlatility pursuant t Exchange circuit breaker rules, which temprarily halt trading n the Exchange when a decline in the S&P 500 Index during a single day reaches certain threshlds (e.g., 7%, 13%, and 20%). Additinal rules applicable t the Exchange may halt trading in Shares when extrardinary vlatility causes sudden, significant swings in the market price f Shares. There can be n assurance that Shares will trade with any vlume, r at all, n any stck exchange. In stressed market cnditins, the liquidity f Shares may begin t mirrr the liquidity f the Fund s underlying prtfli hldings, which can be significantly less liquid than Shares. Freign Securities Risk. Investments in nn-u.s. securities invlve certain risks that may nt be present with investments in U.S. securities. Fr example, investments in nn-u.s. securities may be subject t risk f lss due t freign currency fluctuatins r t plitical r ecnmic instability. There may be less infrmatin publicly available abut a nn-u.s. issuer than a U.S. issuer. Nn-U.S. issuers may be subject t different accunting, auditing, financial reprting and investr prtectin standards than U.S. issuers. Investments in nn-u.s. securities may be subject t withhlding r ther taxes and may be subject t additinal trading, settlement, custdial, and peratinal risks. With respect t certain cuntries, there is the pssibility f gvernment interventin and exprpriatin r natinalizatin f assets. Because legal systems differ, there is als the pssibility that it will be difficult t btain r enfrce legal judgments in certain cuntries. Since freign exchanges may be pen n days when the Fund des nt price their Shares, the value f the securities in the Fund s prtfli may change n days when sharehlders will nt be able t purchase r sell Shares. Cnversely, Shares may trade n days when freign exchanges are clsed. Each f these factrs can make investments in the Fund mre vlatile and ptentially less liquid than ther types f investments. Gegraphic Investment Risk. T the extent that the Fund s Index invests a significant prtin f its assets in the securities f cmpanies f a single cuntry r regin, it is mre likely t be impacted by events r cnditins affecting that cuntry r regin. Fr example, plitical and ecnmic cnditins and changes in regulatry, tax, r ecnmic 9

11 plicy in a cuntry culd significantly affect the market in that cuntry and in surrunding r related cuntries and have a negative impact n the Fund s perfrmance. Currency develpments r restrictins, plitical and scial instability, and changing ecnmic cnditins have resulted in significant market vlatility. China-Specific Risk. The Chinese ecnmy is subject t a cnsiderable degree f ecnmic, plitical and scial instability: Plitical and Scial Risk: The Chinese gvernment is authritarian and has peridically used frce t suppress civil dissent. Disparities f wealth and the pace f ecnmic liberalizatin may lead t scial turmil, vilence and labr unrest. In additin, China cntinues t experience disagreements related t integratin with Hng Kng and religius and natinalist disputes in Tibet and Xinjiang. There is als a greater risk in China than in many ther cuntries f currency fluctuatins, currency cnvertibility, interest rate fluctuatins and higher rates f inflatin as a result f internal scial unrest r cnflicts with ther cuntries. Unanticipated plitical r scial develpments may result in sudden and significant investment lsses. China s grwing incme inequality and wrsening envirnmental cnditins als are factrs that may affect the Chinese ecnmy. Gvernment Cntrl and Regulatins: The Chinese gvernment has implemented significant ecnmic refrms in rder t liberalize trade plicy, prmte freign investment in the ecnmy, reduce gvernment cntrl f the ecnmy and develp market mechanisms. There can be n assurance these refrms will cntinue r that they will be effective. Despite recent refrm and privatizatins, significant regulatin f investment and industry is still pervasive and the Chinese gvernment may restrict freign wnership f Chinese crpratins and/r repatriate assets. Chinese markets generally cntinue t experience inefficiency, vlatility and pricing anmalies that may be cnnected t gvernmental influence, a lack f publicly-available infrmatin and/r plitical and scial instability. Ecnmic Risk: The Chinese ecnmy has grwn rapidly during the past several years and there is n assurance that this grwth rate will be maintained. In fact, the Chinese ecnmy may experience a significant slwdwn as a result f, amng ther things, a deteriratin in glbal demand fr Chinese exprts, as well as cntractin in spending n dmestic gds by Chinese cnsumers. The impsitin f tariffs and ther trade barriers n Chinese prducts and services culd als have an adverse impact n the glbal demand fr Chinese exprts as well as the Chinese ecnmy mre bradly. In additin, China may experience substantial rates f inflatin r ecnmic recessins, which wuld have a negative effect n the ecnmy and securities market. Delays in enterprise restructuring, slw develpment f well-functining financial markets and widespread crruptin have als hindered perfrmance f the Chinese ecnmy. China cntinues t receive substantial pressure frm trading partners t liberalize fficial currency exchange rates. Exprpriatin Risk: The Chinese gvernment maintains a majr rle in ecnmic plicymaking, and investing in China invlves risk f lss due t exprpriatin, natinalizatin, cnfiscatin f assets and prperty, r the impsitin f restrictins n freign investments and n repatriatin f capital invested. Hng Kng Plitical Risk: Hng Kng reverted t Chinese svereignty n July 1, 1997 as a Special Administrative Regin (SAR) f the PRC under the principle f ne cuntry, tw systems. Althugh China is bligated t maintain the current capitalist ecnmic and scial system f Hng Kng thrugh June 30, 2047, the cntinuatin f ecnmic and scial freedms enjyed in Hng Kng is dependent n the gvernment f China. Any attempt by China t tighten its cntrl ver Hng Kng s plitical, ecnmic, legal r scial plicies may result in an adverse effect n Hng Kng s markets. In additin, the Hng Kng dllar trades at a fixed exchange rate in relatin t (r, is pegged t) the U.S. dllar, which has cntributed t the grwth and stability f the Hng Kng ecnmy. Hwever, it is uncertain hw lng the currency peg will cntinue r what effect the establishment f an alternative exchange rate system wuld have n the Hng Kng ecnmy. Because the Fund s net asset value is denminated in U.S. dllars, the establishment f an alternative exchange rate system culd result in a decline in the Fund s net asset value. Geplitical Risk. Sme cuntries and regins in which the Fund invests have experienced security cncerns, war r threats f war and aggressin, terrrism, ecnmic uncertainty, natural and envirnmental disasters and/r systemic market dislcatins that have led, and in the future may lead, t increased shrt-term market vlatility and may have adverse lng-term effects n the U.S. and wrld ecnmies and markets generally. Such geplitical and ther events 10

12 may als disrupt securities markets and, during such market disruptins, the Fund s expsure t the ther risks described herein will likely increase. Each f the freging may negatively impact the Fund s investments. Market Capitalizatin Risk Large-Capitalizatin Investing. The securities f large-capitalizatin cmpanies may be relatively mature cmpared t smaller cmpanies and therefre subject t slwer grwth during times f ecnmic expansin. Large-capitalizatin cmpanies may als be unable t respnd quickly t new cmpetitive challenges, such as changes in technlgy and cnsumer tastes. Mid-Capitalizatin Investing. The securities f mid-capitalizatin cmpanies may be mre vulnerable t adverse issuer, market, plitical, r ecnmic develpments than securities f large-capitalizatin cmpanies. The securities f mid-capitalizatin cmpanies generally trade in lwer vlumes and are subject t greater and mre unpredictable price changes than large capitalizatin stcks r the stck market as a whle. Sme medium capitalizatin cmpanies have limited prduct lines, markets, financial resurces, and management persnnel and tend t cncentrate n fewer gegraphical markets relative t large-capitalizatin cmpanies. Small-Capitalizatin Investing. The securities f small-capitalizatin cmpanies may be mre vulnerable t adverse issuer, market, plitical, r ecnmic develpments than securities f larger-capitalizatin cmpanies. The securities f small-capitalizatin cmpanies generally trade in lwer vlumes and are subject t greater and mre unpredictable price changes than larger capitalizatin stcks r the stck market as a whle. Sme small capitalizatin cmpanies have limited prduct lines, markets, and financial and managerial resurces and tend t cncentrate n fewer gegraphical markets relative t larger capitalizatin cmpanies. There is typically less publicly available infrmatin cncerning smaller-capitalizatin cmpanies than fr larger, mre established cmpanies. Small-capitalizatin cmpanies als may be particularly sensitive t changes in interest rates, gvernment regulatin, brrwing csts and earnings. New Fund Risk. The Fund is a recently rganized, nn-diversified management investment cmpany with n perating histry. As a result, prspective investrs have n track recrd r histry n which t base their investment decisin. Nn-Diversificatin Risk. The Fund is cnsidered t be nn-diversified, which means that it may invest mre f its assets in the securities f a single issuer r a smaller number f issuers than if it were a diversified fund. As a result, the Fund may be mre expsed t the risks assciated with and develpments affecting an individual issuer r a smaller number f issuers than a fund that invests mre widely. This may increase the Fund s vlatility and cause the perfrmance f a relatively smaller number f issuers t have a greater impact n the Fund s perfrmance. Passive Investment Risk. The Fund is nt actively managed and the Sub-Adviser wuld nt sell shares f an equity security due t current r prjected underperfrmance f a security, industry r sectr, unless that security is remved frm the Index r the selling f shares f that security is therwise required upn a recnstitutin f the Index in accrdance with the Index methdlgy. The Fund invests in securities included in, r representative f securities included in, the Index, regardless f their investment merits. The Fund des nt take defensive psitins under any market cnditins, including cnditins that are adverse t the perfrmance f the Fund. Prtfli Turnver Risk. The Fund may trade all r a significant prtin f the securities in its prtfli in cnnectin with each rebalance and recnstitutin f its Index. A high prtfli turnver rate increases transactin csts, which may increase the Fund s expenses. Frequent trading may als cause adverse tax cnsequences fr investrs in the Fund due t an increase in shrt-term capital gains. Sectr Risk. T the extent the Fund invests mre heavily in particular sectrs f the ecnmy, its perfrmance will be especially sensitive t develpments that significantly affect thse sectrs. The Fund s investments will be cncentrated in an industry r grup f industries t the extent the Index is s cncentrated. The Fund may be susceptible t an increased risk f lss, including lsses due t adverse ccurrences affecting the Fund mre than the market as a whle, t the extent that the Fund s investments are cncentrated in the securities f a particular industry, grup f industries, r sectr. A significant prtin f the Fund s assets will be invested in the bitechnlgy and pharmaceutical industries, which expse the Fund t the risks f the fllwing sectr: Healthcare Sectr Risk. Cmpanies in the health care sectr are subject t extensive gvernment regulatin and their prfitability can be significantly affected by restrictins n gvernment reimbursement fr medical expenses, rising csts f medical prducts and services, pricing pressure (including price discunting), limited prduct lines and an increased emphasis n the delivery f healthcare thrugh utpatient services. Cmpanies in the health care sectr are heavily dependent n btaining and defending patents, which may be time cnsuming and cstly, and the expiratin f patents may als adversely affect the prfitability f these 11

13 cmpanies. Healthcare cmpanies are als subject t extensive litigatin based n prduct liability and similar claims. In additin, their prducts can becme bslete due t industry innvatin, changes in technlgies r ther market develpments. Many new prducts in the health care sectr require significant research and develpment and may be subject t regulatry apprvals, all f which may be time cnsuming and cstly with n guarantee that any prduct will cme t market. Healthcare cmpanies may rely n trade secrets, knw-hw, and technlgy that are nt prtected by patents, t maintain their cmpetitive psitin. If any trade secret, knw-hw, r ther technlgy nt prtected by a patent were disclsed t, r independently develped by, a cmpetitr, that cmpany s business and financial cnditin culd be materially adversely affected. The research and ther csts assciated with develping r prcuring new drugs and the related intellectual prperty rights can be significant, and the results f such research and expenditures are unpredictable. There can be n assurance that thse effrts r csts will result in the develpment f a prfitable drug. Mrever, the prcess fr btaining regulatry apprval by the FDA, CNDA, r ther freign r dmestic gvernmental regulatry authrities is lng and cstly and there can be n assurance that the necessary apprvals will be btained r maintained. Such cmpanies are als subject t laws and regulatins gverning the prtectin f the envirnment and ccupatinal health and safety, including laws regulating air emissins, wastewater discharges, the management and dispsal f hazardus materials and wastes, and the health and safety f emplyees. Failure t cmply with applicable dmestic and/r freign requirements can result in civil and criminal fines r ther enfrcement actins, recall r seizure f prducts, ttal r partial suspensin f prductin, withdrawal f existing prduct apprvals r clearances, refusal t apprve r clear new applicatins r ntificatins, increased quality cntrl csts, criminal prsecutin, ther penalties and, in sme instances, exclusin f participatin in gvernment spnsred prgrams such as Medicare, Medicaid and ther gvernment spnsred prgrams. The internatinal peratins f many healthcare cmpanies expse them t risks assciated with instability and changes in ecnmic and plitical cnditins, freign currency fluctuatins, changes in freign regulatins and ther risks inherent t internatinal business. Additinally, a cmpany s valuatin can ften be based largely n the ptential r actual perfrmance f a limited number f prducts. A cmpany s valuatin can als be greatly affected if ne f its prducts prves unsafe, ineffective r unprfitable. The stck prices f bitech and pharmaceutical cmpanies have been and will likely cntinue t be very vlatile. Tax Risk. T qualify fr the favrable tax treatment generally available t RICs, the Fund must satisfy, amng ther requirements described in the SAI, certain diversificatin requirements. In particular, at the clse f each quarter f the Fund s taxable year: (A) at least 50% f the value f its ttal assets must be represented by cash and cash items, U.S. gvernment securities, securities f ther RICs and ther securities, with such ther securities limited, in respect t any ne issuer, t an amunt nt greater than 5% f the value f the Fund s ttal assets and that des nt represent mre than 10% f the utstanding vting securities f such issuer, including the equity securities f a qualified publicly traded partnership, and (B) nt mre than 25% f the value f its ttal assets is invested, including thrugh crpratins in which the Fund wns a 20% r mre vting stck interest, in the securities (ther than U.S. gvernment securities r securities f ther RICs) f any ne issuer r the securities (ther than the securities f anther RIC) f tw r mre issuers that the Fund cntrls and which are engaged in the same r similar trades r businesses r related trades r businesses, r the securities f ne r mre qualified publicly traded partnerships. While the weighting f the Index is nt incnsistent with these rules, given the cncentratin f the Index in a relatively small number f securities, it may nt always be pssible fr the Fund t fully implement a replicatin strategy r a representative sampling strategy while satisfying these diversificatin requirements. The Fund s effrts t satisfy the diversificatin requirements may affect the Fund s executin f their investment strategy and may cause the Fund s return t deviate frm that f the Index, and the Fund s effrts t replicate r represent the Index may cause it inadvertently t fail t satisfy the diversificatin requirements. If the Fund were t fail t satisfy the diversificatin requirements, it culd be eligible fr relief prvisins if the failure is due t reasnable cause and nt willful neglect and if a penalty tax is paid with respect t each failure t satisfy the applicable requirements. Additinally, relief is prvided fr certain de minimis failures f the diversificatin requirements where the Fund crrects the failure within a specified perid. If the Fund were t fail t qualify as a RIC fr a tax year, and the relief prvisins are nt available, it wuld be taxed in the same manner as an rdinary crpratin, and distributins t its sharehlders wuld nt be deductible by the Fund in cmputing its taxable incme. In such case, the Fund s sharehlders wuld be taxed as if they received rdinary dividends, althugh crprate sharehlders culd be eligible fr the dividends received deductin (subject t certain limitatins) and individuals may be able t benefit frm the lwer tax rates available t qualified dividend incme. In additin, the Fund culd be required t recgnize unrealized gains, pay substantial taxes and interest, and make substantial distributins befre requalifying as a RIC. 12