pro_ncsr
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment
Company Act file number 811-23323
Procure ETF Trust II
(Exact
name of registrant as specified in charter)
16 Firebush Road, Levittown, PA 19056
(Address
of principal executive offices) (Zip code)
Robert Tull, 16 Firebush Road, Levittown, PA 19056
(Name
and address of agent for service)
1-866-690-3837
Registrant's
telephone number, including area code
Date of
fiscal year end: October 31,
2020
Date of
reporting period: April 30,
2020
Item 1. Reports to Stockholders.
Procure
Space ETF
TABLE OF CONTENTS
April 30, 2020 (Unaudited)
|
Page
|
Shareholder
Letter
|
2
|
|
|
Growth
of $10,000 Investment
|
3
|
|
|
Top 10
Holdings
|
4
|
|
|
Important
Disclosures and Key Risk Factors
|
5
|
|
|
Portfolio
Composition
|
6
|
|
|
Schedule
of Investments
|
7
|
|
|
Statement
of Assets and Liabilities
|
9
|
|
|
Statement
of Operations
|
10
|
|
|
Statements
of Changes in Net Assets
|
11
|
|
|
Financial
Highlights
|
12
|
|
|
Notes
to the Financial Statements
|
13
|
|
|
Approval
of Advisory Agreement and Board Considerations
|
22
|
|
|
Expense
Example
|
24
|
|
|
Federal
Tax Information
|
25
|
|
|
Information
About Portfolio Holdings
|
26
|
|
|
Information
About Proxy Voting
|
26
|
|
|
Trustees
and Officers Table
|
27
|
Procure
Space ETF
Dear
Procure Space ETF Shareholders,
ProcureAM
LLC is pleased to present our second semi-annual report for the
Procure Space ETF (Nasdaq symbol UFO), a series fund within the
Procure ETF Trust II. The report provides financial statements and
portfolio information for UFO up to the close of business April 30,
2020.
On
April 7, 2020 a supplement to our prospectus was filed with the SEC
disclosing the additional risks to investors from: Index Risk,
Passive Management Risks, Natural Disaster/Epidemic Risk and Market
Price Risk.
https://www.sec.gov/Archives/edgar/data/1727398/000165495420003844/procure_497.htm
UFO
offers exposure to equity securities of companies in the theme of
space exploration, development and communication. From inception on
April 10, 2019 until April 30, 2020 UFO has declined in value by
-23.20% for NAV and -22.78% for Market Value. During this period
Speedcast trading was halted in Australia. Trading has not resumed
and hence UFO continues to hold these shares pending the resumption
of trading or liquidation. Speedcast was removed from the index
during the March 20, 2020 rebalancing.
Penserra,
as subadvisor to UFO, continues to track the Space benchmark index
with acceptable tracking error after ProcureAM fees. SPACE will
rebalance again on June 19, 2020.
Fund
information can be found at: https://www.procureetfs.com
Please
visit the Fund’s website for more information. If you have
any questions, please submit them through info@procureetfs.com or
call us at 1-866-690-3837.
Sincerely,
Bob
Tull
President
ProcureAM,
LLC
Cumulative Returns
|
|
1 Year
|
Since Inception
|
Value of $10,000
|
Period Ended April 30, 2020
|
|
Return
|
(4/10/19)
|
(4/30/2020)
|
Procure
Space ETF (NAV)
|
-27.07%
|
-23.20%
|
$7,570
|
Procure
Space ETF (Market)
|
|
-27.07%
|
-22.78%
|
$7,614
|
S-Network
Space Index
|
|
-26.54%
|
-22.62%
|
$7,630
|
S&P
500 Index
|
|
0.86%
|
2.77%
|
$10,292
|
Performance data quoted represents past performance and does not
guarantee future results. The investment return and principal value
of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Current performance of the Fund may be lower or higher than the
performance quoted. All performance is historical and includes
reinvestment of dividends and capital gains. Performance data
current to the most recent month end may be obtained by calling
1-866-690-3837.
The chart illustrates the performance of a hypothetical $10,000
investment made on April 10, 2019, and is not intended to imply any
future performance. The returns shown do not reflect the deduction
of taxes that a shareholder would pay on fund distributions from
the sales of Fund shares. The chart assumes reinvestment of capital
gains and dividends. The chart assumes reinvestment of capital
gains and dividends, if any. The index returns do not reflect fees
or expenses and are not available for direct
investment.
Procure
Space ETF
Top Ten Holdings as of April 30, 2020* (Unaudited)
|
|
Security
|
|
|
% of Total
Investments
|
1
|
ORBCOMM,
Inc.
|
|
6.32%
|
2
|
Maxar
Technologies, Inc.
|
|
6.17%
|
3
|
Trimble,
Inc.
|
|
5.80%
|
4
|
Virgin
Galactic Holding, Inc.
|
|
5.75%
|
5
|
DISH
Network Corp. - Class A
|
|
5.71%
|
6
|
Eutelsat
Communications SA
|
|
5.19%
|
7
|
Globalstar
Inc.
|
|
5.06%
|
8
|
Garmin,
Ltd.
|
|
5.02%
|
9
|
EchoStar
Corp. - Class A
|
|
4.84%
|
10
|
Sirius
XM Holdings, Inc.
|
|
4.78%
|
|
|
|
|
|
Top Ten Holdings = 54.64% of Total Investments
|
|
|
|
*
Current Fund holdings may not be indicative of future Fund
holdings.
|
|
Procure
Space ETF
Important Disclosures and Key Risk Factors
Investing
involves risk. Principal loss is possible. The Fund is also subject
to the following risks: Shares of any ETF are bought and sold at
market price (not NAV), may trade at a discount or premium to NAV
and are not individually redeemed from the funds. Brokerage
commissions will reduce returns. Aerospace and defense companies
can be significantly affected by government aerospace and defense
regulation and spending policies. The exploration of space by
private industry and the harvesting of space assets is a business
based in future and is witnessing new entrants into the market.
Investments in the Fund will be riskier than traditional
investments in established industry sectors. 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
that could limit their ability to utilize the satellites needed to
deliver services to customers. Investing in foreign securities are
volatile, harder to price, and less liquid than U.S. securities.
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. The
Fund is not actively managed so it would not take defensive
positions in declining markets unless such positions are reflected
in the underlying index. Please refer to the summary prospectus for
a more detailed explanation of the Funds’ principal risks. It
is not possible to invest in an index.
The
global outbreak of COVID-19 (commonly referred to as
“coronavirus”) has disrupted economic markets and the
prolonged economic impact is uncertain. The ultimate economic
fallout from the pandemic, and the long-term impact on economies,
markets, industries and individual issuers, are not known. The
operational and financial performance of the issuers of securities
in which the Funds invest depends on future developments, including
the duration and spread of the outbreak, and such uncertainty may
in turn adversely affect the value and liquidity of the Funds'
investments, impair the Funds' ability to satisfy redemption
requests, and negatively impact the Funds'
performance.
The
Fund is distributed by Quasar Distributor, LLC.
Must be
preceded or accompanied by a prospectus.
Procure
Space ETF
Portfolio
Composition as of April 30, 2020 (Unaudited)
Procure Space ETF
Schedule of Investments
April
30, 2020
(Unaudited)
|
|
|
Shares
|
|
|
Value
|
|
COMMON STOCKS - 99.6%
|
|
|
|
|
|
|
|
|
Australia - 0.0%
|
|
|
|
|
|
|
|
|
Diversified
Telecommunication Services - 0.0%
|
|
|
|
|
|
|
|
|
SpeedCast
International, Ltd. (a)(d)(e)
|
|
|
1,039,473
|
|
|
$
|
6,805
|
|
|
|
|
|
|
|
|
|
|
France - 5.4%
|
|
|
|
|
|
|
|
|
Aerospace
& Defense - 0.2%
|
|
|
|
|
|
|
|
|
Thales
SA
|
|
|
510
|
|
|
|
38,622
|
|
Media
- 5.2% (c)
|
|
|
|
|
|
|
|
|
Eutelsat
Communications SA
|
|
|
74,052
|
|
|
|
830,559
|
|
Total
France
|
|
|
|
|
|
|
869,181
|
|
|
|
|
|
|
|
|
|
|
Italy - 0.1%
|
|
|
|
|
|
|
|
|
Aerospace
& Defense - 0.1%
|
|
|
|
|
|
|
|
|
Leonardo
SpA
|
|
|
1,666
|
|
|
|
11,485
|
|
|
|
|
|
|
|
|
|
|
Japan - 4.7%
|
|
|
|
|
|
|
|
|
Media
- 4.7% (c)
|
|
|
|
|
|
|
|
|
Sky
Perfect JSAT Holdings, Inc.
|
|
|
197,200
|
|
|
|
750,553
|
|
|
|
|
|
|
|
|
|
|
Luxembourg - 7.6%
|
|
|
|
|
|
|
|
|
Diversified
Telecommunication Services - 3.0%
|
|
|
|
|
|
|
|
|
Intelsat SA
(a)
|
|
|
377,774
|
|
|
|
472,217
|
|
Media
- 4.6% (c)
|
|
|
|
|
|
|
|
|
SES SA
- ADR
|
|
|
111,384
|
|
|
|
743,707
|
|
Total
Luxembourg
|
|
|
|
|
|
|
1,215,924
|
|
|
|
|
|
|
|
|
|
|
Netherlands - 0.7%
|
|
|
|
|
|
|
|
|
Aerospace
& Defense - 0.7%
|
|
|
|
|
|
|
|
|
Airbus
SE
|
|
|
1,734
|
|
|
|
109,929
|
|
|
|
|
|
|
|
|
|
|
Switzerland - 5.0%
|
|
|
|
|
|
|
|
|
Household
Durables - 5.0%
|
|
|
|
|
|
|
|
|
Garmin,
Ltd.
|
|
|
9,894
|
|
|
|
802,997
|
|
|
|
|
|
|
|
|
|
|
United States - 76.1%
|
|
|
|
|
|
|
|
|
Aerospace
& Defense - 23.5%
|
|
|
|
|
|
|
|
|
Aerojet
Rocketdyne Holdings, Inc. (a)
|
|
|
1,326
|
|
|
|
54,552
|
|
Boeing
Co.
|
|
|
2,244
|
|
|
|
316,449
|
|
L3Harris
Technologies, Inc.
|
|
|
2,040
|
|
|
|
395,148
|
|
Lockheed Martin
Corp.
|
|
|
1,122
|
|
|
|
436,525
|
|
Maxar
Technologies, Inc.
|
|
|
78,302
|
|
|
|
987,388
|
|
Northrop Grumman
Corp.
|
|
|
1,190
|
|
|
|
393,497
|
|
Raytheon
Technologies Corp.
|
|
|
3,969
|
|
|
|
257,231
|
|
Virgin
Galactic Holdings, Inc. (a)
|
|
|
52,190
|
|
|
|
919,588
|
|
Total
Aerospace & Defense
|
|
|
|
|
|
|
3,760,378
|
|
Communications
Equipment - 9.2%
|
|
|
|
|
|
|
|
|
EchoStar Corp. -
Class A (a)
|
|
|
24,548
|
|
|
|
774,490
|
|
ViaSat,
Inc. (a)
|
|
|
16,660
|
|
|
|
706,384
|
|
Total
Communications Equipment
|
|
|
|
|
|
|
1,480,874
|
|
Procure Space ETF
Schedule of Investments
April
30, 2020 (Unaudited)
(Continued)
|
|
|
Shares
|
|
|
Value
|
|
Containers
& Packaging - 0.7%
|
|
|
|
|
|
|
|
Ball
Corp.
|
|
|
1,700
|
|
|
$
|
111,503
|
|
Diversified
Telecommunication Services - 18.1%
|
|
|
|
|
|
|
|
|
AT&T,
Inc.
|
|
|
11,084
|
|
|
|
337,730
|
|
Globalstar, Inc.
(a)
|
|
|
2,527,050
|
|
|
|
808,656
|
|
Iridium
Communications, Inc. (a)
|
|
|
33,048
|
|
|
|
743,745
|
|
ORBCOMM, Inc.
(a)
|
|
|
382,670
|
|
|
|
1,010,249
|
|
Total
Diversified Telecommunication Services
|
|
|
|
|
|
|
2,900,380
|
|
Electronic
Equipment, Instruments & Components - 5.8%
|
|
|
|
|
|
|
|
|
Trimble, Inc.
(a)
|
|
|
26,792
|
|
|
|
927,807
|
|
Industrial
Conglomerates - 1.5%
|
|
|
|
|
|
|
|
|
Honeywell
International, Inc.
|
|
|
1,666
|
|
|
|
236,405
|
|
Media
- 17.3% (c)
|
|
|
|
|
|
|
|
|
Comcast
Corp. - Class A
|
|
|
9,826
|
|
|
|
369,752
|
|
DISH
Network Corp. - Class A (a)
|
|
|
36,482
|
|
|
|
912,597
|
|
Loral
Space & Communications, Inc. (a)
|
|
|
32,572
|
|
|
|
716,584
|
|
Sirius
XM Holdings, Inc.
|
|
|
129,472
|
|
|
|
765,180
|
|
Total
Media
|
|
|
|
|
|
|
2,764,113
|
|
Total
United States
|
|
|
|
|
|
|
12,181,460
|
|
TOTAL
COMMON STOCKS (Cost $22,413,145)
|
|
|
|
|
|
|
15,948,334
|
|
|
|
|
|
|
|
|
|
|
SHORT-TERM INVESTMENTS - 0.3%
|
|
|
|
|
|
|
|
|
Money Market Funds - 0.3%
|
|
|
|
|
|
|
|
|
First
American Government Obligation Fund - Class X, 0.25%
(b)
|
|
|
45,581
|
|
|
|
45,581
|
|
TOTAL
SHORT-TERM INVESTMENTS (Cost $45,581)
|
|
|
|
|
|
|
45,581
|
|
|
|
|
|
|
|
|
|
|
Total Investments (Cost $22,458,726) - 99.9%
|
|
|
|
|
|
|
15,993,915
|
|
Other Assets in Excess of Liabilities - 0.1%
|
|
|
|
|
|
|
20,819
|
|
TOTAL NET ASSETS - 100.0%
|
|
|
|
|
|
$
|
16,014,734
|
|
Percentages
are stated as a percent of net assets.
ADR American
Depositary Receipt
(a)
Non-income
producing security.
(b)
The rate quoted is
the annualized seven-day yield at April 30, 2020.
(c)
As of April 30,
2020, the Fund had a significant portion of its assets invested in
the Media Industry.
(d)
Value determined
using significant unobservable inputs. Classified as Level 3 in the
fair value hierarchy.
(e)
This security has
been deemed illiquid according to the Fund's liquidity guidelines.
The value of this security totals $6,805, which represents 0.0% of
total net assets.
The
Global Industry Classification Standard (GICS®) was developed
by and/or is the exclusive property of MSCI, Inc. and Standard
& Poor's Financial Services LLC (“S&P”). GICS
is a service mark of MSCI and S&P and has been licensed for use
by U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank
Global Fund Services ("Fund Services").
The
accompanying notes are an integral part of these financial
statements.
8
Procure
Space ETF
STATEMENT OF ASSETS AND LIABILITIES
As of
April 30, 2020 (Unaudited)
|
|
Procure
Space
ETF
|
|
ASSETS
|
|
|
|
|
Investments
in securities, at value*
|
|
$
|
15,993,915
|
|
Receivables:
|
|
|
|
|
Dividends and
interest receivable
|
|
|
29,935
|
|
Expense
reimbursement by the adviser
|
|
|
11,947
|
|
Total
Assets
|
|
|
16,035,797
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Payables:
|
|
|
|
|
Payable
for Trustee Fees
|
|
|
9,697
|
|
Payable
for Chief Compliance Officer fees `
|
|
|
2,250
|
|
Management fees
payable
|
|
|
9,116
|
|
Total
Liabilities
|
|
|
21,063
|
|
Net Assets
|
|
$
|
16,014,734
|
|
|
|
|
|
|
NET ASSETS CONSIST OF:
|
|
|
|
|
Paid-in
Capital
|
|
$
|
22,794,723
|
|
Total
Distibutable Earnings
|
|
|
(6,779,989
|
)
|
Net Assets
|
|
$
|
16,014,734
|
|
|
|
|
|
|
*Identified
Cost:
|
|
|
|
|
Investments
in securities
|
|
$
|
22,458,726
|
|
|
|
|
|
|
Shares
Outstanding^
|
|
|
850,000
|
|
Net
Asset Value, Offering and Redemption Price per Share
|
|
$
|
18.84
|
|
^ No
par value, unlimited number of shares authorized
The
accompanying notes are an integral part of these financial
statements.
9
Procure
Space ETF
STATEMENT OF OPERATIONS
For the
Period Ended April 30, 2020 (Unaudited)
|
|
Procure
Space
ETF
|
|
INVESTMENT INCOME
|
|
|
|
|
Income:
|
|
|
|
|
Dividends from
securities (net of foreign withholdings tax of
$15,289)
|
|
$
|
150,023
|
|
Interest
|
|
|
434
|
|
Total
Investment Income
|
|
|
150,457
|
|
Expenses:
|
|
|
|
|
Management
fees
|
|
|
58,970
|
|
Trustee
Fees
|
|
|
19,393
|
|
Chief
Compliance Officer fees
|
|
|
16,500
|
|
Total
expenses before reimbursement
|
|
|
94,863
|
|
Expense
reimbursement by adviser
|
|
|
(35,893
|
)
|
Net
Expenses
|
|
|
58,970
|
|
Net Investment Income
|
|
|
91,487
|
|
|
|
|
|
|
REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS
|
|
|
|
|
Net
Realized Gain (Loss) on:
|
|
|
|
|
Investments
|
|
|
(1,535,140
|
)
|
In-Kind
redemptions
|
|
|
1,546,228
|
|
Foreign
currency and foreign currency translation
|
|
|
(4,027
|
)
|
Net
Realized Gain (Loss) on Investments and In-Kind
redemptions
|
|
|
7,061
|
|
Net
Change in Unrealized Appreciation (Depreciation) of:
|
|
|
|
|
Investments
|
|
|
(6,876,919
|
)
|
Foreign
currency and foreign currency translation
|
|
|
(437
|
)
|
Net
Change in Unrealized Appreciation (Depreciation) of Investments and
Foreign Currency
|
|
|
(6,877,356
|
)
|
Net
Realized and Unrealized Gain (Loss) on Investments
|
|
|
(6,870,295
|
)
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS
|
|
$
|
(6,778,808
|
)
|
The
accompanying notes are an integral part of these financial
statements.
10
Procure
Space ETF
STATEMENTS OF CHANGES IN NET ASSETS
|
|
Period
Ended
April
30,
2020
(Unaudited)
|
|
|
Period
Ended October 31,
20191
|
|
|
|
|
|
|
|
|
|
|
OPERATIONS
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
$
|
91,487
|
|
|
$
|
14,106
|
|
Net
realized gain (loss) on investments
|
|
|
7,061
|
|
|
|
(375,035
|
)
|
Net
change in unrealized appreciation (depreciation) of investments and
foreign currency
|
|
|
(6,877,356
|
)
|
|
|
412,628
|
|
Net
increase (decrease) in net assets resulting from
operations
|
|
|
(6,778,808
|
)
|
|
|
51,699
|
|
DISTRIBUTIONS TO SHAREHOLDERS
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
|
(38,774
|
)
|
|
|
(14,106
|
)
|
Return
of capital
|
|
|
-
|
|
|
|
(6,644
|
)
|
Total
distributions from distributable earnings
|
|
|
(38,774
|
)
|
|
|
(20,750
|
)
|
|
|
|
|
|
|
|
|
|
CAPITAL SHARE TRANSACTIONS
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in net assets derived from net change in
outstanding shares
|
|
|
10,516,849
|
|
|
|
12,284,518
|
|
Net
increase (decrease) in net assets
|
|
|
3,699,267
|
|
|
|
12,315,467
|
|
NET ASSETS
|
|
|
|
|
|
|
|
|
Beginning of
Period
|
|
|
12,315,467
|
|
|
|
-
|
|
End of
Period
|
|
$
|
16,014,734
|
|
|
$
|
12,315,467
|
|
Summary
of share transactions is as follows:
|
|
Period
Ended
April
30, 2020
(Unaudited)
|
|
|
Period
Ended
October
31, 20191
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Shares
Sold
|
|
|
800,000
|
|
|
$
|
20,816,192
|
|
|
|
475,000
|
|
|
$
|
12,284,518
|
|
Shares
Redeemed
|
|
|
(425,000
|
)
|
|
|
(10,299,343
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
375,000
|
|
|
|
10,516,849
|
|
|
|
475,000
|
|
|
|
12,284,518
|
|
Beginning Shares
|
|
|
475,000
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Ending Shares
|
|
|
850,000
|
|
|
|
|
|
|
|
475,000
|
|
|
|
|
|
1
Fund commenced
operations on April 10, 2019. The information presented is for the
period from April 10, 2019 to October 31, 2019.
The
accompanying notes are an integral part of these financial
statements.
11
Procure
Space ETF
FINANCIAL HIGHLIGHTS
For a
capital share outstanding throughout the year/period
|
|
Period
Ended
April
30,
2020
(Unaudited)
|
|
Period
Ended October 31,
20191
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, Beginning of Period
|
|
$
|
25.93
|
|
|
$
|
25.00
|
|
Income from Investment Operations:
|
|
|
|
|
|
|
|
|
Net
investment income (loss) 2
|
|
|
0.13
|
|
|
|
0.04
|
|
Net
realized and unrealized gain(loss) on investments
|
|
|
(7.15
|
)
|
|
|
0.94
|
6
|
Total
from investment operations
|
|
|
(7.02
|
)
|
|
|
0.98
|
|
Less Distributions:
|
|
|
|
|
|
|
|
|
Distributions
from net investment income
|
|
|
(0.07
|
)
|
|
|
(0.03
|
)
|
Distributions
from return of capital
|
|
|
-
|
|
|
|
(0.02
|
)
|
Total
distributions
|
|
|
(0.07
|
)
|
|
|
(0.05
|
)
|
Capital Share Transactions:
|
|
|
|
|
|
|
|
|
Net
asset value, end of period
|
|
|
18.84
|
|
|
|
25.93
|
|
Total
Return
|
|
|
-27.15
|
%3
|
|
|
3.91
|
%3
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data:
|
|
|
|
|
|
|
|
|
Net
assets at end of period (000's)
|
|
$
|
16,015
|
|
|
$
|
12,315
|
|
|
|
|
|
|
|
|
|
|
Ratio
of expenses to Average Net Assets:
|
|
|
|
|
|
|
|
|
Before
waivers and reimbursements of expenses
|
|
|
1.21
|
%4
|
|
|
1.71
|
%4
|
After
waivers and reimbursements of expenses
|
|
|
0.75
|
%4
|
|
|
0.75
|
%4
|
|
|
|
|
|
|
|
|
|
Net
Investment Income to Average Net Assets
|
|
|
1.16
|
%4
|
|
|
0.28
|
%4
|
Portfolio
Turnover Rate5
|
|
|
24
|
%3
|
|
|
17
|
%3
|
1
|
Commencement
of operations on April 10, 2019.
|
2
|
Calculated
based on average shares outstanding during the period.
|
3
|
Not
annualized.
|
4
|
Annualized.
|
5
|
Excludes
the impact of in-kind transactions.
|
6
|
Net
realized and unrealized gains (loss) per share in this caption are
balancing amounts necessary to reconcile the change in nest 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.
|
The
accompanying notes are an integral part of these financial
statements.
12
Procure Space ETF
NOTES TO FINANCIAL STATEMENTS
April
30, 2020
(Unaudited)
NOTE 1 – ORGANIZATION
Procure
Space ETF (the “Fund”) is a non-diversified series of
Procure ETF Trust II (the “Trust”), an open-end
management investment company consisting of multiple investment
series, organized as a Delaware statutory trust on December 19,
2017. The Trust is registered with the SEC under the Investment
Company Act of 1940, as amended (the “1940 Act”), as an
open-end management investment company and the offering of the
Fund’s shares (“Shares”) is registered under the
Securities Act of 1933, as amended (the “Securities
Act”). 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”). The
Fund commenced operations on April 10, 2019.
The
Fund currently offers one class of Shares, which has no front-end
sales load, no deferred sales charges, and no redemption fees. The
Fund may issue an unlimited number of Shares of beneficial
interest, with no par value. All Shares of the Fund have equal
rights and privileges.
Shares
of the Fund are listed and traded on the NASDAQ Stock Market, LLC.
Market prices for the Shares may be different from their net asset
value (“NAV”). The Fund issues and redeems Shares on a
continuous basis at NAV only in blocks of 25,000 shares, called
“Creation Units.” Creation Units are issued and
redeemed principally in-kind for securities included in a specified
Index. Once created, Shares generally trade in the secondary market
at market prices that change throughout the day in quantities less
than a Creation Unit. Except when aggregated in Creation Units,
Shares are not redeemable securities of a Fund. Shares of a Fund
may only be purchased or redeemed by certain financial institutions
(“Authorized Participants”). An Authorized Participant
is either (i) a broker dealer or other participant in the clearing
process through the Continuous Net Settlement System of the
National Securities Clearing Corporation or (ii) a DTC participant
and, in each case, must have executed a Participant Agreement with
the Distributor. Most retail investors do not qualify as Authorized
Participants nor have the resources to buy and sell whole Creation
Units. Therefore, they are unable to purchase or redeem the Shares
directly from a Fund. Rather, most retail investors may purchase
Shares in the secondary market with the assistance of a broker and
are subject to customary brokerage commissions or
fees.
Authorized
Participants pay fixed transaction fees to offset the transfer and
other transaction costs associated with the issuance and redemption
of Creation Units. The fixed transaction fee will be the same
regardless of the number of Creation Units issued or redeemed by an
investor. The fixed transaction fee charged by the Fund for each
creation and redemption order is $500. Fixed transaction fees may
be waived when the Advisor or Sub-Advisor believes that waiver of
the fee is in the best interest of the Fund. An additional variable
fee of up to four (4) times the fixed transaction fee (expressed as
a percentage of the value of the Deposit Securities) for creations
or (expressed as a percentage value of the Fund Securities) for
redemptions may be imposed for (1) creations/redemption effected
outside the Clearing Process and (2) cash creations/redemptions (to
offset the Fund's brokerage and other transaction costs associated
with using cash to purchase the requisite Deposit/Fund Securities).
Investors are responsible for the costs of transferring the
securities constituting the Deposit/Fund Securities to the account
of the Fund or on their order. Such variable charges, if any, are
included in “Transaction Fees” in the Statement of
Changes in Net Assets.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The
following is a summary of significant accounting policies
consistently followed by the Fund. These policies are in conformity
with accounting principles generally accepted in the United States
of America (“U.S. GAAP”).
Procure Space ETF
NOTES TO FINANCIAL STATEMENTS
April
30, 2020 (Unaudited)
(Continued)
The
Fund follows the investment company accounting and reporting
guidance of the Financial Accounting Standards Board Accounting
Standard Codification (“ASC”) Topic 946 Financial Services –
Investment
Companies.
A.
Security Valuation.
Securities listed on a securities exchange, market or automated
quotation system for which quotations are readily available (except
for securities traded on NASDAQ), including securities traded over
the counter, are valued at the last quoted sale price on the
primary exchange or market (foreign or domestic) on which they are
traded on the valuation date (or at approximately 4:00 pm Eastern
Time if a security’s primary exchange is normally open at
that time), or, if there is no such reported sale on the valuation
date, at the most recent quoted bid price. For securities traded on
NASDAQ, the NASDAQ Official Closing Price will be
used.
Money
market funds are valued at NAV.
Securities for
which quotations are not readily available are valued at their
respective fair values as determined in good faith by the Board of
Trustees (the “Board”). When a security is “fair
valued,” consideration is given to the facts and
circumstances relevant to the particular situation, including a
review of various factors set forth in the pricing procedures
adopted by the Fund’s Board. The use of fair value pricing by
a fund may cause the net asset value of its shares to differ
significantly from the net asset value that would be calculated
without regard to such considerations. As of April 30, 2020, the
Fund did not hold any fair valued securities.
As
described above, the Fund utilizes various methods to measure the
fair value of its investments on a recurring basis. U.S. GAAP
establishes a hierarchy that prioritizes inputs to valuation
methods. The three levels of inputs are:
Level
1
Unadjusted quoted
prices in active markets for identical assets or liabilities that
the Fund has the ability to access.
Level
2
Observable inputs
other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly or indirectly. These
inputs may include quoted prices for the identical instrument on an
inactive market, prices for similar instruments, interest rates,
prepayment speeds, credit risk, yield curves, default rates and
similar data.
Level
3
Unobservable inputs
for the asset or liability, to the extent relevant observable
inputs are not available; representing the Fund’s own
assumptions about the assumptions a market participant would use in
valuing the asset or liability, and would be based on the best
information available.
The
availability of observable inputs can vary from security to
security and is affected by a wide variety of factors, including,
for example, the type of security, whether the security is new and
not yet established in the marketplace, the liquidity of markets,
and other characteristics particular to the security. To the extent
that valuation is based on models or inputs that are less
observable or unobservable in the market, the determination of fair
value requires more judgment. Accordingly, the degree of judgment
exercised in determining fair value is greatest for instruments
categorized in Level 3.
The
inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, for disclosure purposes,
the level in the fair value hierarchy within which the fair value
measurement falls in its entirety, is determined based on the
lowest level input that is significant to the fair value
measurement in its entirety.
Procure Space ETF
NOTES TO FINANCIAL STATEMENTS
April
30, 2020 (Unaudited)
(Continued)
The
following table presents a summary of the Fund’s investments
in securities, at fair value, as of April 30, 2020:
Procure Space ETF
Assets^
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Common
Stocks
|
|
$
|
15,941,529
|
|
|
$
|
—
|
|
|
$
|
6,805
|
|
|
$
|
15,948,334
|
|
Short
Term Investments
|
|
|
45,581
|
|
|
|
—
|
|
|
|
—
|
|
|
|
45,581
|
|
Total
Investments in Securities
|
|
$
|
15,987,110
|
|
|
$
|
—
|
|
|
$
|
6,805
|
|
|
$
|
15,993,915
|
|
^ See
Schedule of Investments for classifications by country and
industry.
Below
is a reconciliation of Level 3 assets for which significant
unobservable inputs were used to determine fair value.
Description
|
|
Common
Stocks
|
|
Balance
as of November 1, 2019
|
|
$
|
-
|
|
Purchases
|
|
|
548,541
|
|
Sales
proceeds and paydowns
|
|
|
-
|
|
Accreted
discounts, net
|
|
|
-
|
|
Corporate
Actions
|
|
|
-
|
|
Realized
gain (loss)
|
|
|
-
|
|
Change
in unrealized appreciation (depreciation)
|
|
|
(541,736
|
)
|
Transfers
into/(out of) Level 3
|
|
|
-
|
|
Balance as of April 30, 2020
|
|
$
|
6,805
|
|
Change
in unrealized appreciation (depreciation) during the
|
|
|
|
|
period
for Level 3 investments held at April 30, 2020.
|
|
$
|
(541,736
|
)
|
B.
Federal Income Taxes. The Fund has
elected to be taxed as a “regulated investment company”
and intends to distribute substantially all taxable income to its
shareholders and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies.
Therefore, no provisions for federal income taxes or excise taxes
have been made.
To
avoid imposition of the excise tax applicable to regulated
investment companies, the Fund intends to declare each year as
dividends, in each calendar year, at least 98.0% of its net
investment income (earned during the calendar year) and 98.2% of
its net realized capital gains (earned during the twelve months
ended October 31) plus undistributed amounts, if any, from prior
years.
Net capital losses
incurred after October 31, within the taxable year are deemed to
arise on the first business day of the Fund’s next taxable
year.
The
Fund recognizes the tax benefits of uncertain tax positions only
where the position is “more likely than not” to be
sustained assuming examination by tax authorities. The Fund has
analyzed its tax position and has concluded that no liability for
unrecognized tax benefits should be recorded related to uncertain
tax positions expected to be taken in the Fund’s 2019 tax
returns. The Fund identifies its major tax jurisdictions as U.S.
Federal and the State of Delaware; however the Fund is not aware of
any tax positions for which it is reasonably possible that the
total amounts of unrecognized tax benefits will change materially
in the next twelve months.
Procure Space ETF
NOTES TO FINANCIAL STATEMENTS
April
30, 2020 (Unaudited)
(Continued)
As of October 31,
2019, management has reviewed the tax positions for open periods
(for Federal purposes, three years from the date of filing and for
state purposes, four years from the date of filing), as applicable
to the Fund, and has determined that no provision for income tax is
required in the Fund’s financial statements.
C.
Security Transactions and Investment
Income. Investment securities transactions are accounted for
on the trade date. Gains and losses realized on sales of securities
are determined on a specific identification basis.
Discounts/premiums on debt securities purchased are
accreted/amortized over the life of the respective securities using
the effective interest method. Dividend income is recorded on the
ex-dividend date. Interest income is recorded on an accrual basis.
Income, including gains, from investments in foreign securities
received by the Fund may be subject to income, withholding or other
taxes imposed by foreign countries.
D.
Foreign Currency Translations and
Transactions. The Fund may engage in foreign currency
transactions. Foreign currency transactions are translated into
U.S. dollars on the following basis: (i) market value of investment
securities, assets and liabilities at the daily rates of exchange,
and (ii) purchases and sales of investment securities, dividend and
interest income and certain expenses at the rates of exchange
prevailing on the respective dates of such transactions. For
financial reporting purposes, the Fund does not isolate changes in
the exchange rate of investment securities from the fluctuations
arising from changes in the market prices of securities for
unrealized gains and losses. However, for federal income tax
purposes, the Fund does isolate and treat as ordinary income the
effect of changes in foreign exchange rates on realized gains or
losses from the sale of investment securities and payables and
receivables arising from trade-date and settlement-date
differences.
E.
Distributions to Shareholders.
Distributions to shareholders from net investment income are
declared and paid for the Fund on a quarterly basis. Net
realized gains on securities for the Fund normally are declared and
paid on an annual basis. Distributions are recorded on the
ex-dividend date.
F.
Use of Estimates. The preparation of
financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues
and expenses during the period. Actual results could differ from
those estimates.
G.
Share Valuation. NAV per share of the
Fund is calculated by dividing the sum of the value of the
securities held by the Fund, plus cash and other assets, minus all
liabilities (including estimated accrued expenses) by the total
number of Shares outstanding for the Fund, rounded to the nearest
cent. The Fund’s Shares will not be priced on the days on
which the NASDAQ Stock Market, LLC is closed for
trading.
H.
Guarantees and Indemnifications. In the
normal course of business, the Fund enters into contracts with
service providers that contain general indemnification clauses. The
Fund’s maximum exposure under these arrangements is unknown
as this would involve future claims that may be made against the
Fund that have not yet occurred. However, based on experience, the
Fund expects the risk of loss to be remote.
NOTE 3 – RISK FACTORS
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.
Procure Space ETF
NOTES TO FINANCIAL STATEMENTS
April
30, 2020 (Unaudited)
(Continued)
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.
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.
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, LLC (the “Exchange” or
“NASDAQ”) and are bought and sold in the secondary
market at market prices. The market prices of Shares may fluctuate
continuously during trading hours, in some cases materially, in
response to changes in the net asset value (“NAV”) and
supply and demand for Shares, among other factors. Although it is
expected that the market price of Shares typically will remain
closely correlated to the NAV, the market price will generally
differ from the NAV because of timing reasons, supply and demand
imbalances and other factors. As a result, the trading prices of
Shares may deviate significantly from NAV during certain periods,
especially those of market volatility. The Investment Advisor
cannot predict whether Shares will trade above (premium), below
(discount) or at their NAV prices. Thus, an investor may pay more
than NAV when buying Shares in the secondary market and receive
less than NAV when selling Shares in the secondary
market.
Procure Space ETF
NOTES TO FINANCIAL STATEMENTS
April
30, 2020 (Unaudited)
(Continued)
New Fund Risk - The Fund is a new fund. 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.
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.
Procure Space ETF
NOTES TO FINANCIAL STATEMENTS
April
30, 2020 (Unaudited)
(Continued)
NOTE 4 – COMMITMENTS AND OTHER RELATED PARTY
TRANSACTIONS.
Pursuant
to an Investment Advisory Agreement (“Advisory
Agreement”) between the Trust, on behalf of the Fund, and the
Advisor, the Advisor provides investment advice to the Fund and
oversees the day-to-day operations of the Fund, subject to the
direction and control of the Board and the officers of the
Trust.
Under
the Advisory Agreement, the Advisor agrees to pay all expenses of
the Trust, except brokerage and other transaction expenses
including taxes; 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; 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. For services provided to the
Fund, the Fund pays the Adviser 0.75% at an annual rate based on
the Fund’s average daily net assets. Certain officers and an
Interested Trustee of the Trust are affiliated with the Advisor.
Those officers’ and Interested Trustee’s compensation
is paid for by the Advisor.
Penserra
Capital Management, LLC serves as the Sub-Advisor (the
“Sub-Advisor”) to the Fund. The Sub-Advisor has overall
responsibility for selecting and continuously monitoring the
Fund’s investments. The Advisor has overall responsibility
for overseeing the investment of the Fund’s assets, managing
the Fund’s business affairs and providing certain clerical,
bookkeeping and other administrative services for the
Trust.
U.S.
Bancorp Fund Services, LLC doing business as U.S. Bank Global Fund
Services (the “Administrator”) provides fund
accounting, fund administration, and transfer agency services to
the Fund. The Advisor compensates the Administrator for these
services under an administration agreement between the two
entities. U.S. Bank National Association, an affiliate of U.S. Bank
Global Fund Services, serves as the Fund’s custodian pursuant
to a custody agreement. Quasar Distributors, LLC, an affiliate of
U.S. Bank Global Fund Services, serves as the Fund’s
distributor pursuant to a distribution agreement.
The
Fund 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 Board Meetings. The Fund paid Vigilant
Compliance, LLC ("Vigilant") $4,000 per month for Chief Compliance
Officer ("CCO") services rendered for three months during the
period until the Fund Changed their Chief Compliance Officer to
Cipperman Compliance Services. The Fund paid Cipperman Compliance
Services $2,250 per month for the CCO services rendered for two
months during the period. During the period ended April 30, 2019,
the Advisor paid $36,812, in the aggregate, for Trustee and CCO
fees on the Fund's behalf, as a voluntary waiver of its management
fee. Such voluntary waivers are not subject to recoupment by the
Advisor.
Procure Space ETF
NOTES TO FINANCIAL STATEMENTS
April
30, 2020 (Unaudited)
(Continued)
NOTE 5 – DISTRIBUTION PLAN
The
Fund has adopted a Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, the Fund may pay compensation
to the Distributor or any other distributor or financial
institution with which the Trust has an agreement with respect to
the Fund, with the amount of such compensation not to exceed an
annual rate of 0.25% of each Fund’s daily average net assets.
For the period ended April 30, 2020 the Fund did not incur any
12b-1 expenses.
NOTE 6 - PURCHASES AND SALES OF SECURITIES
The
costs of purchases and sales of securities, excluding short-term
securities and in-kind transactions, for the period ended April 30,
2020:
|
|
Purchases
|
|
|
Sales
|
|
Procure
Space ETF
|
|
$
|
24,496,147
|
|
|
$
|
13,979,872
|
|
The
costs of purchases and sales of in-kind transactions associated
with creations and redemptions for the period ended April 30,
2020:
|
|
Purchases
|
|
|
Sales
|
|
|
|
In-Kind
|
|
|
In-Kind
|
|
Procure
Space ETF
|
|
$
|
20,572,731
|
|
|
$
|
10,246,981
|
|
Purchases
in-kind are the aggregate of all in-kind purchases and sales
in-kind are the aggregate of all in-kind sales. Net capital gains
or losses resulting from in-kind redemptions are excluded from the
Fund’s determination of taxable gains and are not distributed
to shareholders.
There
were no purchases or sales of U.S. Government obligations for the
period ended April 30, 2020.
NOTE 7 – FEDERAL INCOME TAXES
The
components of distributable earnings (losses) and cost basis of
investments for federal income tax purposes at October 31, 2019
were as follows:
|
|
Cost
|
|
|
Gross
Unrealized
Appreciation
|
|
|
Gross
Unrealized
Depreciation
|
|
|
Net
Unrealized
Appreciation
(Depreciation)
|
|
|
|
$
|
11,905,031
|
|
|
$
|
1,096,265
|
|
|
$
|
(693,529
|
)
|
|
$
|
402,736
|
|
|
|
Undistributed Ordinary Income
|
|
|
Undistributed Long-term
Gain
|
|
|
Other Accumulated (Loss)
|
|
|
Unrealized Appreciation/ (Depreciation)
|
|
|
Total Distributable Earnings
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(365,143
|
)
|
|
$
|
402,736
|
|
|
$
|
37,593
|
|
As of
October 31, 2019, the Fund had accumulated capital loss carryovers
of:
|
|
Capital
Loss Carryover ST
|
|
|
Capital
Loss
Carryover
LT
|
|
Expires
|
|
|
$
|
(364,481
|
)
|
|
$
|
—
|
|
Indefinite
|
Procure Space ETF
NOTES TO FINANCIAL STATEMENTS
April
30, 2020 (Unaudited)
(Continued)
Under
current tax law, capital and currency losses realized after October
31 of a Fund’s fiscal year may be deferred and treated as
occurring on the first business day of the following fiscal year
for tax purposes. The following Fund had deferred post-October
capital and currency losses, which will be treated as arising on
the first business day of the year ended October 31,
2019.
|
|
Late
Year
Ordinary
Loss
|
|
|
|
$
|
662
|
|
U.S.
GAAP requires that certain components of net assets relating to
permanent differences be reclassified between financial and tax
reporting. These reclassifications have no effect on net assets or
net asset value per share. For the fiscal year ended October 31,
2019, there were no reclassifications made.
The tax
character of distributions paid by the Fund during the fiscal year
ended October 31, 2019 is as follows:
|
|
Period Ended October 31, 2019
|
|
|
|
From
Ordinary
Income
|
|
|
|
|
|
|
$
|
14,106
|
|
|
$
|
6,644
|
|
NOTE 8 – NEW ACCOUNTING PRONOUNCEMENTS
In
August 2018, FASB issued Accounting Standards Update
(“ASU”) 2018-13, Fair Value Measurement (Topic 820):
Disclosure Framework – Changes to the Disclosure Requirements
for Fair Value Measurement (“ASU 2018-13”). The primary
focus of ASU 2018-13 is to improve the
effectiveness
of the disclosure requirements for fair value measurements. The
changes affect all companies that are required to include fair
value measurement disclosures. In general, the amendments in ASU
2018-13 are effective for all entities for fiscal years and interim
periods within those fiscal years, beginning after December 15,
2019. An entity is permitted to early adopt the removed or modified
disclosures upon the issuance of ASU 2018-13 and may delay adoption
of the additional disclosures, which are required for public
companies only, until their effective date. Management has
evaluated ASU 2018-13 and has early adopted the relevant provisions
of the disclosure framework.
NOTE 9 – SUBSEQUENT EVENTS
In
preparing these financial statements, the Funds have evaluated
events and transactions for potential recognition or disclosure
through the date the financial statements were issued. This
evaluation did not result in any subsequent events that
necessitated disclosures and/or adjustments to the Financial
statements.
Procure Space ETF
APPROVAL OF ADVISORY AGREEMENT AND BOARD
CONSIDERATIONS
For the Period Ended April 30, 2020 (Unaudited)
The
Board (the members of which are referred to as
“Trustees”) of the Trust met in person on October 26,
2018, to consider the approval of (1) the investment advisory
agreement ("the Advisory Agreement") between the Trust, on behalf
of the Fund, and the Advisor and (2) the investment sub-advisory
agreement (the “Sub-Advisory Agreement”) between the
Advisor and the Sub-Advisor. The Board considered the Advisory
Agreement and the Sub-Advisory Agreement and the engagement of the
Advisor and the Sub-Advisor separately.
In
accordance with Section 15(c) of the 1940 Act, the Board requested,
reviewed and considered materials furnished by the Advisor and the
Sub-Advisor relevant to the Board’s consideration of whether
to approve each of the Advisory Agreement and Sub-Advisory
Agreement. In connection with considering approval of the Advisory
Agreement and Sub-Advisory Agreement, the Trustees who are not
“interested persons” of the Trust, as that term is
defined in the 1940 Act (the “Independent Trustees”),
met in executive session with counsel to the Trust, who provided
assistance and advice. The consideration of the Advisory Agreement
and Sub-Advisory Agreement was conducted by both the full Board and
the Independent Trustees, who also voted separately.
During
their review and consideration, the Board and the Independent
Trustees focused on and analyzed the factors they deemed relevant,
including: (1) the nature, extent and quality of the services
provided by each of the Advisor and the Sub-Advisor; (2) the
investment performance of each of the Advisor and the Sub-Advisor;
(3) the costs of the services to be provided and profits to be
realized by each of the Advisor and the Sub-Advisor and their
affiliates from the relationship with the Trust; (4) the extent to
which economies of scale would be realized as the Fund grows; (5)
any benefits derived or to be derived by each of the Advisor and
the Sub-Advisor from the relationship with the Trust; and (6)
potential conflicts of interest.
In
reviewing such factors, the Board relied on certain information,
including (1) copies of the Advisory Agreement, the Sub-Advisory
Agreement; (2) information describing the Advisor, the Sub-Advisor
and the services provided thereby; (3) information regarding the
compliance programs of the Advisor and the Sub-Advisor; (4) copies
of the Forms ADV for the Advisor and the Sub-Advisor; and (5)
memoranda and guidance from counsel to the Trust on the fiduciary
responsibilities of trustees, including Independent Trustees, in
considering advisory and distribution agreements under the 1940
Act. In addition, the Board was provided data comparing the
advisory fees and expected expenses of the Fund with expenses and
performance of other exchange-traded funds (“ETFs”) and
mutual funds with similar investment objectives and policies. The
Trustees also considered their personal experiences as Trustees and
participants in the ETF and mutual fund industry, as
applicable.
In
particular, the Trustees including the Independent Trustees,
considered and discussed the following with respect to the
Fund:
1. The
nature, extent and quality of the facilities and services proposed
to be provided by each of the Advisor and the Sub-Advisor. The
Board received information on and considered the division of
responsibility of services to be provided by the Advisor and the
Sub-Advisor, including the fact that portfolio management would be
conducted by the Sub-Advisor. The Board reviewed the experience and
resources that the Sub-Advisor had in managing strategies similar
to those proposed for the Fund, including information regarding the
education and experience of management and investment
personnel.
The
Board determined that the Fund would likely benefit from the
services and resources available from the Advisor and the
Sub-Advisor, in respect of their responsibilities. In particular,
they noted the extensive experience of the Sub-Advisor’s
management personnel in developing and administering strategies
that would be utilized by the Fund, as well as the performance
history of the Sub-Advisor since its inception.
Procure Space ETF
APPROVAL OF ADVISORY AGREEMENT AND BOARD
CONSIDERATIONS
For the Period Ended April 30, 2020 (Unaudited)
(Continued)
2. The
advisory fees paid by and overall expenses of the Fund. The Board
considered comprehensive data and information comparing the
advisory fees and expected expense ratios of the Fund. Although the
Board determined that the Fund was distinct in ways from its peer
group of ETFs and mutual funds, the Board determined that the
advisory fees charged and overall expenses of the Fund were
competitive and in line with the related universe of funds. In
light of the nature, quality, and extent of services provided by
the Advisor and Sub-Advisor and the costs incurred by the Advisor
and Sub-Advisor in rendering those services, the Board concluded
that the level of fees paid to the Advisor and Sub-Advisor with
respect to the Fund were fair and reasonable.
3.
Brokerage and portfolios transactions. The Board was presented with
materials and a thorough discussion of the brokerage practices of
the Advisor. The Advisor presented on its execution policies and
the Sub-Advisor discussed its policies and procedures for
allocating brokerage. The Independent Trustees determined the
brokerage policies of both the Advisor and Sub-Advisor would
benefit the Fund.
4.
Financial condition of each of the Advisor and the Sub-Advisor.
After considering information relating to the financial condition
of the Advisor and Sub-Advisor, as well as the expected fees and
operating costs relating to the management of the Fund, the Board
determined that each of the Advisor and Sub-Advisor would be
capable of providing services to the Fund.
5.
Possible conflicts of interest. The Board considered the experience
and ability of the advisory personnel assigned to the Fund,
soft-dollar arrangements and the brokerage policies of the Advisor
(including a discussion of the execution policies of the Advisor),
and the substance and administration of the Codes of Ethics of the
Trust, the Advisor and the Sub-Advisor. The Board determined that
the personnel and compliance policies of the Trust, Advisor and
Sub-Advisor were each well designed to monitor and address
conflicts of interest.
6.
Effect of the Fund’s growth and size on its investment
performance and expenses. The Board considered information relating
to the seeding and expected initial trading of the Fund. It
determined that the expense ratios of the Fund were well suited in
light of expectations for asset accumulation and projected growth
therefrom.
Based
on the foregoing and such other matters as were deemed relevant,
and while no single factor was determinative in the decision, all
of the Trustees, including the Independent Trustees, concluded that
the advisory fee rate and total expense ratios are reasonable in
relation to the services provided by the Advisor to the Fund, as
well as the costs incurred and the benefits gained by the Advisor
in providing such services. The Board also found the investment
advisory fees paid to the Advisor to be reasonable in comparison to
the fees charged by advisers to other comparable funds of similar
anticipated size. As a result, all of the Board members, including
the Independent Trustees, approved the Advisory
Agreement.
With
respect to the Sub-Advisor and based on the foregoing analysis and
such other matters as were deemed relevant, and while no single
factor was determinative in the decision, all of the Trustees,
including the Independent Trustees, concluded that the sub-advisory
fee rate and total expense ratios are reasonable in relation to the
services provided by the Sub-Advisor to the Fund, as well as the
costs incurred and the benefits gained by the Sub-Advisor in
providing such services. As a result, all of the Trustees,
including the Independent Trustees, approved the Sub-Advisory
Agreement.
Procure
Space ETF
EXPENSE EXAMPLE
For the
Period Ended April 30, 2020 (Unaudited)
As a shareholder of Procure Space ETF (the “Fund”) you
incur two types of costs: (1) transaction costs, including
brokerage commissions on purchases and sales of Fund shares, and
(2) ongoing costs, including management fees and other Fund
expenses. These examples are intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare
these costs with the ongoing costs of investing in other funds. The
example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire period (November 1,
2019 to April 30, 2020).
Actual Expenses
The
first line of the table provides information about actual account
values based on actual returns and actual expenses. You may use the
information in this line, together with the amount you invested, to
estimate the expenses that you paid over the period. Simply divide
your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then, multiply the result by the number
in the first line under the heading entitled "Expenses Paid During
Period'' to estimate the expenses you paid on your account during
this period.
Hypothetical Example for Comparison Purposes
The
second line of the table provides information about hypothetical
account values based on a hypothetical return and hypothetical
expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the
Fund's actual return. The hypothetical account values and expenses
may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds.
To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the
other funds. Please note that the expenses shown in the table are
meant to highlight your ongoing costs only and do not reflect any
transactional costs, such as brokerage commissions paid on
purchases and sales of Fund shares. Therefore, the second line of
the table is useful in comparing ongoing costs only and will not
help you determine the relative total costs of owning different
funds. If these transactional costs were included, your costs would
have been higher.
Procure Space ETF
|
|
|
Annualized
Expense Ratio
During Period
November 1, 2019 to
April 30, 2020
|
|
|
|
Beginning
Account Value
November 1, 2019
|
|
|
Ending
Account Value
April 30,
2020
|
|
|
Expenses Paid
During the Period^
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
1,000.00
|
|
|
$
|
728.50
|
|
|
$
|
3.22
|
|
|
|
0.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hypothetical
(5% annual)
|
|
$
|
1,000.00
|
|
|
$
|
1,021.13
|
|
|
$
|
3.77
|
|
|
|
0.75
|
%
|
^ The dollar amounts
shown as expenses paid during the period are equal to the
annualized six-month expense ratio multiplied by the average
account value during the period, multiplied by 182/366 (to reflect
the period from November 1, 2019 to April 30,
2020).
Procure Space ETF
SUPPLEMENTARY INFORMATION
April
30, 2020 (Unaudited)
FEDERAL TAX INFORMATION
Qualified Dividend Income/Dividends Received Deduction
For the
fiscal year ended October 31, 2019, certain dividends paid by the
Funds may be subject to a maximum tax rate of 15%, as provided for
by the Jobs and Growth Tax Reconciliation Act of 2003. The
percentage of dividends declared from ordinary income designated as
qualified dividend income was as follows:
Fund Name
|
Qualified Dividend Income
|
UFO
|
100%
|
For
corporate shareholders, the percent of ordinary income
distributions qualifying for the corporate dividends received
deduction for the fiscal year ended October 31, 2019 was as
follows:
Fund Name
|
Qualified Dividend Income
|
UFO
|
100%
|
Procure Space ETF
SUPPLEMENTARY INFORMATION
April
30, 2020 (Unaudited) (Continued)
INFORMATION ABOUT PORTFOLIO HOLDINGS
The
Fund files a Form N-Q with the Securities and Exchange Commission
(the ‘‘SEC’’) no more than sixty days after
the Fund’s first and third fiscal quarters. For the Fund,
this would be for the fiscal quarters ending January 31 and July
31. Form N-Q includes a complete schedule of the Fund’s
portfolio holdings as of the end of those fiscal quarters. The
Fund’s N-Q filings can be found free of charge on the
SEC’s website at http://www.sec.gov. The Fund’s
portfolio holdings are posted on the Fund’s website at
www.ProcureETFs.com daily.
INFORMATION ABOUT PROXY VOTING
A
description of the policies and procedures the Fund uses to
determine how to vote proxies relating to portfolio securities is
provided in the Statement of Additional Information
(“SAI”). The SAI is available without charge upon
request by calling toll-free at 1-866-690-3837, by accessing the
SEC’s website at www.sec.gov, or by accessing the
Fund’s website at www.ProcureETFs.com.
Information
regarding how the Fund voted proxies relating to portfolio
securities during the period ending June 30 is available by calling
toll-free at 1-866-690-3837 or by accessing the SEC’s website
at www.sec.gov.
Procure Space ETF
SUPPLEMENTARY INFORMATION
April
30, 2020 (Unaudited) (Continued)
Board
of Trustees
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.
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)
|
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, 2016-2019); PineBridge Investments (Asset Manager,
2010-
2016)
|
1
|
N/A
|
Procure Space ETF
SUPPLEMENTARY INFORMATION
April
30, 2020 (Unaudited) (Continued)
Board
of Trustees (Continued)
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
|
Term:
Unlimited
Served
since
October 2018
|
Procure
Holdings LLC
(President,
2017 to
Present); Robert
Tull & Co.
(President,
2005 to
Present)
|
1
|
Virtus
ETFs
|
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 March 2020
|
Cipperman
Compliance Services, LLC (CCO/Director, 2015 to Present); Boenning
& Scattergood, Inc. (CCO, 2007 to 2015)
|
Andrew
Chanin (1985)
|
Secretary
|
Term:
Unlimited Served
since
October 2018
|
Procure
Holdings LLC (Chief Executive Officer, 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
|
ProcureAM LLC (CFO,
2017 to Present); PureShares, LLC (Accountant, 2015 to Present);
Chester Medical Associates
(Comptroller, 1990
to Present)
|
Advisor
ProcureAM,
LLC
16
Firebush Road
Levittown,
PA 19056
Sub-Advisor
Penserra
Capital Management, LLC
4
Orinda Way, Suite 100-A
Orinda,
CA 94563
Distributor
Quasar
Distributors, LLC
777
East Wisconsin Avenue
Milwaukee,
WI 53202
Custodian
U.S.
Bank National Association
Custody
Operations
1555
North River Center Drive, Suite 302
Milwaukee,
WI 53212
Fund Accountant, Transfer Agent and Fund Administrator
U.S.
Bank Global Fund Services
615
East Michigan Street
Milwaukee,
WI 53202
Independent Registered Public Accounting Firm
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
OH 44115
Legal Counsel
Chapman
& Cutler LLP
1270
Avenue of the Americas, 30th Floor
New
York, NY 10020
Item 2. Code of Ethics.
Not
applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not
applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not
applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not
applicable to registrants who are not listed issuers (as defined in
Rule 10A-3 under the Securities Exchange Act of 1934).
Item 6. Investments.
(a).
Schedule of Investments is included as part of the report to
shareholders filed under Item 1 of this Form.
(b).
Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies.
Not
applicable to open-end investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment
Companies.
Not
applicable to open-end investment companies.
Item 9. Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers.
Not
applicable to open-end investment companies.
Item 10. Submission of Matters to a Vote of Security
Holders.
There
have been no material changes to the procedures by which
shareholders may recommend nominees to the registrant’s board
of directors.
Item 11. Controls and Procedures.
The
Registrant’s President and Treasurer have reviewed the
Registrant's disclosure controls and procedures (as defined in
Rule 30a-3(c) under the Investment Company Act of 1940 (the
“Act”)) as of a date within 90 days of the filing of
this report, as required by Rule 30a-3(b) under the Act and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act
of 1934. Based on their review, such officers have concluded that
the disclosure controls and procedures are effective in ensuring
that information required to be disclosed in this report is
appropriately recorded, processed, summarized and reported and made
known to them by others within the Registrant and by the
Registrant’s service provider.
There
were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred
during the second fiscal quarter of the period covered by this
report that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial
reporting.
Item 12. Disclosure of Securities Lending Activities for Closed-End
Management Investment Companies
Not
applicable to open-end investment companies.
Item 13. Exhibits.
(a)
(1) Any code of ethics or amendment thereto, that
is the subject of the disclosure required by Item 2, to the
extent that the registrant intends to satisfy Item 2
requirements through filing an exhibit. Not applicable for
semi-annual reports.
(2)
A separate certification for each
principal executive and principal financial officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. Filed
herewith.
(3)
Any written solicitation to
purchase securities under Rule 23c-1 under the Act sent or given
during the period covered by the report by or on behalf of the
registrant to 10 or more persons. Not applicable to open-end
investment companies.
(4)
Change in the registrant’s
independent public accountant. There was no change in the
registrant’s independent public accountant for the period
covered by this report.
(b)
Certifications pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. Furnished
herewith.
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
(Registrant)
Procure ETF Trust
II
By
(Signature and Title)* /s/
Robert
Tull
Robert
Tull, Principal Executive Officer/President
Date
06/25/2020
Pursuant to the
requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By
(Signature and Title)* /s/ Robert
Tull
Robert
Tull, Principal Executive Officer/President
Date
06/25/2020
By
(Signature and Title)*/s/ Adrienne
Binik-Chanin
Adrienne
Binik-Chanin, Chief Financial Officer
Date
06/25/2020
* Print
the name and title of each signing officer under his or her
signature.