AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
ON 01/24/2023
FILE NOS: 811-08228
33-73248
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | [X] |
Post-Effective Amendment No. | [112] |
and | |
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | [X] |
Amendment No. | [113] |
(Check appropriate box or boxes.)
THE
(Exact name of Registrant as Specified in Charter)
1055 MAITLAND CENTER COMMONS
MAITLAND, FL 32751
(Address of Principal Executive Office)
407-644-1986
(Registrant's Telephone Number, including Area Code:)
ARTHUR D. ALLY,
1055 MAITLAND CENTER COMMONS
MAITLAND, FL 32751
(Name and Address of Agent for Service)
Please send copy of communications to:
DAVID D. JONES, ESQ.
395 Sawdust Road, Suite 2137
The Woodlands, TX 77380
Approximate Date of Proposed Public Offering: As soon as practicable following effective date.
It is proposed that this filing will become effective (check appropriate box):
/ / | immediately upon filing pursuant to paragraph (b) |
/ / | on (date) pursuant to paragraph (b) |
/ / | 60 days after filing pursuant to paragraph (a)(1) |
/X/ | on January 24, pursuant to paragraph (a)(3) |
/ / | 75 days after filing pursuant to paragraph (a)(2) |
/ / | on ___________ pursuant to paragraph (a)(2) of rule 485 |
If appropriate, check the following box:
/ / | this post-effective amendment designates a new effective date for a previously filed post-effective amendment. |
A Rule 24f-2 Notice for the Trust’s fiscal year ended December 31, 2021 was filed on March 16, 2022.
EXCHANGE-TRADED FUNDS
Prospectus
January 9, 2023
(As amended
Ticker Symbol | |
TIMOTHY PLAN MARKET NEUTRAL ETF |
Listed and traded on: The New York Stock Exchange
The Securities and Exchange Commission has not approved or disapproved the Fund's securities or determined whether this Prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
Table of Contents
Section 1 | Fund Summaries | |
Timothy Plan Market Neutral ETF | 3 |
Section 2 | Additional Information | |
Investments | 10 |
Risk Factors | 11 |
Section 3 | Organization and Management of the Funds | |
The Investment Advisor | 15 |
The Managing General Partner | 15 |
The Sub-Advisor | 15 |
Portfolio Management | 16 |
Share Price | 16 |
Premium/Discount Information | 17 |
How to Buy and Sell Shares | 18 |
Share Trading Prices | 18 |
Book Entry | 18 |
Frequent Purchases and Redemptions of Fund Shares | 19 |
Section 4 | Distributions and Tax | |
Taxes on Distributions | 20 |
Taxes on Exchange-Listed Share Sales | 21 |
Taxes on Purchases and Redemptions of Creation Units | 21 |
Section 5 | Other Information | |
Continuous Offering | 22 |
Portfolio Holdings Disclosure | 22 |
Shareholder Communications | 22 |
Disclaimers | 23 |
Section 6 | Other Service Providers | 24 |
Section 7 | Financial Highlights | 25 |
Section 8 | Other Information | 26 |
PROSPECTUS
MARKET NEUTRAL ETF / 2
Section 1 | | Fund Summary |
The Board of Trustees of Timothy Plan believes they have a moral and ethical responsibility to invest in a biblically responsible manner. Accordingly, Timothy Plan ETFs do not invest in companies involved in the production or wholesale distribution of alcohol, tobacco, gambling equipment, gambling enterprises, companies directly or indirectly involved in abortion or pornography, or companies promoting anti-family entertainment or non-biblical lifestyles. Securities issued by companies engaged in these prohibited activities are excluded from the ETF portfolios. They are referred to as "Excluded Securities."
Timothy Partners, Ltd. ("TPL") is Investment Advisor to the Funds and is responsible for determining what companies are deemed Excluded Securities, and reserves the right to exclude investments, in its best judgment, in other companies whose practices may not fall within the exclusions described above, but could be found offensive to fundamental, traditional Judeo-Christian values.
Further, suppose any of our Funds subsequently discovers a company is engaged in a prohibited practice. In that case, that security will be sold as soon as it is reasonably practicable.
PROSPECTUS
MARKET NEUTRAL ETF / 3
FUND SUMMARY
January 28, 2023
The Timothy Plan Market Neutral Fund's (the "Fund") investment objective is high current income and low correlation to stocks and bonds. Low correlation means limiting exposure to stock market risk.
This table describes the fees and expenses that you may pay if you buy and hold shares ("Shares") of the Fund. Investors may incur usual or customary brokerage commissions and other charges on their purchases and sales of Shares of the Fund in the secondary market, which are not reflected in the table or the example below.
(expenses that you pay each year as a percentage of the value of your investment)
MANAGEMENT FEES | |
Total Annual Operating Expenses |
PROSPECTUS
MARKET NEUTRAL ETF / 4
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based upon these assumptions, your costs would be:
1 YEAR | 3 YEARS |
$ |
$ |
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover will generally indicate higher transaction costs resulting in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the Example, affect the Fund's performance. Since this is a new Fund without an operating history, portfolio turnover information is not yet available.
The Fund pursues its investment objective by implementing a proprietary, "market neutral" investment strategy designed to seek income from its investments while maintaining a low correlation to the foreign and domestic equity and bond markets. The fund will be actively managed, meaning that the Sub-Advisor may make changes to the Fund's portfolio at any time.
A Market Neutral strategy seeks to generate returns that are independent and uncorrelated to the market action of equity and fixed income markets. It accomplishes this by seeking to minimize or eliminate beta (the portfolio's volatility in relation to movements in the market). The Timothy Plan Market Neutral ETF seeks to neutralize the equity market exposure (beta) from its long positions in dividend paying stocks as closely/completely as practicable using offsetting long and short positions in broad equity index futures. The primary component of residual return (i.e., the return after attempting to neutralize stock performance) is designed to be the income derived from those dividend paying stocks.
The Fund seeks both high income and low correlation to stocks and bonds. Inherent in the low correlation to stocks, the fund seeks to minimize the volatility associated with investing in stocks.
The Fund uses a multi-strategy approach. First, it seeks income from long positions in foreign and domestic dividend producing equity securities of any market capitalization size that satisfy the eVALUEator proprietary Biblically Responsible Investing ("BRI") filtering criteria. The Advisor maintains the list of Excluded Securities identified by the eVALUEator system. Second, the Fund seeks to offset market risk by selling short high-correlating equity index futures contracts*, such as the S&P 500® Index, Russell 2000® or MSCI EAFE + Emerging Markets Indexes, or exchange-traded funds ("ETFs") that track such indexes.
The Fund may own foreign currency denominated equities which trade on foreign exchanges. The Fund may also own depository receipts (i.e., ADRs, GDRs). In order to facilitate and by way of investment in these securities, the Fund may own foreign currency as well.
PROSPECTUS
MARKET NEUTRAL ETF / 5
The Board of Trustees of Timothy Plan believes they have a moral and ethical responsibility to invest in a biblically responsible manner. Accordingly, Timothy Plan ETFs do not invest in companies involved in the production or wholesale distribution of alcohol, tobacco, gambling equipment, gambling enterprises, companies directly or indirectly involved in abortion or pornography, or companies promoting anti-family entertainment or non-biblical lifestyles. Securities issued by companies engaged in these prohibited activities are excluded from the ETF portfolios. They are referred to as "Excluded Securities."
The Fund utilizes seven basic filters to identify Excluded Securities: abortion, pornography, family entertainment, biblical lifestyles, alcohol and tobacco production and gambling. Those filters are further comprised of numerous sub-filters. The database of companies that have been reviewed is now comprised of in excess forty-one thousand (41,000) names, and from that research the list of restricted companies (approximately five percent {5%} of domestic companies and four percent {4%} of foreign companies) is provided to the Sub-Advisor. Any company that is being considered as a candidate for the Fund may not be included if it violates any one or more of the filters or sub-filters and therefore appears on the filtered list. In addition, even though a company is not on the list, any company that is not a current holding and is added to a portfolio is again (or for the first time) reviewed to be certain the company is not in violation of any filter. Not investing in Excluded Securities is a fundamental policy of the Fund and may not be changed without the consent of the Fund's shareholders.
The Fund seeks to offset the remaining market risk by investing in long futures positions in the Nasdaq-100 Index and short futures positions in the S&P 500® Index, or use similar strategies the Sub-Advisor deems appropriate and necessary under current market conditions.
As an alternative to investing directly in equity securities, the Fund can invest in them indirectly by investing in one or more investment companies (including ETFs) advised by the Sub-Advisor that are designed to track the Victory High Dividend Volatility Weighted BRI Index. The Victory US High Dividend Volatility Weighted BRI Index (the "Index"), is an unmanaged, volatility weighted index created by the Sub-Advisor. A volatility weighted index assigns percentage values to each security in the Index based on the volatility of that security in the market. More volatile stocks have a lower weighting, and less volatile stocks are assigned a higher weighting.
The Index combines fundamental criteria with individual security risk control achieved through volatility weighting of individual securities, rather than traditional market-cap weighting. Such a methodology is sometimes referred to as "Smart Beta." The Index follows a proprietary rules-based methodology, developed by the Fund's Sub-Advisor, to construct its constituent securities.
The Fund will not invest in non-affiliated investment company shares.
* | Futures contracts are based on the value of the index to which they relate and do not invest in the individual securities that make up the particular index. Even though index futures don't actually buy securities, the index upon which they are based includes and tracks Excluded Securities. |
The Fund's investments are subject to the following principal risks:
Excluded Security Risk. Because the Fund may not invest in Excluded Securities, the Fund may be riskier than other funds that invest in a broader array of securities. BRI investing may not be successful.
BRI investing Risk. There is a risk that the Fund's use of BRI screening may result in lower returns than if the screening process were not employed, and BRI screening may not assist the Fund to achieve its investment objectives.
Price Risk. ETF market prices may deviate from the actual value of the Fund's portfolio value, particularly during times of market stress, with the result that investors may pay more or receive less than the underlying value of the ETF shares bought or sold.
PROSPECTUS
MARKET NEUTRAL ETF / 6
Active Market Risk. An active trading market for the Fund's shares may not develop or be maintained. In times of market stress, market makers and/or Authorized Participants may step away from their roles, which may result in wider bid/ask spreads and variances between the market price of the Fund's shares and the underlying value of those shares.
Liquidity Risk. In stressed market conditions, the market for the Fund's shares may become less liquid.
Equity Risk. The value of the equity securities in which the Fund invests may decline in response to developments affecting individual companies and/or general economic conditions in the United States or abroad. A company's earnings or dividends may not increase as expected (or may decline) because of poor management, competitive pressures, reliance on particular suppliers or geographical regions, labor problems or shortages, corporate restructurings, fraudulent disclosures, man-made or natural disasters, military confrontations or wars, terrorism, public health crises, or other events, conditions and factors. Price changes may be temporary or last for extended periods.
Stock Market Risk. Overall stock market risks may affect the value of the Fund. Domestic and International factors such as political events, war, trade disputes, interest rate levels and other fiscal and monetary policy changes, pandemics and other public health crises and related geopolitical events, as well as environmental disasters such as earthquakes, fires and floods, may add to instability in world economies and markets generally. The impact of these and other factors may be short-term or may last for extended periods.
Investment Style Risk. Different types of investment styles, for example growth or value, tend to perform differently and shift into and out of favor with investors depending on changes in market and economic sentiment and conditions. As a result, the Fund's performance may at times be worse than the performance of other funds that invest more broadly or that have different investment styles.
Smaller-Capitalization Stock Risk. Small- and mid-capitalization companies are subject to a number of risks not associated with larger, more established companies, potentially making their stock prices more volatile and increasing the risk of loss. Smaller companies may have limited markets, product lines, or financial resources and lack management experience and may experience higher failure rates than larger companies.
Large-Capitalization Stock Risk. The securities of large-capitalization companies may underperform the securities of smaller-capitalization companies or the market as a whole. The growth rate of larger, more established companies may lag those of smaller companies, especially during periods of economic expansion.
Foreign Securities Risk. Foreign securities (including depositary receipts) are subject to political, regulatory, and economic risks not present in domestic investments. Foreign securities could be affected by factors not present in the U.S., including expropriation, confiscation of property, and difficulties in enforcing contracts. Compared to U.S. companies, there generally is less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign companies. Foreign securities generally experience more volatility than their domestic counterparts. Depositary receipts may have additional risks, including creditworthiness of the depositary bank and the risk of an illiquid market. In addition, to the extent investments are made in a limited number of countries, events in those countries will have a more significant impact on the Fund. Fluctuations in the exchange rates between the U.S. dollar and foreign currencies, currency exchange control regulations, and restrictions or prohibitions on the repatriation of foreign currencies may negatively affect an investment. Where all or a portion of the Fund's underlying securities trade on an exchange that is closed when the market in which the Fund's shares trade is open, there may be changes between the last quote from the closed foreign market and the value of such security during the Fund's trading day.
Derivatives Risk. Derivative instruments and strategies, including futures and selling securities short, may not perfectly replicate direct investment in the security. Derivatives also entail exposure to counterparty credit risk, the risk of mispricing or improper valuation, and the risk that small price movements can result in substantial gains or losses.
Futures Contracts Risk — The Fund's use of futures contracts exposes the Fund to leverage and tracking risks because a small investment in futures contracts may produce large losses and futures contracts may not be perfect substitutes for securities.
PROSPECTUS
MARKET NEUTRAL ETF / 7
Hedging Risk — Hedging is a strategy in which the Fund uses a derivative to offset the risks associated with other Fund holdings. There can be no assurance that the Fund's hedging strategy will reduce risk or that hedging transactions will be either available or cost effective. The Fund is not required to use hedging and may choose not to do so.
Leverage Risk — Using futures contracts to increase the Fund's combined long and short exposure creates leverage, which can magnify the Fund's potential for gain or loss and, therefore, amplify the effects of market volatility on the Fund's share price.
Investment Company Risk. An investment company or similar vehicle (including an ETF) in which the Fund invests may not achieve its investment objective. Underlying investment vehicles are subject to investment advisory and other expenses, which will be indirectly paid by the Fund. A lack of liquidity in an ETF could result in an ETF being more volatile than the underlying portfolio of securities.
Management Risk. The portfolio manager may not execute the Fund's principal investment strategy effectively. Please see "The Sub-Advisor" section on pg. 15 of the prospectus for a discussion of the Sub-Advisor's experience in managing funds
By itself, the Fund does not constitute a complete investment plan and should be considered a long-term investment for investors who can afford to weather changes in the value of their investment.
Investment Advisor
Timothy Partners, Ltd. has served as the Fund's investment advisor since the Fund commenced operations in January 2023.
Sub-Advisor
Victory Capital Management Inc. ("Victory Capital" or the "Sub-Advisor") through its Victory Solutions team, has served as the Fund's Sub-Advisor since the Fund commenced operations in January 2023.
Portfolio Managers
Mannik Dhillon is President of Victory Capital's VictoryShares and Solutions platform and has been a Portfolio Manager of the Fund since it commenced operations in January, 2023.
PROSPECTUS
MARKET NEUTRAL ETF / 8
Lance Humphrey, CFA, is a Senior Portfolio Manager for Victory Capital's VictoryShares and has been a Portfolio Manager of the Fund since it commenced operations in January 2023.
Scott Kefer, CFA, is a Senior Portfolio Manager for Victory Capital's VictoryShares and has been a Portfolio Manager of the Fund since it commenced operations in January 2023
Free Foutz is the Portfolio Implementation Manager for Victory Capital's VictoryShares and Solutions platform and has been a Portfolio Manager of the Fund since it commenced operations in January 2023. The portfolio manager may not execute the Fund's principal investment strategy effectively. Please see "The Sub-Advisor" section on pg. 15 of the prospectus for a discussion of the Sub-Advisor's experience in managing funds.
Purchase and Sale of Shares
The Fund issues and redeems Shares at their net asset value (NAV) only in large blocks (each block of Shares is called a "Creation Unit"). Creation Units are issued and redeemed for cash and/or in-kind for securities by Authorized Participants ("APs") that have entered into agreements with the Fund's distributor. Individual Shares may only be purchased and sold through brokers in secondary market transactions on The New York Stock Exchange (the "Exchange"). Except when aggregated in Creation Units, Shares are not redeemable securities of the Fund.
Shares of the Fund will be listed for trading on the Exchange and will trade at market prices rather than NAV. Shares of the Fund may trade at a price that is greater than (a premium), at, or less than (a discount) NAV.
Tax Information
The Fund's distributions generally are taxable as ordinary income, qualified dividend income or capital gains. A sale of Shares may result in capital gain or loss.
Payment to Broker-Dealers and Other Financial Intermediaries
If you purchase Shares through a broker-dealer or another financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of Shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary's website for more information.
PROSPECTUS
MARKET NEUTRAL ETF / 9
Section 2 | | Additional Fund Information |
The Timothy Plan Market Neutral Income Fund (the "Fund") is managed by the Sub-Advisor. The Sub-Advisor pursues the Fund's investment objective by implementing a proprietary, "market neutral" investment strategy designed to seek income from its investments while maintaining a low correlation to the foreign and domestic equity and bond markets. Because of the Fund's market neutral strategy, the Fund's overall price movements are not expected to correlate with the general stock market's price movements. In other words, the Fund is designed to have returns that are independent of the returns and direction of the general foreign and domestic equity and bond markets.
The following section describes additional information about the principal investment strategy the Fund will use under normal market conditions to pursue its investment objective, as well as any secondary strategies the Fund may use, and the related risks. This Prospectus does not attempt to describe all of the various investment techniques and types of investments that the Sub-Advisor may use in managing the Fund.
The Statement of Additional Information ("SAI") includes more information about the Fund, its investments, and the related risks. Under adverse, unstable or abnormal market conditions, the Fund may be unable to pursue or achieve its investment objective and, for temporary purposes, may invest some or all of its assets in a variety of instruments or assets, including high-quality fixed-income securities, cash and cash equivalents. For cash management purposes, the Fund may hold all or a portion of its assets in cash, short-term money market instruments or shares of other investment companies. These positions may reduce the benefit from any upswing in the market, cause the Fund to fail to meet its investment objective and increase the Fund's expenses. The Fund's investment objective is a non-fundamental policy and may be changed, without shareholder approval, by the Board of Trustees upon 60 days' written notice to shareholders.
Investments
The following describes the types of securities the Fund may purchase under normal market conditions to achieve its principal investment strategy. The Fund will not necessarily buy all of the securities listed below.
Derivatives. Derivative instruments are financial contracts whose value is based on an underlying security or asset, a currency exchange rate, an interest rate or a market index. Many types of instruments representing a wide range of potential risks and rewards are derivatives, including credit default swap contracts, swaps, futures contracts (both short and long positions), options on futures contracts, and forward currency exchange contracts.
The Fund may use derivatives for hedging (attempting to reduce risk by offsetting one investment position with another), for cash management (attempting to remain fully invested while maintaining liquidity), for managing certain risks (such as yield curve exposure, interest rate risk or credit risk), to generate income, to gain exposure to an investment in a manner other than investing in the asset directly or for any other permissible purpose. Hedging may relate to a specific investment, a group of investments, or the Fund's portfolio as a whole. Currently, some swaps may be negotiated bilaterally and others may be subject to mandatory clearing and exchange trading requirements. These requirements may decrease counterparty exposure and increase liquidity, but will not make swap transactions risk free.
Foreign Securities. Foreign securities can include common stock and convertible preferred stock of non-U.S. corporations. They may also include American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs), which are receipts issued by a bank or trust company and evidence ownership of underlying securities issued by foreign corporations, and ETFs that invest in foreign corporations.
Investment Companies. The Fund may invest in securities of other investment companies, including ETFs, if those companies invest in securities consistent with the Fund's investment objective and policies. ETFs are investment companies the shares of which are bought and sold on a securities exchange. U.S. Equity Securities can include common stock, preferred stock, and securities that are convertible or exchangeable into common stock of U.S. corporations.
PROSPECTUS
MARKET NEUTRAL ETF / 10
The following describes the types of securities that the Advisor may purchase or investment techniques the Advisor may employ that are not considered to be a part of the Fund's principal investment strategies. Additional securities and techniques are described in the Fund's SAI.
Additional Fund Strategies. The Advisor may use other types of investment strategies in pursuing the Fund's overall investment objective.
Securities Lending. To enhance the return on its portfolio, the Fund may lend portfolio securities to brokers, dealers and financial institutions to realize additional income under guidelines adopted by the Board of Trustees. Each loan will be secured continuously by collateral in the form of cash, securities issued by the U.S. government or its agencies or instrumentalities.
Risk Factors
The following describes the principal risks that you may assume as an investor in the Fund. These risks could adversely affect the net asset value, total return and the value of the Fund and your investment. The risk descriptions below provide a more detailed explanation of the principal investment risks that correspond to the risks described in the Summary Section of its Prospectus.
There is no assurance that the Fund will achieve its investment objective. The Fund's Share price will fluctuate with changes in the market value of its portfolio investments. When you sell your Fund Shares, they may be worth less than what you paid for them and accordingly, you can lose money investing in the Fund. The Fund, by itself, is not intended to be a complete investment program.
Excluded Security Risk. Because the Fund may not invest in Excluded Securities, the Fund may be riskier than other funds that invest in a broader array of securities.
BRI investing Risk. There is a risk that the Fund's use of BRI screening may result in lower returns than if the screening process were not employed, and BRI screening may not assist the Fund to achieve its investment objectives.
Price Risk. ETF market prices may deviate from the actual value of the Fund's portfolio value, particularly during times of market stress, with the result that investors may pay mor or receive less than the underlying value of the ETF shares bought or sold.
Active Market Risk. An active trading market for the Fund's shares may not develop or be maintained. In times of market stress, market makers and/or Authorized Participants may step away from their roles, which may result in wider bid/ask spreads and variances between the market price of the Fund's shares and the underlying value of those shares.
Derivatives Risk. Derivatives, such as futures contracts and options on futures contracts, are subject to the risk that small price movements can result in substantial gains or losses. Derivatives also entail exposure to counterparty risk, the risk of mispricing or improper valuation and the risk that changes in value of the derivative may not correlate perfectly with the relevant securities, assets or indices. The Fund "covers" its exposure to certain derivative contracts by segregating or designating liquid assets on its records sufficient to satisfy current payment obligations, which may expose the Fund to the market through both the underlying assets subject to the contract and the assets used as cover. The use of derivatives may cause the Fund to incur losses greater than those that would have occurred had derivatives not been used.
Equity Securities Risk. The market prices of equity securities, which may include common stocks and other stock-related securities such as preferred stocks, convertible securities and rights and warrants, may fluctuate, sometimes rapidly or unpredictably. The Fund may continue to accept new subscriptions and to make additional investments in equity securities even under general market conditions that the Fund's investment team views as unfavorable for equity securities. The value of a security may decline for reasons that directly relate to the issuer, such as management performance, financial leverage, and reduced demand for the issuer's goods or services or due to general market conditions, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment generally. Unlike debt securities, which have preference to a company's assets in case of liquidation, common stock, are entitled to the residual value after the company meets its other obligations. Unlike common stock, preferred stock generally pays a fixed dividend from a company's earnings and may have a preference over common stock on the distribution of a company's assets in the event of bankruptcy or liquidation. Preferred stockholders' liquidation rights are subordinate to the company's debt holders and creditors. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, and the price of preferred stocks may decline. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. Convertible securities may gain or lose value due to changes in the issuer's operating results, financial condition, credit rating and changes in interest rates and other general economic, industry and market conditions. Rights and warrants can provide a greater potential for profit or loss than an equivalent investment in the underlying security. Prices of warrants and rights do not necessarily move in tandem with the prices of the underlying securities and therefore are highly volatile and speculative investments.
PROSPECTUS
MARKET NEUTRAL ETF / 11
Foreign Investments Risk. Foreign investments involve certain special risks. For example, compared to U.S. companies, there generally is less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers, and listed companies. Foreign issuers may not be subject to the uniform accounting, auditing, and financial reporting standards and practices prevalent in the U.S. Investments in foreign countries could be affected by factors not present in the U.S., including expropriation, confiscation of property, and difficulties in enforcing contracts. These factors can make foreign investments more volatile than U.S. investments. Investments in depositary receipts (such as ADRs and GDRs) may also involve additional risks associated with the non-uniform terms that apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and other parties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market for depositary receipts. Certain of these risks may also apply to some extent to U.S. investments that are denominated in foreign currencies and to investments in U.S. companies that have significant foreign operations.
Political Risk. Foreign securities markets may be more volatile than their counterparts in the U.S. Investments in foreign countries could be affected by factors not present in the U.S., including expropriation, confiscation of property, and difficulties in enforcing contracts. Foreign settlement procedures may also involve additional risks, and foreign issuers can be impacted by changes to trade policies and trade disputes. These factors can make foreign investments more volatile than U.S. investments.
Liquidity Risk. Securities that trade less frequently or with lower trade volume can be more difficult or more costly to buy or sell than more liquid or active investments. Liquidity risk is a factor of the trading volume of a particular investment, as well as the size and liquidity of the entire local market. On the whole, foreign exchanges are smaller and less liquid than U.S. exchanges.
Currency Risk. Fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. Adverse changes in exchange rates, currency exchange control regulations, and restrictions or prohibitions on the repatriation of foreign currencies may erode or reverse any gains produced by investments denominated in foreign currencies and may widen any losses.
Legal Risk. Legal remedies for investors in foreign countries may be more limited than the legal remedies available in the U.S. Hedging Risk — Hedging is a strategy in which the Fund uses a derivative to offset the risks associated with other Fund holdings. There can be no assurance that the Fund's hedging strategy will reduce risk or that hedging transactions will be either available or cost-effective. The Fund is not required to use hedging and may choose not to do so.
PROSPECTUS
MARKET NEUTRAL ETF / 12
Investment Company Risk. The Fund's ability to achieve its investment objective may be directly related to the ability of other investment companies (including ETFs) held by the Fund to meet their investment objectives. In addition, shareholders of the Fund will indirectly bear the fees and expenses of the underlying investment companies. A lack of liquidity in an ETF could result in an ETF being more volatile than the underlying portfolio of securities.
Large-Capitalization Stock Risk. Large-capitalization companies tend to compete in mature product markets and do not typically experience the level of sustained growth of smaller companies and companies competing in less mature product markets. Large-capitalization companies may be unable to respond as quickly as smaller companies to competitive challenges or changes in business, product, financial, or other market conditions. For these and other reasons, the Fund that invests in large-capitalization companies may underperform other stock funds (such as funds that focus on the stocks of small- and medium-capitalization companies) when stocks of large-capitalization companies are out of favor.
Leverage Risk. Using derivatives to increase the Fund's combined long and short exposure creates leverage, which can magnify the Fund's potential for gain or loss and, therefore, amplify the effects of market volatility on the Fund's share price. The use of leverage may cause the Fund to liquidate portfolio positions at inopportune times to satisfy its obligations. The use of leverage may also cause the Fund to incur additional expenses.
Management Risk. The investment process used by the investment team may produce incorrect judgments about the value of a particular asset or the team may implement its investment strategy in a way that may not produce the desired results.
Short Position Risk. The Fund will incur a loss as a result of a short position if the price of the short position instrument increases in value between the date of the Fund sells the position and the date on which the Fund purchases an offsetting position. Short positions may be considered speculative transactions and involve special risks, including greater reliance on the Sub-Advisor's ability to accurately anticipate the future value of a security or instrument. The Fund's losses are potentially unlimited in a short position transaction. Market factors may prevent the Fund from closing out a short position at the most desirable time or at a favorable price. The Fund's losses are potentially large in a sold short transaction.
Smaller-Company Stock Risk. The earnings and prospects of small- and mid-sized companies are more volatile than larger companies and may experience higher failure rates than larger companies. Smaller-sized companies normally have a lower trading volume than larger companies, which may tend to make their market price fall more disproportionately than larger companies in response to selling pressures and may have limited markets, product lines, or financial resources and lack management experience.
Stock Market Risk. Stock market risk refers to the fact that stock (equity securities) prices typically fluctuate more than the values of other types of securities, typically in response to changes in the particular company's financial condition and factors affecting the market in general. Over time, the stock market tends to move in cycles, with periods when stock prices rise, and periods when stock prices decline. A slower-growth or recessionary economic environment could have an adverse effect on stock prices. Consequently, a broad-based market drop may also cause a stock's price to fall. Portfolio securities may also decline in value due to factors affecting securities markets generally, such as real or perceived adverse economic, political or regulatory conditions, inflation, changes in interest or currency rates or adverse investor sentiment, or due to factors affecting particular industries represented in the securities markets, such as competitive conditions. Changes in the financial condition of a single issuer can impact a market as a whole, and adverse market conditions may be prolonged and may not have the same impact on all types of securities. In addition, the markets may not favor a particular kind of security, including equity securities. Values of securities may fall due to factors affecting a particular issuer, industry or the securities market as a whole. Market turmoil may be reflected in perceptions of economic uncertainty, price volatility in the equity and debt markets, and fluctuating trading liquidity. In response, governments may adopt a variety of fiscal and monetary policy changes, including but not limited to, direct capital infusions into companies, new monetary programs, and lower interest rates. These policies may not be successful and any unexpected or quick reversal of these policies could increase volatility in the equity and debt markets. Market conditions and economic risks could have a significant effect on domestic and international economies and could add significantly to the risks of increased volatility and decreased liquidity for the Fund's portfolio.
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Geopolitical/Natural Disaster Risk. Global economies and financial markets are increasingly interconnected, which increases the possibilities that conditions in one country or region might adversely affect issuers in another country or region. Geopolitical and other risks, including war, terrorism, trade disputes, political or economic dysfunction within some nations, public health crises and related geopolitical events, as well as environmental disasters such as earthquakes, fires and floods, may add to instability in world economies and markets generally. Changes in trade policies and international trade agreements could affect the economies of many countries in unpredictable ways. Epidemics and/or pandemics, such as the coronavirus (or COVID-19), may result in, among other things, closing borders, disruptions to healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and consumer activity, as well as general concern and uncertainty. The impact may last for extended periods.
Information Technology and Operational Risk. Markets and market participants are increasingly reliant upon both publicly available and proprietary information data systems. Data imprecision, software or other technology malfunctions, programming inaccuracies, unauthorized use or access, and similar circumstances may impair the performance of these systems and may have an adverse impact upon a single issuer, a group of issuers, or the market at large. The information technology and other operational systems upon which the Fund's service providers rely may be subject to cyber attack or other technological disruptions, and could otherwise disrupt the ability of these service providers to perform essential tasks for the Fund. In certain cases, an exchange or market may close or issue trading halts on either specific securities or even the entire market, which may result in the Fund being, among other things, unable to buy or sell certain securities or financial instruments or accurately price its investments.
Additional Risk Factors. The Advisor may use several types of investment strategies in pursuing the Fund's overall investment objective.
The following risks are those that the Advisor does not consider to be principal risks of the Fund. Additional risks are included in the Fund's SAI.
Securities Lending Risk. The risk in lending portfolio securities, as with other extensions of credit, consists of the possibility of loss to the Fund due to (1) the inability of the borrower to return the securities, (2) a delay in receiving additional collateral to adequately cover any fluctuations in the value of securities on loan, (3) a delay in recovery of the securities, or (4) the loss of rights in the collateral should the borrower fail financially. These events could trigger adverse tax consequences for the Fund. In addition, the Fund is responsible for any loss that might result from its investment of the borrower's collateral. In determining whether to lend securities, the Advisor or the Fund's securities lending agent will consider relevant facts and circumstances, including the creditworthiness of the borrower.
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Section 3 | | Organization and Management of the Funds |
The Funds' Board of Trustees has the overall responsibility for overseeing the management of the Funds.
The Investment Advisor
Timothy Partners, Ltd. ("TPL"), 1055 Maitland Center Commons Boulevard, Maitland, FL 32751, is a Florida limited partnership organized on December 6, 1993, and is registered with the Securities and Exchange Commission as an investment Advisor. TPL supervises the investment of the assets of the Funds in accordance with the objectives, policies and restrictions of the Trust. TPL approves the portfolio of securities selected by the Sub-Advisor. To determine which securities are Excluded Securities, TPL conducts its own research and consults a number of Christian ministries on these issues. TPL retains the right to change the sources from whom it acquires its information, at its discretion. TPL has been the Advisor to the Fund since its inception in January 2023.
The Managing General Partner
Covenant Funds, Inc., a Florida corporation ("CFI"), is the managing general partner of TPL. Arthur D. Ally is President, Chairman and Trustee of the Trust, as well as President and 54% shareholder of CFI. Mr. Ally had over eighteen years of experience in the investment industry prior to founding TPL, having worked for Prudential Bache, Shearson Lehman Brothers and Investment Management & Research.
TPL has arranged for distribution, custody, fund administration, transfer agency and all other services necessary for the Fund to operate. The Advisor receives a fee for its services, (the "Management Fee"). From the Management Fee, the Advisor is obligated to pay or arrange for the payment of substantially all expenses of the Fund, including the cost of transfer agency, custody, fund administration and accounting, legal, audit, independent trustees and other services, except for interest expenses, distribution fees or expenses, brokerage expenses, acquired fund fees and expenses, taxes and extraordinary expenses such as litigation and other expenses not incurred in the ordinary course of the Fund's business.
The Advisor's Management Fee is designed to cause substantially all the Fund's expenses to be paid by the Advisor, and to compensate the Advisor for providing services for the Funds. Market Neutral Fund pays TPL a Management Fee equivalent to 0.65% annually of the Fund's average daily net assets, computed daily and paid monthly.
A discussion of the considerations employed by the Board of Trustees in their approval of TPL as Advisor to the Fund, and the Sub-Advisor as manager of the Funds, will be available in the Funds' annual report dated December 31, 2022.
TPL, with the Trust's consent, has engaged the services of the Sub-Advisor described below to provide day-to-day investment advisory services to the Fund. TPL pays all fees charged by the Sub-Advisor for such services.
The Sub-Advisor
TPL, with the consent of the Trust's Board, has entered into a Sub-Advisory Agreement with Victory Capital Management, Inc., ("Victory Capital" or the "Sub-Advisor") through its Victory Solutions team, located at 15935 La Cantera Parkway, San Antonio, TX 78256 (the "Sub-Advisor"). The Sub-Advisor is a New York corporation registered as an investment advisor with the Securities and Exchange Commission ("SEC"). The Sub-Advisor manages the investment portfolios of the Funds according to investment policies and procedures adopted by the Board of Trustees. As of September 30, 2022, the Sub- Advisor managed or advised assets totaling approximately $147.3 billion for individual and institutional clients.
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Victory Capital Management is a diversified global asset management firm with more than $161 billion in assets under management as of November 30th, 2022. Victory is comprised of 12 investment franchises and a Solutions Platform. Across the organization Victory offers a diverse array of investment vehicles and investment approaches including the Victory Market Neutral Income Fund, a mutual fund with a substantially similar investment objective save the BRI screening. The Victory Market Neutral Fund currently has more than $3 billion in assets under management as of December 29th, 2022 and was incepted November 19th, 2012. The investment professionals at Victory who manage/have managed this fund will be involved in the management of the Timothy Plan Market Neutral ETF.
Portfolio Management
Mannik Dhillon, Lance Humphrey, Scott Kefer and Free Foutz are Co-Portfolio Managers of the Fund and are jointly responsible for the day-to-day management of the Fund's portfolio.
Mannik Dhillon, CFA and CAIA®, is President of Victory Capital's VictoryShares and Solutions platform. From 2015- 2017, he served as the Sub-Advisor's Head of Investment Solutions, Product, and Strategy. From 2010 to 2015, Mr. Dhillon served as a managing director and head of manager research with Wilshire Associates, where he evaluated asset managers and led strategic consulting engagements. Mr. Dhillon is a CFA charter holder.
Lance Humphrey, CFA, is a Senior Portfolio Manager of VictoryShares and Solutions. Mr. Humphrey began his investment career in 2007 at AMCO which was acquired by Victory Capital in 2019. He holds the CFA designation and is a member of the CFA Society of San Antonio.
Scott Kefer, CFA, is a Senior Portfolio Manager of VictoryShares and Solutions. Mr. Kefer has served as a Senior Portfolio Manager for Victory Capital or an affiliate since 1999. He began his investment career in 1993 with U.S. Trust Company where he held similar investment management roles. Mr. Kefer is a CFA charter holder.
Free Foutz is the Portfolio Implementation Manager for Victory Capital's VictoryShares and Solutions platform with industry experience dating back to 2002. From 2002 to 2015, prior to joining Victory Capital, Mr. Foutz held various research and portfolio management positions with Charles Schwab Investment Management, Inc.
The Fund's SAI provides additional information about the portfolio managers' method of compensation, other accounts managed by the portfolio managers and the portfolio managers' ownership of securities in the Fund.
Share Price
The net asset value ("NAV") of the Fund is generally determined at 4:00 p.m. (Eastern Time) on each day the New York Stock Exchange ("NYSE") is open for business. In the event of an emergency or other disruption in trading on the NYSE, the Fund's net asset value will be determined based upon the close of the NYSE. The NAV is computed by determining the aggregate market value of all assets of the Fund, less its liabilities, divided by the total number of shares outstanding (NAV = (assets- liabilities)/number of shares). The NYSE is closed on weekends and New Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Juneteenth, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The NAV takes into account the expenses and fees of the Fund, including management, administration, and distribution fees (if any), which are accrued daily. The determination of NAV for the Fund for a particular day is applicable to all applications for the purchase of Shares, as well as all requests for the redemption of Shares, received by the Fund (or an authorized broker or agent, or its authorized designee) before the close of trading on the NYSE on that day.
Generally, the Fund's investments are valued each day at the last quoted sales price on each investment's primary exchange. Investments traded or dealt in upon one or more exchanges (whether domestic or foreign) for which market quotations are readily available and not subject to restrictions against resale shall be valued at the last quoted sales price on the primary exchange or, in the absence of a sale on the primary exchange, at the last bid on the primary exchange. Securities primarily traded in the National Association of Securities Dealers' Automated Quotation System ("NASDAQ") National Market System for which market quotations are readily available shall be valued using the NASDAQ Official Closing Price. If market quotations are not readily available, investments will be valued at their fair market value as determined in good faith by the Advisor in accordance with procedures approved by the Board and evaluated by the Board as to the reliability of the fair value method used. In these cases, the Fund's NAV will reflect certain portfolio investments' fair value rather than their market price. Fair value pricing involves subjective judgments and it is possible that the fair value determined for an investment is materially different than the value that could be realized upon the sale of that investment. The fair value prices can differ from market prices when they become available or when a price becomes available.
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The Fund may use independent pricing services to assist in calculating the value of the Fund's securities or other assets. In addition, market prices for foreign securities are not determined at the same time of day as the NAV for the Fund. In computing the NAV, immediately prior to closing of the NYSE, the Fund values the foreign securities held by the Fund at the latest closing price on the exchange in which they are traded. Prices of foreign securities quoted in foreign currencies are translated into U.S. dollars at current rates. The value of the Fund's securities may change on days when shareholders are not able to purchase and redeem the Fund's Shares if the Fund has portfolio securities that are primarily traded in foreign markets that are open on weekends or other days when the Fund does not price its Shares. If events materially affecting the value of a security in the Fund's portfolio, particularly foreign securities, occur after the close of trading on a foreign market but before the Fund prices its shares, the security will be valued at fair value. For example, if trading in a portfolio security is halted and does not resume before the Fund calculates its NAV, the Advisor may need to price the security using the Fund's fair value pricing guidelines. Without a fair value price, short-term traders could take advantage of the arbitrage opportunity and dilute the NAV of long-term investors. Fair valuation of the Fund's portfolio securities can serve to reduce arbitrage opportunities available to short-term traders, but there is no assurance that fair value pricing policies will prevent dilution of the Fund's NAV by short term traders. The determination of fair value involves subjective judgments. As a result, using fair value to price a security may result in a price materially different from the prices used by other mutual funds to determine net asset value, or from the price that may be realized upon the actual sale of the security.
With respect to any portion of the Fund's assets that are invested in one or more open-end management investment companies registered under the Investment Company Act of 1940, as amended ("1940 Act"), the Fund's net asset value is calculated based upon the net asset values of those open-end management investment companies, and the prospectuses for these companies explain the circumstances under which those companies will use fair value pricing and the effects of using fair value pricing.
Short-term debt obligations with remaining maturities in excess of 60 days are valued at current market prices, as discussed above. Short- term debt obligations with 60 days or less remaining to maturity are, unless conditions indicate otherwise, amortized to maturity based on their cost to the Fund if acquired within 60 days of maturity or, if already held by the Fund on the 60th day, based on the value determined on the 61st day.
Premium/Discount Information
Most investors will buy and sell Shares of the Funds in secondary market transactions through brokers at market prices and the Fund's Shares will trade at market prices. The market price of Shares may be greater than, equal to, or less than NAV. Market forces of supply and demand, economic conditions and other factors may affect the trading prices of Shares of each Fund.
Information about each Fund's daily market price and how often Shares of each Fund traded on the listing exchange at a price above (i.e., at a premium) or below (i.e., at a discount) the NAV of each Fund can be found at timothyplan.com under Form & Docs: Timothy Plan ETFs.
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How to Buy and Sell Shares
Shares of the Fund will be listed for trading on the Exchange under the ticker symbol listed on the cover of this Prospectus. Share prices are reported in dollars and cents per Share. Shares can be bought and sold on the secondary market throughout the trading day like other publicly traded shares, and shares typically trade in blocks of less than a Creation Unit. There is no minimum investment required. Shares may only be purchased and sold on the secondary market when the Exchange is open for trading. The Exchange is open for trading Monday through Friday and is closed on weekends and the following holidays, as observed: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Juneteenth, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
When buying or selling Shares through a broker, you will incur customary brokerage commissions and charges. The commission is often a fixed amount and may be a significant proportional cost for investors seeking to buy or sell smaller amounts of Shares. You may also pay some or all of the spread between the bid and the offered price in the secondary market on each leg of a round trip (purchase and sale) transaction. The spread varies over time for shares of the Fund based on the Fund's trading volume and market liquidity, and is generally lower if the Fund's Shares have more trading volume and market liquidity and higher if the Fund's Shares have little trading volume and market liquidity.
Only an Authorized Participant ("AP") may engage in creation or redemption transactions directly with the Fund. The Funds' APs are institutions and large investors, such as market makers or other large broker-dealers, which have entered into a Participation Agreement with the Funds' Distributor to undertake the responsibility of obtaining or selling the underlying assets needed to purchase or redeem, respectively, Creation Units of the Funds. APs may acquire Shares directly from the Fund, and APs may tender their Shares for redemption directly to the Fund, at NAV per share only in large blocks, or Creation Units, of 10,000 shares. Purchases and redemptions directly with the Fund must follow the Funds' procedures, which are described in the SAI.
The Fund may liquidate and terminate at any time without shareholder approval.
Share Trading Prices
The trading prices of the Fund's Shares in the secondary market generally differ from the Fund's daily NAV and are affected by market forces such as the supply of and demand for ETF shares and shares of underlying securities held by the Fund, economic conditions and other factors. The approximate value of Shares will be disseminated every 15 seconds throughout the trading day through the facilities of the Consolidated Tape Association. This approximate value should not be viewed as a "real-time" update of the NAV per share of the Fund because the approximate value may not be calculated in the same manner as the NAV, which is computed once a day, generally at the end of the business day. The approximate value generally is determined by using current market quotations. The quotations of certain Fund holdings may not be updated during U.S. trading hours if such holdings do not trade in the U.S. The Fund is not involved in, or responsible for, the calculation or dissemination of the approximate value of the Shares and the Funds do not make any warranty as to the accuracy of these values.
Book Entry
Shares are held in book entry form, which means that no stock certificates are issued. The Depository Trust Company ("DTC") or its nominee is the record owner of all outstanding Shares of the Funds and is recognized as the owner of all Shares for all purposes.
Investors owning shares are beneficial owners as shown on the records of DTC or its participants. DTC serves as the securities depository for all shares. Participants in DTC include securities brokers and dealers, banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with DTC. As a beneficial owner of shares, you are not entitled to receive physical delivery of stock certificates or to have shares registered in your name, and you are not considered a registered owner of shares. Therefore, to exercise any right as an owner of shares, you must rely upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other securities that you hold in book entry or "street name" form.
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Frequent Purchases and Redemptions of Fund Shares
The Fund's Shares can only be purchased and redeemed directly from the Fund by APs in Creation Units. Direct trading by APs is critical to ensuring that the Fund's Shares trade at or close to NAV. The cash to be contributed to (or received from) the Fund in connection with a Creation Unit generally is negligible compared to the total amount of the trade. To the extent the Fund has exposure to non-U.S. securities, the Fund employs fair valuation pricing to minimize arbitrage opportunities that attempt to exploit the differences between a security's market quotation and its fair value. In addition, the Fund imposes transaction fees on purchases and redemptions of Shares to cover the custodial and other costs incurred by the Fund in effecting trades. These fees increase if an investor substitutes cash in part or in whole for securities, reflecting the fact that the Fund's trading costs increase in those circumstances.
The vast majority of trading in the Fund's Shares occurs on the secondary market. Because the secondary market trades do not directly involve the Fund, it is unlikely those trades would cause the harmful effects of market timing, including dilution, disruption of portfolio management, increases in the Fund's trading costs and the realization of capital gains.
Given this structure, the Board has determined that it is not necessary to monitor for frequent in-kind purchases and redemptions of Shares or market timing activity by the APs or on the Shares' secondary market.
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Section 4 | | Distributions and Taxes |
Unlike interests in conventional mutual funds, which typically are bought and sold from and to the Fund only at closing NAVs, the Fund's Shares are traded throughout the day in the secondary market on a national securities exchange on an intra-day basis and are created and redeemed in-kind and/or for cash in Creation Units at each day's next calculated NAV. In-kind arrangements are designed to protect ongoing shareholders from the adverse effects on the Fund's portfolio that could arise from frequent cash redemption transactions. In a conventional mutual fund, redemptions can have an adverse tax impact on taxable shareholders if the mutual fund needs to sell portfolio securities to obtain cash to meet net fund redemptions. These sales may generate taxable gains for the ongoing shareholders of the mutual fund, whereas the Shares' in-kind redemption mechanism generally will not lead to a tax event for the Fund or its ongoing shareholders.
Ordinarily, dividends from net investment income, if any, are declared and paid monthly by the Fund. The Fund distributes its net realized capital gains, if any, to shareholders annually.
Distributions in cash may be reinvested automatically in additional whole shares only if the broker through whom you purchased Shares makes such option available.
As with any investment, you should consider how your investment in shares will be taxed. The tax information in this Prospectus is provided as general information. You should consult your own tax professional about the tax consequences of an investment in Shares.
Unless your investment in Shares is made through a tax-exempt entity or tax-deferred retirement account, such as an individual retirement account, you need to be aware of the possible tax consequences when:
● | The Fund makes distributions, |
● | You sell your shares listed on the Exchange, and |
● | You purchase or redeem Creation Units. |
Taxes on Distributions
As stated above, the Fund ordinarily declares and pays dividends from net investment income, if any, monthly. The Fund may also pay a special distribution at the end of a calendar year to comply with federal tax requirements. Distributions from the Fund's net investment income, including net short-term capital gains, if any, are taxable to you as ordinary income, except that the Fund's dividends attributable to its "qualified dividend income" (i.e., dividends received on stock of most domestic and certain foreign corporations with respect to which the Fund satisfies certain holding periods and other restrictions), if any, generally are taxable to non-corporate shareholders at preferential rates. A part of the Fund's dividends also may be eligible for the dividends-received deduction allowed to corporations, subject to similar restrictions.
In general, your distributions are subject to federal income tax when they are paid, whether you take them in cash or reinvest them in the Fund (if that option is available). Distributions reinvested in additional shares of the Fund through the means of a dividend reinvestment service, if available, will be taxable to shareholders acquiring the additional shares to the same extent as if such distributions had been received in cash. Distributions of net long-term capital gains, if any, in excess of net short- term capital losses are taxable as long-term capital gains (at the 20% maximum rate referred to above for non-corporate shareholders), regardless of how long you have held the shares.
Distributions in excess of the Fund's current and accumulated earnings and profits are treated as a tax-free return of capital to the extent of your basis in the Shares and as capital gain thereafter. A distribution will reduce the Fund's NAV per Share and may be taxable to you as ordinary income or capital gain (as described above) even though, from an investment standpoint, the distribution may constitute a return of capital.
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By law, the Fund is required to withhold 28% of your distributions and redemption proceeds if you have not provided the Fund with a correct Social Security number or other taxpayer identification number and in certain other situations.
Taxes on Exchange-Listed Share Sales
Any capital gain or loss realized upon a sale of shares is generally treated as long-term capital gain or loss if the shares have been held for more than one year and as short-term capital gain or loss if the shares have been held for one year or less. The ability to deduct capital losses from sales of Shares may be limited.
Taxes on Purchase and Redemption of Creation Units
An AP who exchanges securities for Creation Units generally will recognize a gain or a loss equal to the difference between the market value of the Creation Units at the time of the exchange and the sum of the exchanger's aggregate basis in the securities surrendered plus any Cash Component it pays. An AP who exchanges Creation Units for securities will generally recognize a gain or loss equal to the difference between the exchanger's basis in the Creation Units and the sum of the aggregate market value of the securities received plus any cash equal to the difference between the NAV of the shares being redeemed and the value of the securities. The Internal Revenue Service ("Service"), however, may assert that a loss realized upon an exchange of securities for Creation Units cannot be deducted currently under the rules governing "wash sales" or for other reasons. Persons exchanging securities should consult their own tax adviser with respect to whether wash sale rules apply and when a loss might be deductible.
Any capital gain or loss realized upon redemption of Creation Units is generally treated as long-term capital gain or loss if the shares have been held for more than one year and as short-term capital gain or loss if the shares have been held for one year or less.
If you purchase or redeem Creation Units, you will be sent a confirmation statement showing how many shares you purchased or sold and at what price. See "Taxes" in the SAI for a description of the requirement regarding basis determination methods applicable to Share redemptions and the Fund's obligation to report basis information to the Service.
The foregoing discussion summarizes some of the possible consequences under current federal tax law of an investment in the Fund. It is not a substitute for personal tax advice. Consult your personal tax adviser about the potential tax consequences of an investment in the Shares under all applicable tax laws.
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Section 5 | | Other Information |
Continuous Offering
The method by which Creation Units of Shares are created and traded may raise certain issues under applicable securities laws. Because new Creation Units of Shares are issued and sold by the Fund on an ongoing basis, a "distribution," as such term is used in the Securities Act of 1933, as amended (the "Securities Act"), may occur at any point. Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner which could render them statutory underwriters and subject them to the prospectus delivery requirement and liability provisions of the Securities Act.
For example, a broker-dealer firm or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into constituent Shares and sells the Shares directly to customers or if it chooses to couple the creation of a supply of new Shares with an active selling effort involving solicitation of secondary market demand for Shares. A determination of whether one is an underwriter for purposes of the Securities Act must take into account all the facts and circumstances pertaining to the activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete description of all the activities that could lead to a characterization as an underwriter.
Broker-dealer firms should also note that dealers who are not "underwriters" but are effecting transactions in Shares, whether or not participating in the distribution of Shares, are generally required to deliver a prospectus. This is because the prospectus delivery exemption in Section 4(3) of the Securities Act is not available in respect of such transactions as a result of Section 24(d) of the 1940 Act. As a result, broker-dealer firms should note that dealers who are not "underwriters" but are participating in a distribution (as contrasted with engaging in ordinary secondary market transactions) and thus dealing with the Shares that are part of an overallotment within the meaning of Section 4(3)(C) of the Securities Act, will be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities Act. For delivery of prospectuses to exchange members, the prospectus delivery mechanism of Rule 153 under the Securities Act is only available with respect to transactions on a national exchange.
Dealers effecting transactions in the Fund's Shares, whether or not participating in this distribution, are generally required to deliver a Prospectus. This is in addition to any obligation of dealers to deliver a Prospectus when acting as underwriters.
Portfolio Holdings Disclosure
A description of the Fund's policies regarding disclosure of the securities in the Fund's portfolio is found in the Statement of Additional Information. The Fund's portfolio is disclosed daily on the Fund's website at timothyplan.com.
Shareholders may also request portfolio holdings schedules at no charge by calling toll free 1-800-846-7526.
Shareholder Communications
In order to eliminate duplicate mailings to an address at which two or more shareholders with the same last name reside, the Timothy Plan may send only one copy of any shareholder reports, proxy statements, prospectuses and their supplements, unless you have instructed Timothy Plan to the contrary. You may request that the Timothy Plan send these documents to each shareholder individually by calling the Timothy Plan at 1-800-846-7526, and they will be delivered promptly.
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While this Prospectus and the SAI of the Trust describe pertinent information about the Trust and the Fund, neither this Prospectus nor the SAI represents a contract between the Trust or the Fund and any shareholder.
Disclaimers
Shares are not sponsored, endorsed, or promoted by the Exchange. The Exchange makes no representation or warranty, express or implied, to the owners of the Shares or any member of the public regarding the ability of the Fund to track the total return performance of their respective Index or the ability of each Index identified herein to track stock market performance. The Exchange is not responsible for, nor has it participated in, the determination of the compilation or the calculation of each Index, nor in the determination of the timing of, prices of, or quantities of the Shares to be issued, nor in the determination or calculation of the equation by which the Shares are redeemable. The Exchange has no obligation or liability to owners of the Shares in connection with the administration, marketing, or trading of the Shares.
The Exchange does not guarantee the accuracy and/or the completeness of each Index or the data included therein. The Exchange makes no warranty, express or implied, as to results to be obtained by the Trust on behalf of the Funds, owners of the Shares, or any other person or entity from the use of each Index or the data included therein.
The Exchange makes no express or implied warranties, and hereby expressly disclaims all warranties of merchantability or fitness for a particular purpose with respect to the Index or the data included therein. Without limiting any of the foregoing, in no event shall the Exchange have any liability for any lost profits or indirect, punitive, special, or consequential damages even if notified of the possibility thereof.
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Section 6 | | Other Service Providers |
Citi Fund Services Ohio, Inc. | 4400 Easton Commons, Suite 200, Columbus,
OH 43219, serves as administrator and fund accountant for the Funds. |
Citibank, N.A. | 388 Greenwich Street, New York, NY, serves as transfer agent and custodian of the Funds' assets. |
Foreside Distributors | 3 Canal Plaza, Suite 100, Portland, ME
04101, serves as distributor for the continuous offering of each Fund's shares. |
Cohen & Company, Ltd. | 1350 Euclid Avenue, Suite 800, Cleveland,
Ohio 44115, serves as the Independent Registered Public Accounting firm for the Funds. |
Drake Compliance, LLC | 395 Sawdust Road, # 2137, The Woodlands,
TX 77380, serves as Chief Compliance Officer to the Fund. |
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Section 7 | | Financial Highlights |
No information is presented for the Fund offered by this prospectus since the Fund had not yet commenced operations as of December 31, 2022.
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Section 8 | | Other Information |
This Prospectus is accompanied by a Statement of Additional Information (SAI), dated January 9, 2023: The SAI contains more information about the Funds' operations, investment restrictions, policies and practices. The SAI is incorporated by reference into this Prospectus, which means that it is legally part of this Prospectus, even if you don't request a copy.
Annual and Semi-annual Reports: Annual and semi-annual reports contain more information about the Funds' investments and the market conditions and investment strategies that significantly affected the Funds' performance during the most recent fiscal period.
How to Obtain Information: You may obtain a free copy of the SAI or annual and semi-annual reports, and ask questions about the Funds or your accounts, online at etf.timothyplan.com, by contacting the Timothy Plan at the following address or telephone number, or by contacting your financial intermediary.
By telephone: | By mail: |
Call Timothy Plan at 1-800-846-7526 | Timothy
Plan 1055 Maitland Center Commons Maitland FL 32751 |
You also can get information about the Fund (including the SAI and other reports) from the Securities and Exchange Commission (SEC). The SEC charges a duplicating fee to provide copies of this information.
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Investment Company Act File Number 811-0822
PROSPECTUS
MARKET NEUTRAL ETF / 26
EXCHANGE-TRADED FUND
STATEMENT OF ADDITIONAL INFORMATION
January 9, 2023
(As amended January 24, 2023)
Ticker Symbol |
||
TIMOTHY PLAN MARKET NEUTRAL ETF | TPMN |
Listed and traded on: The New York Stock Exchange
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. PORTIONS OF THE FUND'S ANNUAL REPORT ARE INCORPORATED HEREIN.
To
obtain a free additional copy of the prospectus or SAI, dated January 9, 2023, as amended January 24, 2023, or an annual report,
please contact Timothy Plan at (800) 846-7526 or visit Timothy Plan's website at etf.timothyplan.com.
Table of Contents
Section 1 | General Information | 3 |
Section 2 | Investment Objectives, Policies and Limitations | 4 |
Section 3 | Investment Practices, Instruments and Risks | 8 |
Section 4 | Investments by Other Registered Investment Companies | 36 |
Section 5 | Determining Net Asset Value and Valuing Portfolio Securities | 37 |
Section 6 | Purchase and Redemption of Shares | 41 |
Section 7 | Performance | 49 |
Section 8 | Management of the Trust | 52 |
Section 9 | Investment Advisor and Other Service Providers | 65 |
Section 10 | Proxy Voting Policies and Procedures | 70 |
Section 11 | Portfolio Transactions and Brokerage | 71 |
Section 12 | Dividends, Capital Gains and Distributions | 75 |
Section 13 | Taxes | 76 |
Section 14 | Additional Information | 87 |
Statement of additional Information
Market Neutral ETF / 2
Section 1 | | General Information |
This Statement of Additional Information ("SAI") is not a prospectus and should be read in conjunction with the Fund's prospectus, dated January 9, 2023, as amended January 24, 2023, as it may be amended or supplemented from time to time (the "Prospectus"). Copies of the Prospectus of the Fund can be obtained without charge upon request made to the Timothy Plan, at etf.timothyplan.com or by calling toll-free 1-800-846-7526. This SAI pertains only to the Timothy Plan Market Neutral ETF. Timothy Plan offers additional Funds via a different prospectus and is described in a separate statement of additional information.
You may obtain a copy of the Trust's most recent annual report, dated December 31, 2022, at no charge by writing to the address or calling the phone number noted above.
The Fund is a diversified series of the Timothy Plan (the "Trust"), a Delaware business trust organized on December 16, 1993. The Trust currently consists of 21 series of beneficial interest ("shares"). This SAI pertains only to the Timothy Plan Market Neutral ETF. (the "Fund").
Timothy Partners, Ltd. ("TPL" or the "Advisor"), serves as the Fund's investment advisor. Victory Capital Management Inc. ("Victory Capital" or the "Sub-Advisor"), is the Fund's investment sub-advisor. The Fund's investment objective, restrictions and policies are more fully described here and in the Fund's Prospectus. The Trust's Board of Trustees (the "Board" or "Trustees") may organize and offer shares of a new fund or new share class of an existing Fund under the Trust or liquidate the Fund or share class at any time.
Much of the information contained in this SAI expands on subjects discussed in the Fund's Prospectus. Capitalized terms not defined herein are used as defined in the Prospectus. No investment in shares of the Fund should be made without first reading that Fund's Prospectus.
The Fund's shares are offered at net asset value ("NAV") only in large blocks (each a "Creation Unit"). The Fund will issue and redeem Creation Units principally in exchange for a basket of securities included in the respective Fund's underlying index (the "Deposit Securities"), together with the deposit of a specified cash payment (the "Cash Component"), plus a transaction fee. The Funds are approved for listing on The New York Stock Exchange ("NYSE" or the "Exchange"). Shares trade on the Exchange at market prices that may be below, at, or above NAV. The Trust reserves the right to adjust the prices of Shares in the future to maintain convenient trading ranges for investors. Any adjustments would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of the applicable Fund.
The Fund reserves the right to offer creations and redemptions of Shares for cash. In addition, Shares may be issued in advance of receipt of Deposit Securities subject to various conditions, including a requirement to maintain on deposit with the Trust cash equal to up to 105% of the market value of the missing Deposit Securities. In each instance of such cash creations or redemptions, transaction fees may be imposed and may be higher than the transaction fees associated with in-kind creations or redemptions. See "Purchase and Redemption of Shares" below.
Shares of the Fund are listed for trading and trade throughout the day on the Exchange.
In order to provide additional information regarding the indicative value of Shares of the Fund, the Exchange or a market data vendor will disseminate every 15 seconds through the facilities of the Consolidated Tape Association or other widely disseminated means an updated "intraday indicative value" ("IIV") for the Fund as calculated by an information provider or market data vendor. The Trust is not involved in or responsible for any aspect of the calculation or dissemination of the IIV and makes no representation or warranty as to the accuracy of the IIV.
Statement of additional Information
Market Neutral ETF / 3
Section 2 | | Investment
Objectives, Policies and Limitations |
Investment Objectives
The Fund's investment objective is non-fundamental, meaning that it can be changed by a vote of the Trustees without a vote of a majority of the Fund's outstanding securities. There can be no assurance that the Fund will achieve its investment objective.
Investment Policies and Limitations of the Funds
Unless a policy of the Fund is expressly deemed to be the Fundamental policy, changeable only by an affirmative vote of the holders of a majority of the Fund's outstanding voting securities, the Fund's policies are non-fundamental and may be changed without a shareholder vote.
The Fund may, following notice to its shareholders, employ other investment practices that presently are not contemplated for use by the Fund or that currently are not available but that may be developed to the extent such investment practices are both consistent with the Fund's investment objective and legally permissible for the Fund. Such investment practices, if they arise, may involve risks that exceed those involved in the activities described in the Fund's Prospectus.
The Fund's classification and sub-classification is a matter of fundamental policy. The Fund is classified as an open- end investment company. The Fund is sub-classified as a diversified investment company, which under the Investment Company Act of 1940 Act, as amended, (the "1940 Act") means that, with respect to 75% of the Fund's total assets, the Fund may not invest in securities of any issuer if, immediately after such investment, (i) more than 5% of the total assets of the Fund (taken at current value) would be invested in the securities of that issuer or (ii) more than 10% of the outstanding voting securities of the issuer would be held by the Fund (this limitation does not apply to obligations of the U.S. Government, its agencies or instrumentalities and securities of other investment companies). The Fund is not subject to this limitation with respect to the remaining 25% of its total assets. In addition, the Fund has elected to qualify as a "regulated investment company" ("RIC") under the United States Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a RIC, the Fund must meet certain diversification requirements as determined at the close of each quarter of each taxable year. The Code's diversification test is described in "TAXES".
The policies and limitations stated in this SAI supplement the Fund's investment policies set forth in the Fund's Prospectus. Unless otherwise noted, whenever an investment policy or limitation states a maximum percentage of the Fund's assets that may be invested in any security or other asset, or sets forth a policy regarding quality standards, such standard or percentage limitation will be determined immediately after and as a result of the Fund's acquisition of such security or other asset except in the case of borrowing (or other activities that may be deemed to result in the issuance of a "senior security" under the 1940 Act). Accordingly, any subsequent change in values, net assets, or other circumstances will not be considered when determining whether the investment complies with the Fund's investment policies and limitations. If the value of the Fund's holdings of illiquid securities at any time exceeds the percentage limitation applicable at the time of acquisition due to subsequent fluctuations in value or other reasons, the Trust's Board will consider what actions, if any, are appropriate to maintain adequate liquidity.
Statement of additional Information
Market Neutral ETF / 4
Fundamental Investment Policies and Limitations of the Fund
The following investment policies and limitations are fundamental and may not be changed without the affirmative vote of the holders of a majority of the Fund's outstanding shares, as defined under the 1940 Act. Under the 1940 Act, the vote of a majority of the outstanding voting securities of the Fund means the lesser of (a) 67% or more of the shares of the Fund present at a meeting at which more than 50% of the outstanding shares of the Fund are represented in person or by proxy, or (b) more than 50% of the outstanding shares of the Fund. Portions of the Fund's fundamental investment restrictions (e.g., references to "except as permitted under the 1940 Act, and as interpreted or modified from time to time by regulatory authorities having jurisdiction") provide the Fund with the flexibility to change limitations in connection with changes to applicable law, rules, regulations or exemptive relief. The language used in these restrictions provides the necessary flexibility to allow the Board of Trustees to respond efficiently to these kinds of developments without the delay and expense of a shareholder meeting.
Senior Securities
The Fund may not issue senior securities, except as permitted under the 1940 Act, and as interpreted or modified from time to time by regulatory authorities having jurisdiction.
This limitation is not applicable to activities that may be deemed to involve the issuance or sale of a senior security by the Fund, provided that the Fund's engagement in such activities is consistent with or permitted by the 1940 Act the rules and regulations promulgated thereunder or interpretations of the Securities and Exchange Commission ("SEC") or its staff.
The SEC takes the position that transactions that have the effect of increasing the leverage of the capital structure of the Fund are the economic equivalent of borrowing, and they can be viewed as a type of borrowing known as a "senior security" for purposes of the 1940 Act. Examples of such transactions and trading practices include reverse repurchase agreements; mortgage-dollar-roll transactions; selling securities short (other than selling short "against the box"); buying and selling certain derivatives contracts, such as futures contracts; writing or selling put and call options; engaging in sale-buybacks; firm commitment and standby commitment agreements; when-issued, delayed delivery and forward commitment transactions; and other similar transactions. A transaction will not be considered to constitute the issuance by the Fund of a "senior security," as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% minimum asset coverage requirement otherwise applicable to borrowings by the Fund, if the Fund maintains an offsetting financial position by segregating liquid assets (as determined by the Advisor under the general oversight of the Board) at least equal to the value of the Fund's potential economic exposure as measured daily on a mark-to-market basis; or otherwise "covers" the transaction in accordance with applicable SEC guidance (collectively defined as "covers" the transaction). In most cases the Fund need not physically segregate the assets. Instead, the Fund's custodian may note on the Fund's books the assets that are "segregated." Segregated liquid assets may not be used to cover other obligations, and if disposed of, must be replaced. In order to comply with the applicable regulatory requirements regarding cover, the Fund may be required to buy or sell securities at a disadvantageous time or when the prices then available are deemed disadvantageous. In addition, segregated assets may not be readily available to satisfy redemption requests or for other purposes.
Borrowing
The Fund may not borrow money, except (a) from a bank, provided that immediately after such borrowing there is an asset coverage of 300% for all borrowings of the Fund; or (b) from a bank or other persons for temporary purposes only, provided that such temporary borrowings are in an amount not exceeding 5% of the Fund's total assets at the time when the borrowing is made. This limitation does not preclude the Fund from entering into reverse repurchase transactions, provided that the Fund has an asset coverage of 300% for all borrowings and repurchase commitments of the Fund pursuant to reverse repurchase transactions.
Statement of additional Information
Market Neutral ETF / 5
Underwriting, Purchasing Securities on Margin, or Participating on a Joint Basis
The Fund may not purchase securities on margin, participate on a joint or joint and several basis in any securities trading account, or underwrite securities. This limitation does not preclude the Fund from obtaining such short-term credit as may be necessary for the clearance of purchases and sales of its portfolio securities, and except to the extent that the Fund may be deemed an underwriter under the Securities Act of 1933, as amended ("1933 Act"), by virtue of disposing of portfolio securities.
Real Estate
The Fund may not purchase or sell real estate or interests in real estate. This limitation is not applicable to investments in marketable securities that are secured by or represent interests in real estate. This limitation does not preclude the Fund from investing in mortgage-related securities or investing in companies engaged in the real estate business or that have a significant portion of their assets in real estate (including real estate investment trusts).
Concentration
The Fund may not invest 25% or more of the market value of its assets in the securities of companies engaged in any one industry or group of related industries. This limitation does not apply to investments in the securities of the U.S. government, its agencies or instrumentalities.
Concentration means investing more than 25% of the Fund's net assets in a particular industry or a specified group of industries.
Commodities
The Fund may not purchase or sell commodities (unless acquired as a result of ownership of securities or other investments or through commodity futures contracts or options), except that the Fund may purchase and sell futures contracts and options to the full extent permitted under the 1940 Act, sell foreign currency contracts in accordance with any rules of the Commodity Futures Trading Commission, invest in securities or other instruments backed by commodities, and invest in companies that are engaged in a commodities business or have a significant portion of their assets in commodities.
Lending
The Fund may not make loans to others, except (a) through the purchase of debt securities in accordance with its investment objectives and policies, (b) to the extent the entry into a repurchase agreement is deemed to be a loan, and (c) by loaning portfolio securities.
Non-Fundamental Investment Policies and Limitations of the Funds.
The following investment restrictions are non-fundamental and may be changed by a vote of a majority of the Trustees.
No Fund may purchase the securities of any registered open-end investment company or registered unit investment trust in reliance on Section 12(d)(1)(G) or Section 12(d)(1)(F) of the 1940 Act, which permits operation as a "fund of funds." Except as provided in the next paragraph, none of the Funds may: (1) invest more than 5% of its total assets in the securities of any one investment company; (2) own more than 3% of the securities of any one investment company; or (3) invest more than 10% of its total assets in the securities of other investment companies.
Statement of additional Information
Market Neutral ETF / 6
The Fund may purchase and redeem shares issued by a money market fund without limit, provided that either: (1) the Fund pays no "sales charge" or "service fee" (as each of those terms is defined in the FINRA Conduct Rules); or (2) the Advisor waives its advisory fee in an amount necessary to offset any such sales charge or service fee. For purposes of this investment restriction, a "money market fund" is either: (1) an open-end investment company registered under the 1940 Act and regulated as a money market fund in accordance with Rule 2a-7 under the 1940 Act; or (2) a company that is exempt from registration as in investment company under Sections 3(c)(1) or 3(c)(7) of the 1940 Act and that: (a) limits its investments to those permitted under Rule 2a-7 under the 1940 Act; and (b) undertakes to comply with all the other requirements of Rule 2a-7, except that, if the company has no board of directors, the company's investment advisor performs the duties of the board of directors.
The Fund may not mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any assets of the Fund except as may be necessary in connection with borrowings described in the fundamental limitations above. Margin deposits, security interests, liens and collateral arrangements with respect to transactions involving options, futures contracts, short sales and other permitted investments and techniques are not deemed to be a mortgage, pledge or hypothecation of assets for purposes of this limitation.
The Fund may not invest in any issuer for purposes of exercising control or management.
The Fund may not invest more than 15% of its net assets in illiquid securities. Illiquid securities are securities that are not readily marketable or cannot be disposed of promptly within seven days and, in the usual course of business, at approximately the price at which the Fund has valued them. Such securities include, but are not limited to, time deposits and repurchase agreements with maturities longer than seven days. Securities that may be resold under Rule 144A, securities offered pursuant to Section 4(2) of the Securities Act, or securities otherwise subject to restrictions or limitations on resale under the Securities Act shall not be deemed illiquid solely by reason of being unregistered. TPL, the Fund's investment advisor, under oversight of the Board, determines whether a particular security is deemed to be liquid based on the trading markets for the specific security and other factors. If more than 15% of Fund net assets are illiquid, the Fund's investment advisor(s) will reduce illiquid assets such that they do not represent more than 15% of Fund net assets, subject to timing and other considerations which are in the best interests of the Fund and its shareholders.
Statement of additional Information
Market Neutral ETF / 7
Section 3 | | Investment
Practices, Instruments and Risks |
In addition to the principal investment strategies and the principal risks of the Fund described in the Prospectus, the Fund may, but will not necessarily, employ other investment practices and may be subject to additional risks which are described further below.
The Fund may, following notice to its shareholders, take advantage of other investment practices that presently are not contemplated for use by the Fund or that currently are not available but that may be developed, to the extent such investment practices are both consistent with the Fund's investment objective and are legally permissible for the Fund. Such investment practices, if they arise, may involve risks that exceed those involved in the activities described in the Fund's Prospectus and this SAI.
Equity Securities
Equity securities in which the Fund invests include common stocks, preferred stocks and securities convertible into common stocks, such as convertible bonds, warrants, rights and options. The value of equity securities varies in response to many factors, including the activities and financial condition of individual companies, the business market in which individual companies compete and general market and economic conditions. Equity securities fluctuate in value, often based on factors unrelated to the value of the issuer of the securities, and such fluctuations can be significant.
Common Stock
Common stock represents an equity (ownership) interest in a company, and usually possesses voting rights and earns dividends. Dividends on common stock are not fixed but are declared at the discretion of the issuer. Common stock generally represents the riskiest investment in a company. In addition, common stock generally has the greatest appreciation and depreciation potential because increases and decreases in earnings are usually reflected in a company's stock price. A company's common stock also may decline significantly in price over a short period of time due to factors specific to that company, including decisions made by its management or lower demand for the company's products or services.
Preferred Stock
The Fund may invest in preferred stock with no minimum credit rating. Preferred stock is a class of stock having a preference over common stock as to the payment of dividends and the recovery of investment should a company be liquidated, although preferred stock is usually junior to the debt securities of the issuer. Preferred stock typically does not possess voting rights and its market value may change based on changes in interest rates.
The fundamental risk of investing in common and preferred stock is the risk that the value of the stock might decrease. Stock values fluctuate in response to the activities of an individual company or in response to general market and/or economic conditions. Historically, common stocks have provided greater long-term returns and have entailed greater short-term risks than preferred stocks, fixed income securities and money market investments. The market value of all securities, including common and preferred stocks, is based upon the market's perception of value and not necessarily the book value of an issuer or other objective measures of a company's worth.
Statement of additional Information
Market Neutral ETF / 8
Convertible Securities
The Fund may invest in convertible securities with no minimum credit rating. Convertible securities include fixed income securities that may be exchanged or converted into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities. Convertible securities are senior to common stocks in an issuer's capital structure, but are usually subordinated to similar non-convertible securities. While providing a fixed income stream (generally higher in yield than the income derivable from common stock but lower than that afforded by a similar nonconvertible security), a convertible security also gives an investor the opportunity, through its conversion feature, to participate in the capital appreciation of the issuing company depending upon a market price advance in the convertible security's underlying common stock.
Participation Notes
The Fund may buy participation notes from a bank or broker-dealer ("issuer") that entitle the Fund to a return measured by the change in value of an identified underlying security or basket of securities (collectively, the "underlying security"). Participation notes are typically used when a direct investment in the underlying security is restricted due to country-specific regulations. Investing in participation notes involves the same risks associated with a direct investment in the shares of the companies the notes seek to replicate. However, the performance results of participation notes will not replicate exactly the performance of the issuers or markets that the notes seek to replicate due to transaction costs and other expenses. In addition, participation notes are subject to counterparty risks. Participation notes may be considered illiquid.
Warrants
The Fund may invest in warrants. Warrants are options to purchase common stock at a specific price (usually at a premium above the market value of the optioned common stock at issuance) valid for a specific period of time. Warrants may have a life ranging from less than one year to twenty years, or they may be perpetual. However, most warrants have expiration dates after which they are worthless. In addition, a warrant is worthless if the market price of the common stock does not exceed the warrant's exercise price during the life of the warrant. Warrants have no voting rights, pay no dividends, and have no rights with respect to the assets of the corporation issuing them. The percentage increase or decrease in the market price of the warrant may tend to be greater than the percentage increase or decrease in the market price of the optioned common stock.
Depositary Receipts
The Fund may invest in sponsored and unsponsored depositary receipts, such as American Depositary Receipts ("ADRs"), which are receipts issued by an American bank or trust company evidencing ownership of underlying securities issued by a foreign issuer. ADRs, in registered form, are designed for use in U.S. securities markets. Unsponsored ADRs may be created without the participation of the foreign issuer. Holders of these ADRs generally bear all the costs of the ADR facility, whereas foreign issuers typically bear certain costs in a sponsored ADR. The bank or trust company depositary of an unsponsored ADR may be under no obligation to distribute shareholder communications received from the foreign issuer or to pass through voting rights. Many of the risks described below regarding foreign securities apply to investments in ADRs. Without limitation, the Fund may also invest in European Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs"). EDRs are receipts issued in Europe that evidence a similar ownership arrangement. GDRs are receipts issued throughout the world that evidence a similar arrangement.
Investments in depositary receipts may be less liquid and more volatile than the underlying securities in their primary trading market. If a depositary receipt is denominated in a different currency than its underlying securities, the Fund will be subject to the currency risk of both the investment in the depositary receipt and the underlying security. The values of depositary receipts may decline for a number of reasons relating to the issuers or sponsors of the depositary receipts, including, but not limited to, insolvency of the issuer or sponsor. Holders of depositary receipts may have limited or no rights to take action with respect to the underlying securities or to compel the issuer of the receipts to take action. The prices of depositary receipts may differ from the prices of securities upon which they are based.
Statement of additional Information
Market Neutral ETF / 9
The Fund may invest in unsponsored depositary receipts, which are issued by one or more depositaries without a formal agreement with the company that issues the underlying securities. Holders of unsponsored depositary receipts generally bear all the costs thereof, and the depositaries of unsponsored depositary receipts frequently are under no obligation to distribute shareholder communications received from the issuers of the underlying securities or to pass through voting rights with respect to the underlying securities. In addition, the issuers of the securities underlying unsponsored depositary receipts are not obligated to disclose material information to the market and, therefore, there may be less information available regarding such issuers and there may not be a correlation between such information and the market value of the depositary receipts.
Income Trusts
The Fund may invest in income trusts which are investment trusts that hold assets that are income producing. The income is passed on to the "unitholders." Each income trust has an operating risk based on its underlying business. The term may also be used to designate a legal entity, capital structure and ownership vehicle for certain assets or businesses. Shares or "trust units" are traded on securities exchanges just like stocks. Income is passed on to the investors, called unitholders, through monthly or quarterly distributions. Historically, distributions have typically been higher than dividends on common stocks. The unitholders are the beneficiaries of a trust, and their units represent their right to participate in the income and capital of the trust. Income trusts generally invest funds in assets that provide a return to the trust and its beneficiaries based on the cash flows of an underlying business. This return is often achieved through the acquisition by the trust of equity and debt instruments, royalty interests or real properties. The trust can receive interest, royalty or lease payments from an operating entity carrying on a business, as well as dividends and a return of capital.
Each income trust has an operating risk based on its underlying business; and, typically, the higher the yield, the higher the risk. They also have additional risk factors, including, but not limited to, poorer access to debt markets. Similar to a dividend paying stock, income trusts do not guarantee minimum distributions or even return of capital. If the business starts to lose money, the trust can reduce or even eliminate distributions; this is usually accompanied by sharp losses in a unit's market value. Since the yield is one of the main attractions of income trusts, there is the risk that trust units will decline in value if interest rates offering in competing markets, such as in the cash/treasury market, increase. Interest rate risk is also present within the trusts themselves because they hold very long term capital assets (e.g. pipelines, power plants, etc.), and much of the excess distributable income is derived from a maturity (or duration) mismatch between the life of the asset, and the life of the financing associated with it. In an increasing interest rate environment, not only does the attractiveness of trust distributions decrease, but quite possibly, the distributions may themselves decrease, leading to a double whammy of both declining yield and substantial loss of unitholder value. Because most income is passed on to unitholders, rather than reinvested in the business, in some cases, a trust can become a wasting asset unless more equity is issued. Because many income trusts pay out more than their net income, the unitholder equity (capital) may decline over time. To the extent that the value of the trust is driven by the deferral or reduction of tax, any change in government tax regulations to remove the benefit will reduce the value of the trusts. Generally, income trusts also carry the same risks as dividend paying stocks that are traded on stock markets.
Publicly Traded Partnerships
The Fund may invest in publicly traded partnerships ("PTPs"). PTPs are limited partnerships, the interests in which (known as "units") are traded on public exchanges, just like corporate stock. PTPs are limited partnerships that provide an investor with a direct interest in a group of assets (generally, oil and gas properties). Publicly traded partnership units typically trade publicly, like stock, and thus may provide the investor more liquidity than ordinary limited partnerships. Publicly traded partnerships are also called master limited partnerships and public limited partnerships. A limited partnership has one or more general partners (they may be individuals, corporations, partnerships or another entity) which manage the partnership, and limited partners, which provide capital to the partnership but have no role in its management. When an investor buys units in a PTP, he or she becomes a limited partner. PTPs are formed in several ways. A non-traded partnership may decide to go public. Several non-traded partnerships may "roll up" into a single PTP. A corporation may spin off a group of assets or part of its business into a PTP of which it is the general partner, either to realize what it believes to be the assets' full value or as an alternative to issuing debt. A corporation may fully convert to a PTP, although since 1986 the tax consequences have made this an unappealing option; or, a newly formed company may operate as a PTP from its inception.
Statement of additional Information
Market Neutral ETF / 10
There are different types of risks to investing in PTPs including regulatory risks and interest rate risks. Currently most partnerships enjoy pass through taxation of their income to partners, which avoids double taxation of earnings. If the government were to change PTP business tax structure, unitholders would not be able to enjoy the relatively high yields in the sector for long. In addition, PTP's which charge government-regulated fees for transportation of oil and gas products through their pipelines are subject to unfavorable changes in government-approved rates and fees, which would affect a PTPs revenue stream negatively. PTPs also carry some interest rate risks. During increases in interest rates, PTPs may not produce decent returns to shareholders.
Real Estate Investment Trusts
The Fund may invest in securities of real estate investment trusts ("REITs"). REITs are publicly traded corporations or trusts that specialize in acquiring, holding and managing residential, commercial or industrial real estate. A REIT is not taxed at the entity level on income distributed to its shareholders or unitholders if it distributes to shareholders or unitholders at least 95% of its taxable income for each taxable year and complies with regulatory requirements relating to its organization, ownership, assets and income.
REITs generally can be classified as "Equity REITs", "Mortgage REITs" and "Hybrid REITs." An Equity REIT invests the majority of its assets directly in real property and derives its income primarily from rents and from capital gains on real estate appreciation, which are realized through property sales. A Mortgage REIT invests the majority of its assets in real estate mortgage loans and services its income primarily from interest payments. A Hybrid REIT combines the characteristics of an Equity REIT and a Mortgage REIT. Although the Fund can invest in all three kinds of REITs, its emphasis is expected to be on investments in Equity REITs.
Investments in the real estate industry involve particular risks. The real estate industry has been subject to substantial fluctuations and declines on a local, regional and national basis in the past and may continue to be in the future. Real property values and income from real property continue to be in the future. Real property values and income from real property may decline due to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, regulatory limitations on rents, changes in neighborhoods and in demographics, increases in market interest rates, or other factors. Factors such as these may adversely affect companies that own and operate real estate directly, companies that lend to such companies, and companies that service the real estate industry.
Investments in REITs also involve risks. Equity REITs will be affected by changes in the values of and income from the properties they own, while Mortgage REITs may be affected by the credit quality of the mortgage loans they hold. In addition, REITs are dependent on specialized management skills and on their ability to generate cash flow for operating purposes and to make distributions to shareholders or unitholders. REITs may have limited diversification and are subject to risks associated with obtaining financing for real property, as well as to the risk of self-liquidation. REITs also can be adversely affected by their failure to qualify for tax-free pass-through treatment of their income under the Internal Revenue Code of 1986, as amended, or their failure to maintain an exemption from registration under the 1940 Act. By investing in REITs indirectly through the Fund, a shareholder bears not only a proportionate share of the expenses of the Fund, but also may indirectly bear similar expenses of some of the REITs in which it invests.
Statement of additional Information
Market Neutral ETF / 11
Fixed Income/Debt/Bond Securities
Yields on fixed income securities are dependent on a variety of factors, including the general conditions of the money market and other fixed income securities markets, the size of a particular offering, the maturity of the obligation and the rating of the issue. An investment in the Fund will be subjected to risk even if all fixed income securities in the Fund's portfolio are paid in full at maturity. All fixed income securities, including U.S. Government securities, can change in value when there is a change in interest rates or the issuer's actual or perceived creditworthiness or ability to meet its obligations.
There is normally an inverse relationship between the market value of securities sensitive to prevailing interest rates and actual changes in interest rates. In other words, an increase in interest rates produces a decrease in market value. The longer the remaining maturity (and duration) of a security, the greater will be the effect of interest rate changes on the market value of that security. Changes in the ability of an issuer to make payments of interest and principal and in the markets' perception of an issuer's creditworthiness will also affect the market value of the debt securities of that issuer. Obligations of issuers of fixed income securities (including municipal securities) are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Reform Act of 1978. In addition, the obligations of municipal issuers may become subject to laws enacted in the future by Congress, state legislatures, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. Changes in the ability of an issuer to make payments of interest and principal and in the market's perception of an issuer's creditworthiness will also affect the market value of the debt securities of that issuer. The possibility exists, therefore, that, the ability of any issuer to pay, when due, the principal of and interest on its debt securities may become impaired.
The corporate debt securities in which the Fund may invest include corporate bonds and notes and short-term investments such as commercial paper and variable rate demand notes. Commercial paper (short-term promissory notes) is issued by companies to finance their or their affiliate's current obligations and is frequently unsecured. Variable and floating rate demand notes are unsecured obligations typically redeemable upon not more than 30 days' notice. These obligations include master demand notes that permit investment of fluctuating amounts at varying rates of interest pursuant to a direct arrangement with the issuer of the instrument. The issuer of these obligations often has the right, after a given period, to prepay the outstanding principal amount of the obligations upon a specified number of days' notice. These obligations generally are not traded, nor generally is there an established secondary market for these obligations. To the extent a demand note does not have a 7-day or shorter demand feature and there is no readily available market for the obligation, it is treated as an illiquid security.
The Fund may invest in debt securities, including non-investment grade debt securities. The following describes some of the risks associated with fixed income debt securities:
Interest Rate Risk. Debt securities have varying levels of sensitivity to changes in interest rates. In general, the price of a debt security can fall when interest rates rise and can rise when interest rates fall. Securities with longer maturities and mortgage securities can be more sensitive to interest rate changes although they usually offer higher yields to compensate investors for the greater risks. The longer the maturity of the security, the greater the impact a change in interest rates could have on the security's price. In addition, short-term and long-term interest rates do not necessarily move in the same amount or the same direction. Short-term securities tend to react to changes in short- term interest rates and long-term securities tend to react to changes in long-term interest rates.
Liquidity Risk. Rising interest rates may result in periods of volatility and increased redemptions. As a result of increased redemptions, the Fund may have to liquidate portfolio securities at disadvantageous prices and times, which could reduce the Fund's return. A reduction in dealer market-making capacity in the fixed income markets that has occurred in recent years has the potential to decrease liquidity.
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Market Neutral ETF / 12
Credit Risk. Fixed income securities have speculative characteristics and changes in economic conditions or other circumstances and are more likely to lead to a weakened capacity of those issuers to make principal or interest payments, as compared to issuers of more highly rated securities.
Extension Risk. The Fund is subject to the risk that an issuer will exercise its right to pay principal on an obligation held by the Fund (such as mortgage-backed securities) later than expected. This may happen when there is a rise in interest rates. These events may lengthen the duration (i.e. interest rate sensitivity) and potentially reduce the value of these securities.
Prepayment Risk. Certain types of debt securities, such as mortgage-backed securities, have yield and maturity characteristics corresponding to underlying assets. Unlike traditional debt securities, which may pay a fixed rate of interest until maturity when the entire principal amount comes due, payments on certain mortgage-backed securities may include both interest and a partial payment of principal. Besides the scheduled repayment of principal, payments of principal may result from the voluntary prepayment, refinancing, or foreclosure of the underlying mortgage loans.
Securities subject to prepayment are less effective than other types of securities as a means of "locking in" attractive long-term interest rates. One reason is the need to reinvest prepayments of principal; another is the possibility of significant unscheduled prepayments resulting from declines in interest rates. These prepayments would have to be reinvested at lower rates. As a result, these securities may have less potential for capital appreciation during periods of declining interest rates than other securities of comparable maturities, although they may have a similar risk of decline in market value during periods of rising interest rates. Prepayments may also significantly shorten the effective maturities of these securities, especially during periods of declining interest rates. Conversely, during periods of rising interest rates, a reduction in prepayments may increase the effective maturities of these securities, subjecting them to a greater risk of decline in market value in response to rising interest rates than traditional debt securities, and, therefore, potentially increasing the volatility of the Fund.
At times, some of the mortgage-backed securities in which the Fund may invest will have higher than market interest rates and therefore will be purchased at a premium above their par value. Prepayments may cause losses in securities purchased at a premium, as unscheduled prepayments, which are made at par, will cause the Fund to experience a loss equal to any unamortized premium.
International and Foreign Debt Securities.
International bonds include Yankee and Euro obligations, which are U.S. dollar-denominated international bonds for which the primary trading market is in the United States ("Yankee Bonds"), or for which the primary trading market is abroad ("Eurodollar Bonds"). International bonds also include Canadian and supranational agency bonds (e.g., those issued by the International Monetary Fund).
Investments in securities of foreign companies generally involve greater risks than are present in U.S. investments. Compared to U.S. companies, there generally is less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers and listed companies.
Foreign companies generally are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those prevalent in the U.S. Securities of some foreign companies are less liquid, and their prices more volatile, than securities of comparable U.S. companies. Settlement of transactions in some foreign markets may be delayed or may be less frequent than in the U.S., which could affect the liquidity of the Fund's investment.
In addition, with respect to some foreign countries, there is the possibility of nationalization, expropriation, or confiscatory taxation; limitations on the removal of securities, property, or other assets of the Fund; political or social instability; increased difficulty in obtaining legal judgments; or diplomatic developments that could affect U.S. investments in those countries. The Sub-Advisor will take such factors into consideration in managing the Fund's investments.
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Market Neutral ETF / 13
Since most foreign debt securities are not rated, the Fund will invest in those foreign debt securities based on the Sub-Advisor's analysis without relying on published ratings. Achievement of the Fund's goals, therefore, may depend more upon the abilities of the Sub-Advisor than would otherwise be the case. The value of the foreign debt securities held by the Fund, and thus the net asset value of the Fund's shares, generally will fluctuate with (a) changes in the perceived creditworthiness of the issuers of those securities, (b) movements in interest rates, and (c) changes in the relative values of the currencies in which the Fund's investments in debt securities are denominated with respect to the U.S. dollar. The extent of the fluctuation will depend on various factors, such as the average maturity of the Fund's investments in foreign debt securities, and the extent to which the Fund hedges its interest rate, credit and currency exchange rate risks. A longer average maturity generally is associated with a higher level of volatility in the market value of such securities in response to changes in market conditions. In the event of default, there may be limited or no legal recourse in that, generally, remedies for defaults must be pursued in the courts of the defaulting party.
Certificates of Deposit and Bankers' Acceptances
Certificates of deposit are receipts issued by a depository institution in exchange for the deposit of funds. The issuer agrees to pay the amount deposited plus interest to the bearer of the receipt on the date specified on the certificate. The certificate can usually be traded in the secondary market prior to maturity.
The Fund may invest in insured bank obligations. The Federal Deposit Insurance Corporation ("FDIC") insures the deposits of federally insured banks and savings and loan associations (collectively referred to as "banks") up to $250,000. The Fund may purchase bank obligations that are fully insured as to principal by the FDIC. Currently, to remain fully insured as to principal, these investments must be limited to $250,000 per bank; if the principal amount and accrued interest together exceed $250,000, the excess principal and accrued interest will not be insured. Insured bank obligations may have limited marketability.
Bankers' acceptances typically arise from short-term credit arrangements designed to enable businesses to obtain funds to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by a bank that, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an earning asset or it may be sold in the secondary market at the going rate of discount for a specific maturity. Although maturities for acceptances can be as long as 270 days, most acceptances have maturities of six months or less.
Time Deposits and Variable Rate Notes
The Fund may invest in fixed time deposits, whether or not subject to withdrawal penalties. The commercial paper obligations, which the Fund may buy are unsecured and may include variable rate notes. The nature and terms of a variable rate note (i.e., a "Master Note") permit the Fund to invest fluctuating amounts at varying rates of interest pursuant to a direct arrangement between the Fund as Lender, and the issuer, as borrower. It permits daily changes in the amounts borrowed. The Fund has the right at any time to increase, up to the full amount stated in the note agreement, or to decrease the amount outstanding under the note. The issuer may prepay at any time and without penalty any part of or the full amount of the note. The note may or may not be backed by one or more bank letters of credit. Because these notes are direct lending arrangements between the Fund and the issuer, it is not generally contemplated that they will be traded; moreover, there is currently no secondary market for them. Except as specifically provided in the Prospectus, there is no limitation on the type of issuer from whom these notes may be purchased; however, in connection with such purchase and on an ongoing basis, the Sub-Advisor will consider the earning power, cash flow and other liquidity ratios of the issuer, and its ability to pay principal and interest on demand, including a situation in which all holders of such notes made demand simultaneously. Variable rate notes are subject to the Fund's investment restriction on illiquid securities unless such notes can be put back to the issuer on demand within seven days.
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Market Neutral ETF / 14
Commercial Paper
The Fund may purchase commercial paper. Commercial paper consists of short-term (usually from 1 to 270 days) unsecured promissory notes issued by corporations in order to finance their current operations. It may be secured by letters of credit, a surety bond or other forms of collateral. Commercial paper is usually repaid at maturity by the issuer from the proceeds of the issuance of new commercial paper. As a result, investment in commercial paper is subject to the risk the issuer cannot issue enough new commercial paper to satisfy its outstanding commercial paper, also known as rollover risk. Commercial paper may become illiquid or may suffer from reduced liquidity in certain circumstances. Like all fixed income securities, commercial paper prices are susceptible to fluctuations in interest rates. If interest rates rise, commercial paper prices will decline. The short-term nature of a commercial paper investment makes it less susceptible to interest rate risk than many other fixed income securities because interest rate risk typically increases as maturity lengths increase. Commercial paper tends to yield smaller returns than longer- term corporate debt because securities with shorter maturities typically have lower effective yields than those with longer maturities. As with all fixed income securities, there is a chance that the issuer will default on its commercial paper obligation.
Repurchase Agreements
The Fund may enter into repurchase agreements. In a repurchase agreement, an investor (such as the Fund) purchases a security (known as the "underlying security") from a securities dealer or bank. Any such dealer or bank must be deemed creditworthy by the Advisor. At that time, the bank or securities dealer agrees to repurchase the underlying security at a mutually agreed upon price on a designated future date. The repurchase price may be higher than the purchase price, the difference being income to the Fund, or the purchase and repurchase prices may be the same, with interest at an agreed upon rate due to the Fund on repurchase. In either case, the income to the Fund generally will be unrelated to the interest rate on the underlying securities. Repurchase agreements must be "fully collateralized," in that the market value of the underlying securities (including accrued interest) must at all times be equal to or greater than the repurchase price. Therefore, a repurchase agreement can be considered a loan collateralized by the underlying securities.
Repurchase agreements are generally for a short period of time, often less than a week, and will generally be used by the Fund to invest excess cash or as part of a temporary defensive strategy. Repurchase agreements that do not provide for payment within seven days will be treated as illiquid securities. In the event of a bankruptcy or other default by the seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying security and losses. These losses could result from: (a) possible decline in the value of the underlying security while the Fund is seeking to enforce its rights under the repurchase agreement; (b) possible reduced levels of income or lack of access to income during this period; and (c) expenses of enforcing its rights.
High Yield Securities
The Fund may invest in high yield securities. High yield, high risk bonds are securities that are generally rated below investment grade by the primary rating agencies (BB+ or lower by S&P and Ba1 or lower by Moody's). Other terms used to describe such securities include "lower rated bonds," "non-investment grade bonds," "below investment grade bonds," and "junk bonds." These securities are considered to be high-risk investments. The risks include the following:
Greater Risk of Loss. These securities are regarded as predominately speculative. There is a greater risk that issuers of lower rated securities will default than issuers of higher rated securities. Issuers of lower rated securities generally are less creditworthy and may be highly indebted, financially distressed, or bankrupt. These issuers are more vulnerable to real or perceived economic changes, political changes or adverse industry developments. In addition, high yield securities are frequently subordinated to the prior payment of senior indebtedness. If an issuer fails to pay principal or interest, the Fund would experience a decrease in income and a decline in the market value of its investments.
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Market Neutral ETF / 15
Sensitivity to Interest Rate and Economic Changes. The income and market value of lower-rated securities may fluctuate more than higher rated securities. Although non-investment grade securities tend to be less sensitive to interest rate changes than investment grade securities, non-investment grade securities are more sensitive to short- term corporate, economic and market developments. During periods of economic uncertainty and change, the market price of the investments in lower-rated securities may be volatile. The default rate for high yield bonds tends to be cyclical, with defaults rising in periods of economic downturn. For example, in 2000, 2001 and 2002, the default rate for high yield securities was significantly higher than in the prior or subsequent years.
Valuation Difficulties. It is often more difficult to value lower rated securities than higher rated securities. If an issuer's financial condition deteriorates, accurate financial and business information may be limited or unavailable. In addition, the lower rated investments may be thinly traded and there may be no established secondary market.
Because of the lack of market pricing and current information for investments in lower rated securities, valuation of such investments is much more dependent on judgment than is the case with higher rated securities.
Liquidity. There may be no established secondary or public market for investments in lower rated securities. Such securities are frequently traded in markets that may be relatively less liquid than the market for higher rated securities. In addition, relatively few institutional purchasers may hold a major portion of an issue of lower-rated securities at times. As a result, the Fund may be required to sell investments at substantial losses or retain them indefinitely when an issuer's financial condition is deteriorating. A reduction in dealer market-making capacity in the fixed income markets that has occurred in recent years has the potential to decrease liquidity.
Credit Quality. Credit quality of non-investment grade securities can change suddenly and unexpectedly, and even recently-issued credit ratings may not fully reflect the actual risks posed by a particular high-yield security.
New Legislation. Future legislation may have a possible negative impact on the market for high yield, high risk bonds. As an example, in the late 1980's, legislation required federally-insured savings and loan associations to divest their investments in high yield, high risk bonds. New legislation, if enacted, could have a material negative effect on the Fund's investments in lower rated securities.
High yield, high risk investments may include the following:
Straight fixed income debt securities. These include bonds and other debt obligations that bear a fixed or variable rate of interest payable at regular intervals and have a fixed or resettable maturity date. The particular terms of such securities vary and may include features such as call provisions and sinking funds.
Zero-coupon debt securities. These bear no interest obligation but are issued at a discount from their value at maturity. When held to maturity, their entire return equals the difference between their issue price and their maturity value.
Zero-fixed-coupon debt securities. These are zero-coupon debt securities that convert on a specified date to interest- bearing debt securities.
Pay-in-kind bonds. These are bonds which allow the issuer, at its option, to make current interest payments on the bonds either in cash or in additional bonds. These are bonds sold without registration under the 1933 Act, usually to a relatively small number of institutional investors.
Convertible Securities. These are bonds or preferred stock that may be converted to common stock.
Preferred Stock. These are stocks that generally pay a dividend at a specified rate and have preference over common stock in the payment of dividends and in liquidation.
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Market Neutral ETF / 16
Loan Participations and Assignments. These are participations in, or assignments of all or a portion of loans to corporations or to governments, including governments of less developed countries ("LDCs").
Securities issued in connection with Reorganizations and Corporate Restructurings. In connection with reorganizing or restructuring of an issuer, an issuer may issue common stock or other securities to holders of its debt securities. The Fund may hold such common stock and other securities even if it does not invest in such securities.
Ratings by Ratings Agencies. Ratings represent a rating agency's opinion regarding the quality of the security and are not a guarantee of quality. In addition, rating agencies may fail to make timely changes to credit ratings in response to subsequent events and a rating may become stale in that it fails to reflect changes in an issuer's financial condition.
Municipal Government Obligations
In general, municipal obligations are debt obligations issued by or on behalf of states, territories and possessions of the United States (including the District of Columbia) and their political subdivisions, agencies and instrumentalities. Municipal obligations generally include debt obligations issued to obtain funds for various public purposes. Certain types of municipal obligations are issued in whole or in part to obtain funding for privately operated facilities or projects. Municipal obligations include general obligation bonds, revenue bonds, industrial development bonds, notes and municipal lease obligations. Municipal obligations also include additional obligations, the interest on which is exempt from federal income tax - that may become available in the future as long as the Fund's Board determines that an investment in any such type of obligation is consistent with the Fund's investment objectives. Municipal obligations may be fully or partially backed by local government, the credit of a private issuer, current or anticipated revenues from a specific project or specific assets or domestic or foreign entities providing credit support such as letters of credit, guarantees or insurance.
Bonds and Notes. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of interest and principal. Revenue bonds are payable only from the revenues derived from a project or facility or from the proceeds of a specified revenue source. Industrial development bonds are generally revenue bonds secured by payments from and the credit of private users. Municipal notes are issued to meet the short-term funding requirements of state, regional and local governments. Municipal notes include tax anticipation notes, bond anticipation notes, revenue anticipation notes, tax and revenue anticipation notes, construction loan notes, short-term discount notes, tax-exempt commercial paper, demand notes and similar instruments.
Municipal Lease Obligations. Municipal lease obligations may take the form of a lease, an installment purchase or a conditional sales contract. They are issued by state and local governments and authorities to acquire land, equipment and facilities, such as vehicles, telecommunications and computer equipment and other capital assets. The Fund may invest in Underlying Funds that purchase these lease obligations directly, or it may purchase participation interests in such lease obligations (See "Participation Interests" section). States have different requirements for issuing municipal debt and issuing municipal leases. Municipal leases are generally subject to greater risks than general obligation or revenue bonds because they usually contain a "non-appropriation" clause, which provides that the issuer is not obligated to make payments on the obligation in future years unless funds have been appropriated for this purpose each year. Such non-appropriation clauses are required to avoid the municipal lease obligations from being treated as debt for state debt restriction purposes. Accordingly, such obligations are subject to "non- appropriation" risk. Municipal leases may be secured by the underlying capital asset and it may be difficult to dispose of any such asset in the event of non-appropriation or other default.
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Market Neutral ETF / 17
United States Government Obligations
These consist of various types of marketable securities issued by the United States Treasury, i.e., bills, notes and bonds. Such securities are direct obligations of the United States government and differ mainly in the length of their maturity. Treasury bills, the most frequently issued marketable government security, have a maturity of up to one year and are issued on a discount basis. The Fund may also invest in Treasury Inflation-Protected Securities ("TIPS"). TIPS are special types of treasury bonds that were created in order to offer bond investors protection from inflation. The values of the TIPS are automatically adjusted to the inflation rate as measured by the Consumer Price Index ("CPI"). If the CPI goes up by half a percent, the value of the bond (the TIPS) would also go up by half a percent. If the CPI falls, the value of the bond does not fall because the government guarantees that the original investment will stay the same. TIPS decline in value when real interest rates rise. However, in certain interest rate environments, such as when real interest rates are rising faster than nominal interest rates, TIPS may experience greater losses than other fixed income securities with similar duration.
United States Government Agency Obligations
These consist of debt securities issued by agencies and instrumentalities of the United States government, including the various types of instruments currently outstanding or which may be offered in the future. Agencies include, among others, the Federal Housing Administration, Government National Mortgage Association ("GNMA"), Farmer's Home Administration, Export-Import Bank of the United States, Maritime Administration, and General Services Administration. Instrumentalities include, for example, each of the Federal Home Loan Banks, the National Bank for Cooperatives, the Federal Home Loan Mortgage Corporation ("FHLMC"), the Farm Credit Banks, the Federal National Mortgage Association ("FNMA"), and the United States Postal Service. These securities are either: backed by the full faith and credit of the United States government (e.g., United States Treasury Bills); guaranteed by the United States Treasury (e.g., GNMA mortgage-backed securities); (iii) supported by the issuing agency's or instrumentality's right to borrow from the United States Treasury (e.g., FNMA Discount Notes); or (iv) supported only by the issuing agency's or instrumentality's own credit (e.g., Tennessee Valley Association). On September 7, 2008, the U.S. Treasury Department and the Federal Housing Finance Authority (the "FHFA") announced that FNMA and FHLMC had been placed into conservatorship, a statutory process designed to stabilize a troubled institution with the objective of returning the entity to normal business operations. The U.S. Treasury Department and the FHFA at the same time established a secured lending facility and a Secured Stock Purchase Agreement with both FNMA and FHLMC to ensure that each entity had the ability to fulfill its financial obligations. The FHFA announced that it does not anticipate any disruption in pattern of payments or ongoing business operations of FNMA and FHLMC.
Government-related guarantors (e.g., not backed by the full faith and credit of the United States Government) include FNMA and FHLMC. FNMA is a government-sponsored corporation owned entirely by private stockholders. It is subject to general regulation by the Secretary of Housing and Urban Development. FNMA purchases conventional (e.g., not insured or guaranteed by any government agency) residential mortgages from a list of approved seller/servicers which include state and federally chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the United States Government.
FHLMC was created by Congress in 1970 for the purpose of increasing the availability of mortgage credit for residential housing. It is a government-sponsored corporation formerly owned by the twelve Federal Home Loan Banks and now owned entirely by private stockholders. FHLMC issues Participation Certificates ("PC's"), which represent interests in conventional mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the United States Government. Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional residential mortgage loans. Such issuers may, in addition, be the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related securities. Pools created by such nongovernmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government or agency guarantees of payments in the former pools. However, timely payment of interest and principal of these pools may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of credit. The insurance and guarantees are issued by governmental entities, private insurers and the mortgage poolers.
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Market Neutral ETF / 18
Mortgage Pass-Through Securities
Interests in pools of mortgage pass-through securities differ from other forms of debt securities (which normally provide periodic payments of interest in fixed amounts and the payment of principal in a lump sum at maturity or on specified call dates). Instead, mortgage pass-through securities provide monthly payments consisting of both interest and principal payments. In effect, these payments are a "pass-through" of the monthly payments made by the individual borrowers on the underlying residential mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Unscheduled payments of principal may be made if the underlying mortgage loans are repaid or refinanced or the underlying properties are foreclosed, thereby shortening the securities' weighted average life. Some mortgage pass-through securities (such as securities guaranteed by GNMA) are described as "modified pass- through securities." These securities entitle the holder to receive all interest and principal payments owed on the mortgage pool, net of certain fees, on the scheduled payment dates regardless of whether the mortgagor actually makes the payment.
The principal governmental guarantor of mortgage pass-through securities is GNMA. GNMA is authorized to guarantee, with the full faith and credit of the U.S. Treasury, the timely payment of principal and interest on securities issued by lending institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of mortgage loans. These mortgage loans are either insured by the Federal Housing Administration or guaranteed by the Veterans Administration. A "pool" or group of such mortgage loans is assembled and after being approved by GNMA, is offered to investors through securities dealers.
Government-related guarantors of mortgage pass-through securities (i.e., not backed by the full faith and credit of the U.S. Treasury) include FNMA and FHLMC. FNMA is a government-sponsored corporation owned entirely by private stockholders. It is subject to general regulation by the Secretary of Housing and Urban Development. FNMA purchases conventional (i.e., not insured or guaranteed by any government agency) residential mortgages from a list of approved sellers/servicers which include state and federally chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Mortgage pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the U.S. Treasury.
FHLMC was created by Congress in 1970 for the purpose of increasing the availability of mortgage credit for residential housing. It is a U.S. government-sponsored corporation formerly owned by the twelve Federal Home Loan Banks and now owned entirely by private stockholders. FHLMC issues PCs, which represent interests in conventional mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the U.S. Treasury. The future financial performance of FNMA and FHMLC is heavily dependent on the performance of the U.S. housing market.
Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional residential mortgage loans. Such issuers may, in addition, be the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related pass-through securities. The Fund does not purchase interests in pools created by such non-governmental issuers.
Resets. The interest rates paid on the Adjustable Rate Mortgage Securities ("ARMs") in which the Fund may invest generally are readjusted or reset at intervals of one year or less to an increment over some predetermined interest rate index. There are two main categories of indices: those based on U.S. Treasury securities and those derived from a calculated measure, such as a cost of funds index or a moving average of mortgage rates. Commonly utilized indices include the one-year and five-year constant maturity Treasury Note rates, the three-month Treasury Bill rate, the 180-day Treasury Bill rate, rates on longer-term Treasury securities, the National Median Cost of Funds, the one-month or three-month London Interbank Offered Rate (LIBOR), the prime rate of a specific bank, or commercial paper rates. Some indices, such as the one-year constant maturity Treasury Note rate, closely mirror changes in market interest rate levels. Others tend to lag changes in market rate levels and tend to be somewhat less volatile.
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Market Neutral ETF / 19
Caps and Floors. The underlying mortgages which collateralize the ARMs in which the Fund invests will frequently have caps and floors which limit the maximum amount by which the loan rate to the residential borrower may change up or down: (1) per reset or adjustment interval, and (2) over the life of the loan. Some residential mortgage loans restrict periodic adjustments by limiting changes in the borrower's monthly principal and interest payments rather than limiting interest rate changes. These payment caps may result in negative amortization. The value of mortgage securities in which the Fund invests may be affected if market interest rates rise or fall faster and farther than the allowable caps or floors on the underlying residential mortgage loans. Additionally, even though the interest rates on the underlying residential mortgages are adjustable, amortization and prepayments may occur, thereby causing the effective maturities of the mortgage securities in which the Fund invests to be shorter than the maturities stated in the underlying mortgages.
Although the Fund may hold securities that carry U.S. government guarantees, these guarantees do not extend to shares of the Fund itself and do not guarantee the market prices of the securities.
Securities of Other Investment Companies.
General. Except as described in the following paragraphs, the Fund currently intends to limit its investments in securities issued by other investment companies so that, as determined immediately after a purchase of such securities is made: (i) not more than 5% of the value of the Fund's total assets will be invested in the securities of any one investment company; (ii) not more than 10% of the value of its total assets will be invested in the aggregate in securities of investment companies as a group; and (iii) not more than 3% of the outstanding voting stock of any one investment company will be owned by the Fund.
The Fund may also purchase and redeem shares issued by a money market fund without limit, provided that either: the Fund pays no "sales charge" or "service fee" (as each of those terms is defined in the FINRA Conduct Rules); or (2) the Advisor waives its advisory fee in an amount necessary to offset any such sales charge or service fee.
Pursuant to an order issued by the SEC exempting certain ETFs from Section 12(d)(1) of the 1940 Act (SEC Order"), in addition to procedures approved by the Board, the Fund may invest in such ETFs in excess of the 5% and 10% limits described above, provided that the Fund complies with the conditions of the relevant SEC Order, as it may be amended, and any other applicable investment limitations.
As a shareholder of an investment company, the Fund indirectly will bear its proportionate share of any management fees and other expenses paid by such investment company in addition to the fees and expenses the Fund bears directly in connection with its own operations. These securities represent interests in professionally managed portfolios that may invest in various types of instruments pursuant to a wide range of investment styles. The Fund would also bear the risk of all of the underlying investments held by the other investment company. An investment company may not achieve its investment objective.
Exchange-Traded Funds ("ETFs") are investment companies whose primary objective is to achieve the same rate of return as a particular market index or commodity while trading throughout the day on an exchange. Certain ETFs are actively managed portfolios rather than being based upon an underlying index. ETF shares are sold initially in the primary market in large blocks of shares ("creation units"). A creation unit represents a bundle of securities or commodities that replicates, or is a representative sample of, a particular index or commodity and that is deposited with the ETF. Once owned, the individual shares comprising each creation unit are traded on an exchange in secondary market transactions for cash. The secondary market for ETF shares allows them to be readily converted into cash, like commonly traded stocks. The combination of primary and secondary markets permits ETF shares to be traded throughout the day close to the value of the ETF's underlying portfolio securities. The Fund would purchase and sell individual shares of ETFs in the secondary market. These secondary market transactions require the payment of commissions.
Statement of additional Information
Market Neutral ETF / 20
Unit Investment Trusts ("UITs") are investment companies that hold a fixed portfolio of securities until the fixed maturity date of the UIT. The Fund would generally only purchase UITs in the secondary market for cash, which would result in the payment of commissions.
Risk Factors Associated with Investments in ETFs and UITs. ETF and UIT shares are subject to the same risk of price fluctuation due to supply and demand as any other stock traded on an exchange, which means that the Fund could receive less from the sale of shares of an ETF or UIT it holds than it paid at the time it purchased those shares. Furthermore, there may be times when the exchange halts trading, in which case the Fund owning ETF or UIT shares would be unable to sell them until trading is resumed. There can be no assurance that an ETF or UIT will continue to meet the listing requirements of the exchange or that an active secondary market will develop for shares. In addition, because ETFs and UITs invest in a portfolio of common stocks or other instruments or commodities, the value of an ETF or UIT could decline if prices of those instruments or commodities decline. An overall decline of those instruments or commodities comprising an ETF's or UIT's benchmark index could have a greater impact on the ETF or UIT and investors than might be the case in an investment company with a more widely diversified portfolio.
Losses could also occur if the ETF or UIT is unable to replicate the performance of the chosen benchmark index. There may be times when the market price for an ETF or UIT and its NAV vary significantly, and the Fund may pay more than (premium) or less than (discount) NAV when buying shares on the secondary market. The market price of an ETF's or UIT's shares includes a "bid-ask spread" charged by the exchange specialists, market makers or other participants that trade the particular security. In times of severe market disruption, the bid-ask spread often increases significantly. This means that the shares may trade at a discount to NAV and the discount is likely to be greatest when the price of shares is falling fastest.
Other risks associated with ETFs and UITs include the possibility that: (i) an ETF's or UIT's distributions may decline if the issuers of the ETF's or UIT's portfolio securities fail to continue to pay dividends; and (ii) under certain circumstances, an ETF or UIT could be terminated. Should termination occur, the ETF or UIT could have to liquidate its portfolio securities when the prices for those securities are falling. In addition, inadequate or irregularly provided information about an ETF or UIT or its investments, because ETFs and UITs are generally passively managed, could expose investors in ETFs and UITs to unknown risks. Actively managed ETFs are also subject to the risk of underperformance relative to their chosen benchmark.
Foreign Securities
General. The Fund may invest in foreign securities and ETFs and other investment companies that hold a portfolio of foreign securities. Investing in securities of foreign companies and countries involves certain considerations and risks that are not typically associated with investing in U.S. government securities and securities of domestic companies. There may be less publicly available information about a foreign issuer than a domestic one, and foreign companies are not generally subject to uniform accounting, auditing and financial standards and requirements comparable to those applicable to U.S. companies. There may also be less government supervision and regulation of foreign securities exchanges, brokers and listed companies than exists in the United States. Interest and dividends paid by foreign issuers may be subject to withholding and other foreign taxes, which may decrease the net return on such investments as compared to dividends and interest paid to the Fund by domestic companies or the U.S. government. There may be the possibility of expropriations, seizure or nationalization of foreign deposits, confiscatory taxation, political, economic or social instability or diplomatic developments that could affect assets of the Fund held in foreign countries. Finally, the establishment of exchange controls or other foreign governmental laws or restrictions could adversely affect the payment of obligations.
Statement of additional Information
Market Neutral ETF / 21
To the extent the Fund's currency exchange transactions do not fully protect the Fund against adverse changes in currency exchange rates, decreases in the value of currencies of the foreign countries in which the Fund will invest relative to the U.S. dollar will result in a corresponding decrease in the U.S. dollar value of the Fund's assets denominated in those currencies (and possibly a corresponding increase in the amount of securities required to be liquidated to meet distribution requirements). Conversely, increases in the value of currencies of the foreign countries in which the Fund invests relative to the U.S. dollar will result in a corresponding increase in the U.S. dollar value of the Fund's assets (and possibly a corresponding decrease in the amount of securities to be liquidated).
Emerging Markets Securities. The Fund may purchase securities of emerging market issuers and ETFs and other investment companies that invest in emerging market securities. Investing in emerging market securities imposes risks different from, or greater than, risks of investing in foreign developed countries. These risks include: smaller market capitalization of securities markets, which may suffer periods of relative illiquidity; significant price volatility; restrictions on foreign investment; and possible repatriation of investment income and capital. In addition, foreign investors may be required to register the proceeds of sales. Future economic or political crises could lead to price controls, forced mergers, expropriation or confiscatory taxation, seizure, nationalization, or creation of government monopolies. The currencies of emerging market countries may experience significant declines against the U.S. dollar, and devaluation may occur subsequent to investments in these currencies by the Fund. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, negative effects on the economies and securities markets of certain emerging market countries.
Additional risks of emerging markets securities may include: greater social, economic and political uncertainty and instability; more substantial governmental involvement in the economy; less governmental supervision and regulation; unavailability of currency hedging techniques; companies that are newly organized and small; differences in auditing and financial reporting standards, which may result in unavailability of material information about issuers; and less developed legal systems. In addition, emerging securities markets may have different clearance and settlement procedures, which may be unable to keep pace with the volume of securities transactions or otherwise make it difficult to engage in such transactions. Settlement problems may cause the Fund to miss attractive investment opportunities, hold a portion of its assets in cash pending investment, or be delayed in disposing of a portfolio security. Such a delay could result in possible liability to a purchaser of the security.
Investing through Stock Connect. The Fund may invest in developing markets through trading structures or protocols that subject it to certain risks (such as risks associated with illiquidity, custody of assets, different settlement and clearance procedures, asserting legal title under developing legal and regulatory regimes and other risks) to a greater degree than in developed markets or even other developing markets. For example, the Fund may invest in certain eligible Chinese securities ("China A-Shares") listed and traded on Chinese stock exchanges such as the Shanghai Stock Exchange ("SSE") through the Hong Kong—Shanghai Stock Connect ("Stock Connect") program. Stock Connect is a securities trading and clearing program developed by the Hong Kong Stock Exchange ("SEHK"), SSE, Hong Kong Securities Clearing Company Limited and China Securities Depository and Clearing Corporation Limited for the establishment of mutual market access between SEHK and SSE. Stock Connect is subject to regulations promulgated by regulatory authorities for both SSE and SEHK. Further regulations or restrictions, such as limitations on redemptions or suspension of trading, may adversely affect Stock Connect and the value of the China A-Shares held by the Fund. There is no guarantee that the systems required to operate Stock Connect will function properly or will continue to be adapted to changes and developments in both markets or that both exchanges will continue to support Stock Connect in the future. In the event that the relevant systems do not function properly, trading through Stock Connect could be disrupted.
Although trading through Stock Connect is not subject to individual investment quotas, daily and aggregate investment quotas apply to the aggregate volume of trading on Stock Connect, which may restrict or preclude the Fund's ability to invest in Stock Connect securities or to enter into or exit trades on a timely basis. In addition, Stock Connect securities generally may not be sold, purchased or otherwise transferred other than through Stock Connect pursuant to the program's rules, which may further subject the Fund to liquidity risk in respect of China A-Shares.
Statement of additional Information
Market Neutral ETF / 22
Stock Connect can only operate when both Chinese and Hong Kong markets are open for trading and when banking services are available in both markets on the corresponding settlement days. As a result, if either or both of these markets are closed on a U.S. trading day, the Fund may not be able to dispose of its China A-Shares in a timely manner, which could adversely affect the Fund's performance. Because of the way in which China A-Shares are held through Stock Connect, the Fund may not be able to exercise the rights of a shareholder and may be limited in its ability to pursue claims against the issuer of a security, and may suffer losses in the event the depository of the SSE becomes insolvent. Only certain China A shares are eligible to be accessed through Stock Connect. Such securities may lose their eligibility at any time, in which case they presumably could be sold but could no longer be purchased through Stock Connect. Investments in China A-shares may not be covered by the securities investor protection programs of either exchange and, without the protection of such programs, will be subject to the risk of default by the broker.
Special Risk Considerations of Investing in China. Investing in securities of Chinese issuers involves certain risks and considerations not typically associated with investing in securities of U.S. issuers, including, among others, more frequent trading suspensions and government interventions (including by nationalization of assets), currency exchange rate fluctuations or blockages, limits on the use of brokers and on foreign ownership, different financial reporting standards, higher dependence on exports and international trade, potential for increased trade tariffs, sanctions, embargoes and other trade limitations, custody risks, and potential adverse tax consequences. U.S. sanctions or other investment restrictions could preclude the Fund from investing in certain Chinese issuers or cause the Fund to sell investments at a disadvantageous time. Significant portions of the Chinese securities markets may become rapidly illiquid, as Chinese issuers have the ability to suspend the trading of their equity securities, and have shown a willingness to exercise that option in response to market volatility and other events.
The government of China provided new guidance to and placed restrictions on China-based companies raising capital offshore, including through associated offshore shell companies. These developments include government-led cybersecurity reviews of certain companies raising capital through offshore entities. In a number of sectors in China in which the Fund may invest, companies are not allowed to have foreign ownership and cannot directly list on exchanges outside of China. To raise money on such exchanges, many China-based operating companies are structured as Variable Interest Entities ("VIEs"). In such an arrangement, a China-based operating company often establishes an offshore shell company in another jurisdiction to issue stock to public shareholders. That shell company enters into service and other contracts with the China-based operating company, then issues shares on a foreign exchange, such as the NYSE. While the shell company has no equity ownership in the China-based operating company, for accounting purposes the shell company is able to consolidate the operating company into its financial statements. For an investor such as the Fund, this arrangement creates exposure to the China-based operating company, though only through a series of service contracts and other contracts.
Uncertainty about future actions by the government of China could significantly affect the operating company's financial performance and the enforceability of the contractual arrangements. The government of China could determine at any time and without notice that the underlying contractual arrangements on which control of the VIE is based violate Chinese law. In addition, if either the China-based company (or its officers, directors, or Chinese equity owners) breach those contracts with the U.S.-listed shell company, or Chinese law changes in a way that affects the enforceability of these arrangements, or those contracts are otherwise not enforceable under Chinese law, investors, such as the Fund, may suffer significant losses with little or no recourse available. Moreover, if the parties to these contracts do not meet their obligations as intended or there are effects on the enforceability of these arrangements from changes in Chinese law or practice, the U.S.-listed company may lose control over the China-based company, and investments in its securities may suffer significant economic losses. Additional risks, among others, could entail that a breach of the contractual agreements between the U.S.-listed company and the China-based VIE (or its officers, directors, or Chinese equity owners) will likely be subject to Chinese law and jurisdiction, and investments in the U.S.-listed company may be affected by conflicts of interest and duties between the legal owners of the China-based VIE and the stockholders of the U.S.-listed company.
Statement of additional Information
Market Neutral ETF / 23
Options
The use of derivatives is a highly specialized activity that can involve investment techniques and risks different from, and in some respects greater than, those associated with investing in more traditional investments such as stocks and bonds. Derivatives may have a return that is tied to a formula based upon an interest rate, index or other measurement, which may differ from the return of a simple security of the same maturity. A formula may have a cap or other limitation on the rate of interest to be paid. Derivatives may have varying degrees of volatility at different times, or under different market conditions, and may perform in unanticipated ways. New regulation of derivatives may make them more costly, or may otherwise adversely affect their liquidity, value or performance.
The Fund may purchase and write (i.e., sell) put and call options. Such options may relate to particular securities, stock indices, other index, reference asset or reference item and may or may not be listed on a domestic or foreign securities exchange and may or may not be issued by the Options Clearing Corporation. Options trading is a highly specialized activity that entails greater than ordinary investment risk. Options may be more volatile than the underlying instruments, and therefore, on a percentage basis, an investment in options may be subject to greater fluctuation than an investment in the underlying instruments themselves.
A call option for a particular security gives the purchaser of the option the right to buy, and the writer (seller) the obligation to sell, the underlying security at the stated exercise price at any time prior to the expiration of the option, regardless of the market price of the security. The premium paid to the writer is in consideration for undertaking the obligation under the option contract. A put option for a particular security gives the purchaser the right to sell the security at the stated exercise price at any time prior to the expiration date of the option, regardless of the market price of the security.
Stock index options are put options and call options on various stock indices. In most respects, they are identical to listed options on common stocks. The primary difference between stock options and index options occurs when index options are exercised. In the case of stock options, the underlying security, common stock, is delivered; however, upon the exercise of an index option, settlement does not occur by delivery of the securities comprising the index. The option holder who exercises the index option receives an amount of cash if the closing level of the stock index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. This amount of cash is equal to the difference between the closing price of the stock index and the exercise price of the option expressed in dollars times a specified multiple. A stock index fluctuates with changes in the market value of the stocks included in the index. For example, some stock index options are based on a broad market index, such as the Standard & Poor's 500® Index or the Value Line Composite Index or a narrower market index, such as the Standard & Poor's 100®.
Indices may also be based on an industry or market segment, such as the AMEX Oil and Gas Index or the Computer and Business Equipment Index. Options on stock indices are currently traded on the Chicago Board Options Exchange, the New York Stock Exchange, the American Stock Exchange, the Pacific Stock Exchange and the Philadelphia Stock Exchange.
The Fund's obligation to sell an instrument subject to a call option written by it, or to purchase an instrument subject to a put option written by it, may be terminated prior to the expiration date of the option by the Fund's execution of a closing purchase transaction, which is effected by purchasing on an exchange an option of the same series (i.e., same underlying instrument, exercise price and expiration date) as the option previously written. A closing purchase transaction will ordinarily be effected to realize a profit on an outstanding option, to prevent an underlying instrument from being called, to permit the sale of the underlying instrument or to permit the writing of a new option containing different terms on such underlying instrument. The cost of such a liquidation purchase plus transactions costs may be greater than the premium received upon the original option, in which event the Fund will have paid a loss in the transaction. There is no assurance that a liquid secondary market will exist for any particular option. An option writer unable to effect a closing purchase transaction will not be able to sell the underlying instrument or liquidate the assets held in a segregated account, as described below, until the option expires or the optioned instrument is delivered upon exercise. In such circumstances, the writer will be subject to the risk of market decline or appreciation in the instrument during such period.
Statement of additional Information
Market Neutral ETF / 24
If an option purchased by the Fund expires unexercised, the Fund realizes a loss equal to the premium paid. If the Fund enters into a closing sale transaction on an option purchased by it, the Fund will realize a gain if the premium received by the Fund on the closing transaction is more than the premium paid to purchase the option, or a loss if it is less. If an option written by the Fund expires on the stipulated expiration date or if the Fund enters into a closing purchase transaction, it will realize a gain (or loss if the cost of a closing purchase transaction exceeds the net premium received when the option is sold). If an option written by the Fund is exercised, the proceeds of the sale will be increased by the net premium originally received and the Fund will realize a gain or loss.
Certain Risks Regarding Options. There are several risks associated with transactions in options. For example, there are significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. In addition, a liquid secondary market for particular options, whether traded over-the-counter or on an exchange, may be absent for reasons which include the following: there may be insufficient trading interest in certain options; restrictions may be imposed by an exchange on opening transactions or closing transactions or both; trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options or underlying securities or currencies; unusual or unforeseen circumstances may interrupt normal operations on an exchange; the facilities of an exchange or the Options Clearing Corporation may not at all times be adequate to handle current trading value; or one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
Successful use by the Fund of options on stock indices will be subject to the ability of the Sub-Advisor to correctly predict movements in the directions of the stock market. This requires different skills and techniques than predicting changes in the prices of individual securities. In addition, the Fund's ability to effectively hedge all or a portion of the securities in its portfolio, in anticipation of or during a market decline, through transactions in put options on stock indices, depends on the degree to which price movements in the underlying index correlate with the price movements of the securities held by the Fund. Inasmuch as the Fund's securities will not duplicate the components of an index, the correlation will not be perfect. Consequently, the Fund bears the risk that the prices of its securities being hedged will not move in the same amount as the prices of its put options on the stock indices. It is also possible that there may be a negative correlation between the index and the Fund's securities that would result in a loss on both such securities and the options on stock indices acquired by the Fund.
The hours of trading for options may not conform to the hours during which the underlying securities are traded. To the extent that the options markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that cannot be reflected in the options markets. The purchase of options is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The purchase of stock index options involves the risk that the premium and transaction costs paid by the Fund in purchasing an option will be lost as a result of unanticipated movements in prices of the securities comprising the stock index on which the option is based.
There is no assurance that a liquid secondary market on an options exchange will exist for any particular option, or at any particular time, and for some options no secondary market on an exchange or elsewhere may exist. If the Fund is unable to close out a call option on securities that it has written before the option is exercised, the Fund may be required to purchase the optioned securities in order to satisfy its obligation under the option to deliver such securities. If the Fund is unable to effect a closing sale transaction with respect to options on securities that it has purchased, it would have to exercise the option in order to realize any profit and would incur transaction costs upon the purchase and sale of the underlying securities.
Cover for Options Positions. Transactions using options (other than options that the Fund has purchased) expose the Fund to an obligation to another party. The Fund will not enter into any such transactions unless it owns either (i) an offsetting ("covered") position in securities or other options or (ii) cash or liquid securities with a value sufficient at all times to cover its potential obligations not covered as provided in (i) above. The Fund will comply with SEC guidelines regarding cover for these instruments and, if the guidelines so require, set aside cash or liquid securities in a segregated account with the Fund's custodian in the prescribed amount. Under current SEC guidelines, the Fund will segregate assets to cover transactions in which the Fund writes or sells options.
Statement of additional Information
Market Neutral ETF / 25
Assets used as cover or held in a segregated account cannot be sold while the position in the corresponding option is open, unless they are replaced with similar assets. As a result, the commitment of a large portion of the Fund's assets to cover or segregated accounts could impede portfolio management or the Fund's ability to meet redemption requests or other current obligations.
Options on Futures Contracts. The Fund may purchase and sell options on the same types of futures in which it may invest. Options on futures are similar to options on underlying instruments except that options on futures give the purchaser the right, in return for the premium paid, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put), rather than to purchase or sell the futures contract, at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by the delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid.
Dealer Options. The Fund may engage in transactions involving dealer options as well as exchange-traded options. Certain additional risks are specific to dealer options. While the Fund might look to a clearing corporation to exercise exchange-traded options, if the Fund were to purchase a dealer option it would need to rely on the dealer from which it purchased the option to perform if the option were exercised. Failure by the dealer to do so would result in the loss of the premium paid by the Fund as well as loss of the expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market while dealer options may not. Consequently, the Fund may generally be able to realize the value of a dealer option it has purchased only by exercising or reselling the option to the dealer who issued it. Similarly, when the Fund writes a dealer option, it may generally be able to close out the option prior to its expiration only by entering into a closing purchase transaction with the dealer to whom the Fund originally wrote the option. While the Fund will seek to enter into dealer options only with dealers who will agree to and which are expected to be capable of entering into closing transactions with the Fund, there can be no assurance that the Fund will at any time be able to liquidate a dealer option at a favorable price at any time prior to expiration. Unless the Fund, as a covered dealer call option writer, is able to effect a closing purchase transaction, it will not be able to liquidate securities (or other assets) used as cover until the option expires or is exercised. In the event of insolvency of the other party, the Fund may be unable to liquidate a dealer option. With respect to options written by the Fund, the inability to enter into a closing transaction may result in material losses to the Fund. For example, because the Fund must maintain a secured position with respect to any call option on a security it writes, the Fund may not sell the assets, which it has segregated to secure the position while it is obligated under the option.
This requirement may impair the Fund's ability to sell portfolio securities at a time when such sale might be advantageous.
The Staff of the SEC has taken the position that purchased dealer options are illiquid securities. The Fund may treat the cover used for written dealer options as liquid if the dealer agrees that the Fund may repurchase the dealer option it has written for a maximum price to be calculated by a predetermined formula. In such cases, the dealer option would be considered illiquid only to the extent the maximum purchase price under the formula exceeds the intrinsic value of the option. Accordingly, the Fund will treat dealer options as subject to the Fund's limitation on illiquid securities. If the SEC changes its position on the liquidity of dealer options, the Fund will change its treatment of such instruments accordingly.
Statement of additional Information
Market Neutral ETF / 26
Spread Transactions
The Fund may purchase covered spread options from securities dealers. These covered spread options are not presently exchange-listed or exchange-traded. The purchase of a spread option gives the Fund the right to put securities that it owns at a fixed dollar spread or fixed yield spread in relationship to another security that the Fund does not own, but which is used as a benchmark. The risk to the Fund, in addition to the risks of dealer options described above, is the cost of the premium paid as well as any transaction costs. The purchase of spread options will be used to protect the Fund against adverse changes in prevailing credit quality spreads, i.e., the yield spread between high quality and lower quality securities. This protection is provided only during the life of the spread options.
Futures Contracts
A futures contract provides for the future sale by one party and purchase by another party of a specified amount of a specific financial instrument (e.g., units of a stock index or reference item such as stock volatility) for a specified price, date, time and place designated at the time the contract is made. Brokerage fees are paid when a futures contract is bought or sold and margin deposits must be maintained. Entering into a contract to buy is commonly referred to as buying or purchasing a contract or holding a long position. Entering into a contract to sell is commonly referred to as selling a contract or holding a short position.
Unlike when the Fund purchases or sells a security, no price would be paid or received by the Fund upon the purchase or sale of a futures contract. Upon entering into a futures contract, and to maintain the Fund's open positions in futures contracts, the Fund would be required to deposit with its custodian or futures broker in a segregated account in the name of the futures broker an amount of cash, U.S. government securities, suitable money market instruments, or other liquid securities, known as "initial margin." The margin required for a particular futures contract is set by the exchange on which the contract is traded, and may be significantly modified from time to time by the exchange during the term of the contract. Futures contracts are customarily purchased and sold on margins that may range upward from less than 5% of the value of the contract being traded.
If the price of an open futures contract changes (by increase in underlying instrument or index in the case of a sale or by decrease in the case of a purchase) so that the loss on the futures contract reaches a point at which the margin on deposit does not satisfy margin requirements, the broker will require an increase in the margin. However, if the value of a position increases because of favorable price changes in the futures contract so that the margin deposit exceeds the required margin, the broker will pay the excess to the Fund.
These subsequent payments, called "variation margin," to and from the futures broker, are made on a daily basis as the price of the underlying assets fluctuate making the long and short positions in the futures contract more or less valuable, a process known as "marking to the market." The Fund expects to earn interest income on its margin deposits.
Although certain futures contracts, by their terms, require actual future delivery of and payment for the underlying instruments, in practice most futures contracts are usually closed out before the delivery date. Closing out an open futures contract purchase or sale is effected by entering into an offsetting futures contract sale or purchase, respectively, for the same aggregate amount of the identical underlying instrument or index and the same delivery date. If the offsetting purchase price is less than the original sale price, the Fund realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the offsetting sale price is more than the original purchase price, the Fund realizes a gain; if it is less, the Fund realizes a loss. The transaction costs must also be included in these calculations. There can be no assurance, however, that the Fund will be able to enter into an offsetting transaction with respect to a particular futures contract at a particular time. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain the margin deposits on the futures contract.
Statement of additional Information
Market Neutral ETF / 27
For example, one contract in the Financial Times Stock Exchange 100 Index future is a contract to buy 25 pounds sterling multiplied by the level of the UK Financial Times 100 Share Index on a given future date. Settlement of a stock index futures contract may or may not be in the underlying instrument or index. If not in the underlying instrument or index, then settlement will be made in cash, equivalent over time to the difference between the contract price and the actual price of the underlying asset at the time the stock index futures contract expires.
Swap Agreements
The Fund may enter into swap agreements for purposes of attempting to gain exposure to equity, debt, commodities or other asset markets without actually purchasing those assets, or to hedge a position. The Fund does not invest more than 25% of its assets in swap contracts with any one counterparty. Security investments are made without restriction as to the issuer's country. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a day to more than one year. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested in a "basket" of securities representing a particular index.
Most swap agreements entered into by the Fund calculate the obligations of the parties to the agreement on a "net basis." Consequently, the Fund's current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). Payments may be made at the conclusion of a swap agreement or periodically during its term.
Swap agreements do not involve the delivery of securities or other underlying assets. Accordingly, if a swap is entered into on a net basis, if the other party to a swap agreement defaults, the Fund's risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive, if any.
The net amount of the excess, if any, of the Fund's obligations over its entitlements with respect to a swap agreement entered into on a net basis will be accrued daily and an amount of cash or liquid asset having an aggregate net asset value at least equal to the accrued excess will be maintained in an account with the Custodian. The Fund will also establish and maintain such accounts with respect to its total obligations under any swaps that are not entered into on a net basis. Obligations under swap agreements so covered will not be construed to be "senior securities" for purposes of the Fund's investment restriction concerning senior securities.
Because they are two-party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid for the Fund's illiquid investment limitations. The Fund will not enter into any swap agreement unless the Sub-Advisor believes that the other party to the transaction is creditworthy. The Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counter-party.
The Fund may enter into a swap agreement in circumstances where the Sub-Advisor believes that it may be more cost effective or practical than buying the securities represented by such index or a futures contract or an option on such index. such index or a futures contract or an option on such index. The counter-party to any swap agreement will typically be a bank, investment banking firm or broker/dealer. The counter-party will generally agree to pay the Fund the amount, if any, by which the notional amount of the swap agreement would have increased in value had it been invested in the particular stocks represented in the index, plus the dividends that would have been received on those stocks. The Fund will agree to pay to the counter-party a floating rate of interest on the notional amount of the swap agreement plus the amount, if any, by which the notional amount would have decreased in value had it been invested in such stocks. Therefore, the return to the Fund on any swap agreement should be the gain or loss on the notional amount plus dividends on the stocks less the interest paid by the Fund on the notional amount.
Statement of additional Information
Market Neutral ETF / 28
The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid in comparison with the markets for other similar instruments that are traded in the OTC market.
Precious Metals and Other Commodities
Certain funds are subject to the risk of sharp price volatility of metals or other commodities, and of shares of companies principally engaged in activities related to metals or other commodities. Investments related to metals or other commodities may fluctuate in price significantly over short periods of time because of a variety of global economic, financial, and political factors. These factors include: economic cycles; changes in inflation or expectations about inflation in various countries; interest rates; currency fluctuations; metal sales by governments, central banks, or international agencies; investment speculation; resource availability; commodity prices; fluctuations in industrial and commercial supply and demand; government regulation of the metals and other commodities industries; and government prohibitions or restrictions on the private ownership of certain precious and rare metals.
When-Issued, Forward Commitments and Delayed Settlements
The Fund may purchase and sell securities on a when-issued, forward commitment or delayed settlement basis. In this event, the Custodian (as defined under the section entitled "Custodian") will segregate liquid assets equal to the amount of the commitment in a separate account. Normally, the Custodian will set aside portfolio securities to satisfy a purchase commitment. In such a case, the Fund may be required subsequently to segregate additional assets in order to assure that the value of the account remains equal to the amount of the Fund's commitment. It may be expected that the Fund's net assets will fluctuate to a greater degree when it sets aside portfolio securities to cover such purchase commitments than when it sets aside cash.
The Fund does not intend to engage in these transactions for speculative purposes but only in furtherance of its investment objectives. Because the Fund will segregate liquid assets to satisfy its purchase commitments in the manner described, the Fund's liquidity and the ability of the Advisor to manage them may be affected in the event the Fund's forward commitments, commitments to purchase when-issued securities and delayed settlements ever exceeded 15% of the value of its net assets.
The Fund will purchase securities on a when-issued, forward commitment or delayed settlement basis only with the intention of completing the transaction. If deemed advisable as a matter of investment strategy, however, the Fund may dispose of or renegotiate a commitment after it is entered into, and may sell securities it has committed to purchase before those securities are delivered to the Fund on the settlement date. In these cases, the Fund may realize a taxable capital gain or loss. When the Fund engages in when-issued, forward commitment and delayed settlement transactions, it relies on the other party to consummate the trade. Failure of such party to do so may result in the Fund incurring a loss or missing an opportunity to obtain a price credited to be advantageous.
The market value of the securities underlying a when-issued purchase, forward commitment to purchase securities, or a delayed settlement and any subsequent fluctuations in their market value is taken into account when determining the market value of the Fund starting on the day the Fund agrees to purchase the securities. The Fund does not earn interest on the securities it has committed to purchase until it has paid for and delivered on the settlement date.
Illiquid and Restricted Securities
The Fund may invest up to 15% of its net assets in illiquid securities. Illiquid securities include securities subject to contractual or legal restrictions on resale (e.g., because they have not been registered under the 1933 Act and securities that are otherwise not readily marketable (e.g., because trading in the security is suspended or because market makers do not exist or will not entertain bids or offers). Securities that have not been registered under the 1933 Act are referred to as private placements or restricted securities and are purchased directly from the issuer or in the secondary market. Foreign securities that are freely tradable in their principal markets are not considered to be illiquid.
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Market Neutral ETF / 29
Restricted and other illiquid securities may be subject to the potential for delays on resale and uncertainty in valuation. The Fund might be unable to dispose of illiquid securities promptly or at reasonable prices and might thereby experience difficulty in satisfying redemption requests from shareholders. The Fund might have to register restricted securities in order to dispose of them, resulting in additional expense and delay. Adverse market conditions could impede such a public offering of securities.
A large institutional market exists for certain securities that are not registered under the 1933 Act, including foreign securities. The fact that there are contractual or legal restrictions on resale to the general public or to certain institutions may not be indicative of the liquidity of such investments. Rule 144A under the 1933 Act allows such a broader institutional trading market for securities otherwise subject to restrictions on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the 1933 Act for resale of certain securities to qualified institutional buyers. Rule 144A has produced enhanced liquidity for many restricted securities, and market liquidity for such securities may continue to expand as a result of this regulation and the consequent existence of the PORTAL system, which is an automated system for the trading, clearance and settlement of unregistered securities of domestic and foreign issuers sponsored by the Financial Industry Regulatory Authority, Inc. ("FINRA").
Under guidelines adopted by the Trust's Board, the Sub-Advisor may determine that particular Rule 144A securities, and commercial paper issued in reliance on the private placement exemption from registration afforded by Section 4(a)(2) of the 1933 Act, are liquid even though they are not registered. A determination of whether such a security is liquid or not is a question of fact. In making this determination, the Advisor will consider, as it deems appropriate under the circumstances and among other factors: (1) the frequency of trades and quotes for the security; the number of dealers willing to purchase or sell the security; (3) the number of other potential purchasers of the security; (4) dealer undertakings to make a market in the security; (5) the nature of the security (e.g., debt or equity, date of maturity, terms of dividend or interest payments, and other material terms) and the nature of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer); and (6) the rating of the security and the financial condition and prospects of the issuer. In the case of commercial paper, the Advisor will also determine that the paper (1) is not traded flat or in default as to principal and interest, and (2) is rated in one of the two highest rating categories by at least two National Statistical Rating Organizations ("NRSROs") or, if only one NRSRO rates the security, by that NRSRO, or, if the security is unrated, the Advisor determines that it is of equivalent quality.
Rule 144A securities and Section 4(a)(2) commercial paper that have been deemed liquid as described above will continue to be monitored by the Advisor to determine if the security is no longer liquid as the result of changed conditions. Investing in Rule 144A securities or Section 4(a)(2) commercial paper could have the effect of increasing the amount of the Fund's assets invested in illiquid securities if institutional buyers are unwilling to purchase such securities.
The Sub-Advisor, under the oversight of the Advisor and the Board, determines whether a particular investment is deemed to be liquid based on the trading markets for the specific security and other factors.
Lending Portfolio Securities
The Fund may from time to time lend securities from their portfolios to broker-dealers, banks, financial institutions and institutional borrowers of securities and receive collateral in the form of cash or U.S. government obligations. Under the Fund's current practices (which are subject to change), the Fund must receive initial collateral equal to 102% of the market value of the loaned securities, plus any interest due in the form of cash or U.S. government obligations. This collateral must be valued daily and should the market value of the loaned securities increase, the borrower must furnish additional collateral to the Fund sufficient to maintain the value of the collateral equal to at least 100% of the value of the loaned securities. The lending agent receives a pre-negotiated percentage of the net earnings on the investment of the collateral. The Fund will not lend portfolio securities to: (a) any "affiliated person" (as that term is defined in the 1940 Act) of any Fund; (b) any affiliated person of the Advisor; or (c) any affiliated person of such an affiliated person. During the time portfolio securities are on loan, the borrower will pay the Fund any dividends or interest paid on such securities plus any fee negotiated between the parties to the lending agreement. Loans will be subject to termination by the Funds or the borrower at any time. While the Fund will not have the right to vote securities on loan, they intend to terminate loans and regain the right to vote if that is considered important with respect to the investment. The Fund will enter into loan arrangements only with broker- dealers, banks or other institutions that either the Advisor or the lending agent has determined are creditworthy under guidelines established by the Board. Although these loans are fully collateralized, there are risks associated with securities lending. The Fund's performance could be hurt if a borrower defaults or becomes insolvent, or if the Fund wishes to sell a security before its return can be arranged. The return on invested cash collateral will result in gains and losses for the Funds. The Fund will limit its securities lending to 33-1/3% of its total assets.
Statement of additional Information
Market Neutral ETF / 30
Short Sales
The Fund may sell securities short as an outright investment strategy and to offset potential declines in long positions in similar securities. A short sale is a transaction in which the Fund sells a security it does not own or have the right to acquire (or that it owns but does not wish to deliver) in anticipation that the market price of that security will decline.
When the Fund makes a short sale, the broker-dealer through which the short sale is made must borrow the security sold short and deliver it to the party purchasing the security. The Fund is required to make a margin deposit in connection with such short sales; the Fund may have to pay a fee to borrow particular securities and will often be obligated to pay over any dividends and accrued interest on borrowed securities.
If the price of the security sold short increases between the time of the short sale and the time the Fund covers its short position, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a capital gain. Any gain will be decreased, and any loss increased, by the transaction costs described above. The successful use of short selling may be adversely affected by imperfect correlation between movements in the price of the security sold short and the securities being hedged.
To the extent the Fund sells securities short, it will provide collateral to the broker-dealer and (except in the case of short sales "against the box") will maintain additional asset coverage in the form of cash, U.S. government securities or other liquid securities with its custodian in a segregated account in an amount at least equal to the difference between the current market value of the securities sold short and any amounts required to be deposited as collateral with the selling broker (not including the proceeds of the short sale). The Fund does not intend to enter into short sales (other than short sales "against the box") if immediately after such sales the aggregate of the value of all collateral plus the amount in such segregated account exceeds 30% of the value of the Fund's net assets. This percentage may be varied by action of the Board. A short sale is "against the box" to the extent the Fund contemporaneously owns, or has the right to obtain at no added cost, securities identical to those sold short.
Temporary Defensive Measures
In response to market, economic, political or other conditions, the Sub-Advisor may temporarily use a different investment strategy for the Fund for defensive purposes. Such a strategy could include investing up to 100% of the Fund's assets in cash or cash equivalent securities. This could affect the Fund's performance and the Fund might not achieve its investment objectives.
Regulation as a Commodity Pool Operator
The Fund has filed with the National Futures Association ("NFA"), a notice claiming an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act, as amended, and the rules of the Commodity Futures Trading Commission promulgated thereunder, with respect to the Fund's operations. Accordingly, the Funds will not be subject to registration or regulation as a commodity pool.
Statement of additional Information
Market Neutral ETF / 31
Recent Market Conditions and Events.
Global economies and financial markets are increasingly interconnected, which increases the possibilities that conditions in one country or region might adversely affect issuers in another country or region. Geopolitical and other risks, including war, terrorism, trade disputes, political or economic dysfunction within some nations, public health crises and related geopolitical events, as well as environmental disasters such as earthquakes, fires and floods, may add to instability in world economies and markets generally. Changes in trade policies and international trade agreements could affect the economies of many countries in unpredictable ways. Likewise, systemic market dislocations of the kind that occurred during the financial crisis that began in 2008, if repeated, would be highly disruptive to economies and markets, adversely affecting individual companies and industries, securities markets, interest rates, credit ratings, inflation, investor sentiment, and other factors affecting the value of the Fund's investments. In addition, the expanded influence of social media platforms on the market, combined with the access to low cost retail brokerage, can exacerbate the volatility of particular instruments. Some countries, including the United States, are adopting more protectionist trade policies and are moving away from the tighter financial industry regulations that followed the 2008 financial crisis, which may also affect the value of the Fund's investments.
Political events within the United States at times have resulted, and may in the future result, in a shutdown of government services, which could negatively affect the U.S. economy, decrease the value of the Fund's investments, increase uncertainty in or impair the operation of the United States or other securities markets and degrade investor and consumer confidence, perhaps suddenly and to a significant degree.
Certain illnesses spread rapidly and have the potential to significantly and adversely affect the global economy and the value of the Fund's investments. Outbreaks of illnesses and diseases, such as severe acute respiratory syndrome (SARS), influenza of various types and, most recently, COVID-19, or other similarly infectious diseases, may have material adverse impacts on the Fund. Epidemics and/or pandemics, such as COVID-19, have and may further result in, among other things, border closings and other significant travel restrictions and disruptions, significant disruptions to business operations, supply chains and customer activity, significant challenges to healthcare service preparation and delivery, and quarantines and stay-at-home orders, as well as general concern and uncertainty that has negatively affected the economic environment. These impacts have caused significant volatility and declines in global financial markets, which have caused losses for investors. The impact of COVID-19, and other epidemics and/or pandemics that may arise in the future, has negatively affected and may continue to affect the economies of many nations, individual companies and the global securities and commodities markets, including their liquidity, in ways that cannot necessarily be foreseen at the present time. Historical patterns of correlation among asset classes may break down in unanticipated ways during times of high volatility, disrupting investment programs and potentially causing losses. The impact of public health crises, including COVID-19, may last for an extended period of time.
The U.S. federal government and certain foreign central banks have taken a variety of unprecedented actions to stimulate the economy and calm the financial markets and may continue to do so, but the ultimate impact of these efforts and interventions is uncertain. In the future, the U.S. federal government or other governments may take actions that could affect the overall economy as well as the securities in which the Fund invests, the markets in which they trade, or the issuers of such securities, in ways that cannot necessarily be foreseen at the present time. Governmental and quasi-governmental authorities and regulators throughout the world, such as the U.S. Federal Reserve (the "Fed"), have in the past responded to major economic disruptions with a variety of significant fiscal and monetary policy changes, including but not limited to, direct capital infusions into companies, new monetary programs, and dramatically lower interest rates. Certain of those policy changes have been or are being implemented or considered in response to the COVID-19 pandemic. The Fed has spent hundreds of billions of dollars to keep credit flowing through short-term money markets since mid-September 2019 when a shortage of liquidity caused a spike in overnight borrowing rates, and again in 2020 and 2021 with large stimulus initiatives intended to respond to economic stresses stemming from the COVID-19 pandemic. The impact of infectious diseases in developing and emerging market countries, however, may be greater due to less established health care systems and fewer government resources to bolster their economies. Public health crises may exacerbate other pre-existing political, social and economic risks in certain countries.
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Market Neutral ETF / 32
In the past, instability in the global capital markets resulted in disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the repricing of credit risk in credit markets and the failure of major domestic and international financial institutions. Precise interest rate predictions are difficult to make, and interest rates may change unexpectedly and dramatically in response to extreme changes in market or economic conditions. As a result, the value of fixed income securities may vary widely under certain market conditions and may result in heightened market volatility and a decline in the value of the Fund's portfolio. Changes in government policies or central banks could negatively affect the value and liquidity of the Fund's investments and cause it to lose money. The markets could react strongly to expectations for changes in government policies, which could increase volatility, especially if the market's expectations are not borne out. There can be no assurance that the initiatives undertaken by governments and central banks will be successful.
COVID-19, and future epidemics or pandemics, could also impair the information technology and other operational systems upon which the Fund's service providers rely, and could otherwise disrupt the ability of the Fund's service providers to perform essential tasks. These could impair the Fund's ability to maintain operational standards (such as with respect to satisfying redemption requests), disrupt the operations of the Fund's service providers, and negatively impact the Fund's performance. In certain cases, an exchange or market may close or issue trading halts on either specific securities or even the entire market, which may result in the Fund being, among other things, unable to buy or sell certain securities or financial instruments or accurately value its investments.
Markets generally and the energy sector specifically, including MLPs and energy companies in which the Fund may invest, have also been adversely impacted by reduced demand for oil and other energy commodities as a result of the slowdown in economic activity resulting from the spread of COVID-19 and by price competition among key oil producing countries. Recently, global oil prices have declined significantly and experienced significant volatility, including a period where an oil-price futures contract fell into negative territory for the first time in history, as demand for oil has slowed and oil storage facilities reach their storage capacities. Although the Organization of Petroleum Exporting Countries ("OPEC") and other oil-producing countries have responded, continued oil price volatility may adversely impact MLPs and energy infrastructure companies. Such companies' growth prospects and ability to pay dividends may be negatively impacted, which could adversely impact the Fund's performance. Additionally, an extended period of reduced oil prices may significantly lengthen the time the energy sector would need to recover after a stabilization of prices.
Some countries, including the United States, are adopting more protectionist trade policies and are moving away from the tighter financial industry regulations that followed the 2008 financial crisis. The United States may also be considering significant new investments in infrastructure and national defense which, coupled with potentially lower federal taxes, could lead to sharply increased government borrowing and higher interest rates. The exact shape of these policies is still being considered through the political process, but the equity and debt markets may react strongly to expectations, which could increase volatility, especially if the market's expectations for changes in government policies are not borne out.
High public debt in the United States and other countries create ongoing systemic and market risks and policymaking uncertainty. There may be additional increases in the amount of debt due to the economic effects of the COVID-19 pandemic. Interest rates have been unusually low in recent years in the United States and abroad, and central banks have reduced rates further in an effort to combat the economic effects of the COVID-19 pandemic. Because there is little precedent for this situation, it is difficult to predict the impact on various markets of a significant rate increase or other significant policy changes, whether brought about by U.S. policy makers or by dislocations in world markets. Extremely low or negative interest rates may become more prevalent. To the extent the Fund has a bank deposit or holds a debt instrument with a negative interest rate to maturity, the Fund would generate a negative return on that investment. Similarly, negative rates on investments by the Fund that is a money market fund would make it difficult, if not impossible, for the fund to maintain a stable $1 net asset value per share without financial support from the fund's sponsor or other persons. There is no assurance that such support would be provided, which could lead to losses on investments in the Fund. While negative yields may reduce the demand, liquidity and valuation of fixed income investments, investors may be willing to continue to purchase such investments for a number of reasons, including, but not limited to, price insensitivity, arbitrage opportunities across fixed income markets or rules-based investment strategies. If negative interest rates become more prevalent, investors may over time seek to reallocate assets to other income-producing assets or equity investments that pay a dividend, which may cause the price of such instruments to rise while triggering a corresponding decrease in yield and the value of debt instruments over time. Over the longer term, rising interest rates may present a greater risk than has historically been the case due to the current period of low rates and the effect of government fiscal and monetary policy initiatives and potential market reaction to those initiatives.
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Market Neutral ETF / 33
Some countries where economic conditions are still recovering from the 2008 crisis are perceived as still fragile. The crisis caused strains among countries in the euro-zone that have not been fully resolved, and it is not yet clear what measures, if any, EU or individual country officials may take in response. Withdrawal of government support, failure of efforts in response to the strains, or investor perception that such efforts are not succeeding could adversely impact the value and liquidity of certain securities and currencies.
In addition, global climate change may have an adverse effect on property and security values. A rise in sea levels, an increase in powerful windstorms and/or a storm-driven increase in flooding could cause coastal properties to lose value or become unmarketable altogether. Large wildfires driven by high winds and prolonged drought may devastate entire communities and may be very costly to any business found to be responsible for the fire or conducting operations in affected areas. These losses could adversely affect corporate borrowers and mortgage lenders, the value of mortgage-backed securities, the bonds of municipalities that depend on tax revenues and tourist dollars generated by such properties, and insurers of the property and/or of corporate, municipal or mortgage-backed securities. Since property and security values are driven largely by buyers' perceptions, it is difficult to know the time period over which these effects might unfold. Economists warn that, unlike previous declines in the real estate market, properties in affected coastal zones may never recover their value. Regulatory changes and divestment movements tied to concerns about climate change could adversely affect the value of certain land and the viability of industries whose activities or products are seen as accelerative to climate change.
Some market participants have expressed concern that passively-managed index funds and other indexed products inflate the value of their component securities. If the component securities in such indices decline in value for this and other reasons, the value of the Fund's investments in these securities will also decline.
Brexit.
The United Kingdom ("UK") ceased to be a member of the European Union ("EU") on January 31, 2020 ("Brexit"). During a prescribed period (the "Transition Period"), certain transitional arrangements were in effect, such that the UK continued to be treated, in most respects, as if it were still a member of the EU, and generally remained subject to EU law. The Transition Period ended on December 31, 2020. On December 24, 2020, the EU and the UK reached an agreement in principle on the terms of certain agreements and declarations governing the ongoing relationship between the EU and the UK, including the EU-UK Trade and Cooperation Agreement (the "Agreement"), and on December 30, 2020, the Council of the European Union adopted a decision authorizing the signature of the Agreement and its provisional application for a limited period between January 1, 2021 to February 28, 2021, pending ratification of the Agreement by the European Parliament. The Agreement is limited in its scope primarily to the trade of goods, transport, energy links and fishing, and uncertainties remain relating to certain aspects of the UK's future economic, trading and legal relationships with the EU and with other countries. The actual or potential consequences of Brexit, and the associated uncertainty, could adversely affect economic and market conditions in the UK, in the EU and its member states and elsewhere, and could contribute to instability in global financial markets.
The impact of such events on the Fund is difficult to predict but they may adversely affect the return on the Fund and its investments. There may be detrimental implications for the value of the Fund's investments, its ability to enter into transactions or to value or realize such investments or otherwise to implement its investment program. It is possible that the Fund's investments may need to be restructured to enable the Fund's objectives to be pursued fully. This may increase costs or make it more difficult for the Fund to pursue its investment objective.
The London Interbank Offered Rate ("LIBOR") Transition.
LIBOR has historically been the principal floating rate benchmark in the financial markets. However, as a result of longstanding regulatory initiatives, LIBOR is being discontinued. Its discontinuation has affected and will continue to affect the financial markets generally and may also affect the Fund's operations, finances and investments specifically. The date of discontinuation will vary depending on the LIBOR currency and tenor. In March 2021, the UK Financial Conduct Authority (the "FCA"), which is the regulator of the LIBOR administrator, announced that LIBOR settings will cease to be provided by any administrator or will no longer be representative after specified dates, which will be June 30, 2023, in the case of the principal U.S. dollar LIBOR tenors (overnight and one, three, six and 12 month), and December 31, 2021, in all other cases (i.e., one week and two month U.S. dollar LIBOR and all tenors of non-U.S. dollar LIBOR). Thus, many existing LIBOR contracts will transition to another benchmark after June 30, 2023 or, in some cases, after December 31, 2021. For some existing LIBOR-based obligations, the contractual consequences of the discontinuation of LIBOR may not be clear. In the United States, there have been various efforts to identify a set of alternative reference interest rates for U.S. dollar LIBOR. The market has generally coalesced around recommendations from the Alternative Reference Rates Committee (the "ARRC") convened by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York. The ARRC has recommended that U.S. dollar LIBOR be replaced by rates based on the Secured Overnight Financing Rate ("SOFR") plus, in the case of existing LIBOR contracts and obligations, a spread adjustment. As a consequence of the FCA announcement described above (and a related announcement from the LIBOR administrator), the spread adjustments for different tenors of U.S. dollar LIBOR have been set. The FCA and certain U.S. regulators have emphasized that, despite expected publication of U.S. dollar LIBOR through June 30, 2023, no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021 and that, for certain purposes, market participants should transition away from U.S. dollar LIBOR sooner. Although the foregoing reflects the likely timing and certain details and consequences of the LIBOR discontinuation, there is no assurance that LIBOR, of any particular currency and tenor, will continue to be published until any particular date or in any particular form. Financial markets, particularly the trading market for LIBOR-based obligations, may be adversely affected by the discontinuation of LIBOR, the remaining uncertainties regarding its discontinuation, the alternative reference rates that will be used when LIBOR is discontinued (including SOFR-based rates) and other reforms related to LIBOR. There is no assurance that SOFR-based rates, as modified by an applicable spread adjustment, will be the economic equivalent of U.S. dollar LIBOR. SOFR-based rates will differ from U.S. dollar LIBOR, and the differences may be material. As a result of the LIBOR discontinuation, the Fund's performance or net asset value may be adversely affected. In addition, SOFR-based rates or other alternative reference rates may be an ineffective substitute for LIBOR, resulting in prolonged adverse market conditions for the Fund.
Statement of additional Information
Market Neutral ETF / 34
Risks Related to Cybersecurity.
The Fund and its service providers have administrative and technical safeguards in place with respect to information security. Nevertheless, the Fund and its service providers are potentially susceptible to operational and information security risks resulting from a cyber-attack as the Fund are highly dependent upon the effective operation of their computer systems and those of their business partners. These risks include, among other things, the theft, misuse, corruption and destruction of data maintained online or digitally, denial of service on websites and other operational disruption and unauthorized release of confidential customer information. Cyber-attacks affecting the Advisor, Foreside Distributors (the "Distributor,"), the Fund, the custodian, the transfer agent, financial intermediaries and other affiliated or third-party service providers may adversely affect the Fund and its shareholders. For instance, cyber-attacks may interfere with the processing of Fund transactions, including the processing of orders, impact the Fund's ability to calculate net asset values, cause the release and possible destruction of confidential customer or business information, impede trading, subject the Fund and/or its service providers and intermediaries to regulatory fines and financial losses and/or cause reputational damage. Cybersecurity risks may also affect the issuers of securities in which the Fund invests, which may cause the Fund's investments to lose value. The Fund may also incur additional costs for cybersecurity risk management in the future. Although the Fund and its service providers have adopted security procedures to minimize the risk of a cyber-attack, there can be no assurance that the Fund or its service providers will avoid losses affecting the Fund due to cyber-attacks or information security breaches in the future.
Statement of additional Information
Market Neutral ETF / 35
Section 4 | | Investments by Other Registered Investment Companies |
Section 12(d)(1) of the 1940 Act restricts investments by registered investment companies in the securities of other investment companies, including shares of the Fund. Registered investment companies are permitted to invest in the Fund beyond the limits set forth in section 12(d)(1), subject to certain terms and conditions.
Statement of additional Information
Market Neutral ETF / 36
Section 5 | | Determining Net Asset Value ("Nav") and Valuing Portfolio Securities |
The Fund's NAV is determined, and the shares of the Fund are priced as of the valuation time(s) indicated in the Prospectuses on each Business Day. A "Business Day" is a day on which the New York Stock Exchange, Inc. (the "NYSE") is open. The NYSE will not open in observance of the following holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Juneteenth, Independence Day, Labor Day, Thanksgiving and Christmas.
Investment Company Securities
Shares of another open-end investment company (mutual fund) held by the Fund are valued at the latest closing NAV of such mutual fund. Shares of ETFs are valued in the manner described below under "Equity Securities."
Fixed Income Securities
Fixed income securities held by the Fund are valued on the basis of security valuations provided by an independent pricing service, approved by the Board, that determines value by using information with respect to transactions of a security, quotations from dealers, market transactions in comparable securities and various relationships between securities. Specific investment securities that are not priced by the approved pricing service will be valued according to quotations obtained from dealers who are market makers in those securities. Investment securities with less than 60 days to maturity when purchased are valued at amortized cost that approximates market value. Investment securities not having readily available market quotations will be priced at fair value using a methodology approved in good faith by the Board.
Equity Securities
Each equity security (including ETFs) held by the Fund is valued at the closing price on the exchange where the security is principally traded. Each security traded in the over-the-counter market (but not including securities the trading activity of which is reported on NASDAQ's Automated Confirmation Transaction ("ACT") System) is valued at the bid based upon quotes furnished by market makers for such securities. Each security the trading activity of which is reported on NASDAQ's ACT System is valued at the NASDAQ Official Closing Price. Convertible debt securities are valued in the same manner as any debt security. Non-convertible debt securities are valued on the basis of prices provided by independent pricing services. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate factors such as institution- sized trading in similar groups of securities, developments related to special securities, yield, quality, coupon rate, maturity, type of issue, individual trading characteristics, and other market data. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in a manner specially authorized by the Board. Short-term obligations having 60 days or less to maturity are valued on the basis of amortized cost, except for convertible debt securities. For purposes of determining NAV, futures and options contracts generally will be valued 15 minutes after the close of trading of the NYSE.
Generally, trading in foreign securities, corporate bonds, U.S. government securities and money market instruments is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the NAV of the Fund's shares generally are determined at such times. Foreign currency exchange rates are also generally determined prior the close of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which such values are determined and the close of the NYSE. If events affecting the value of securities occur during such a period, and the Fund's NAV is materially affected by such changes in the value of the securities, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board.
Statement of additional Information
Market Neutral ETF / 37
Futures and Options Contracts
For purposes of determining NAV, futures and options contracts generally will be valued 15 minutes after the close of trading of the NYSE.
Funds that Invest a Significant Amount of their Assets in Foreign Securities
Time zone arbitrage. Funds that invest a significant amount of their assets in foreign securities may be exposed to attempts by investors to engage in "time-zone arbitrage." Using this technique, investors seek to take advantage of differences in the values of foreign securities that might result from events that occur after the close of the foreign securities market on which a security is traded and before the close of the NYSE that day, when the Funds calculate their NAV.
If successful, time zone arbitrage might dilute the interests of other shareholders. The Funds use "fair value pricing" under certain circumstances, to adjust the closing market prices of foreign securities to reflect what the Advisor and the Board consider to be their fair value. Fair value pricing may also help to deter time zone arbitrage.
If market quotations are not readily available, or (in the Sub-Advisor's judgment) do not accurately reflect the fair value of a security, or if after the close of the principal market on which a security held by the Fund is traded and before the time as of which the Fund's net asset value is calculated that day, an event occurs that the Advisor learns of and believes in the exercise of its judgment will cause a material change in the value of that security from the closing price of the security on the principal market on which it is traded, that security may be valued by another method that the Board believes would more accurately reflect the security's fair value.
The Fund's use of fair value pricing procedures involves subjective judgments and it is possible that the fair value determined for a security may be materially different from the value that could be realized upon the sale of that security. Accordingly, there can be no assurance that the Fund could obtain the fair value assigned to a security if it were to sell the security at approximately the same time at which the Fund determines its net asset value per share.
Other Valuation Information
Under the 1940 Act, the Fund is required to act in good faith in determining the fair value of portfolio securities. The SEC has recognized that a security's valuation may differ depending on the method used for determining value. The fair value ascertained for a security is an estimate and there is no assurance, given the limited information available at the time of fair valuation, that a security's fair value will be the same as or close to the subsequent opening market price for that security.
The Board has adopted valuation procedures for the Fund and has delegated the day-to-day responsibility for fair valuation determinations to the Advisor and the Advisor's Pricing Committee. Those determinations may include consideration of recent transactions in comparable securities, information relating to a specific security, developments in and performance of foreign securities markets, current valuations of foreign or U.S. indices, and adjustment co-efficients based on fair value models developed by independent service providers. The Advisor may, for example, adjust the value of portfolio securities based on fair value models supplied by the service provider when the Advisor believes that the adjustments better reflect actual prices as of the close of the NYSE.
Generally, trading in foreign securities, corporate bonds, U.S. government securities and money market instruments is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the NAV of the Fund's shares generally are determined at such times. Foreign currency exchange rates are also generally determined prior the close of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which such values are determined and the close of the NYSE. If events affecting the value of securities occur during such a period, and the Fund's NAV is materially affected by such changes in the value of the securities, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board. Other securities and assets for which market quotations are not readily available or for which valuation cannot be provided are valued as determined in good faith in accordance with procedures approved by the Board.
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PERFORMANCE COMPARISON
The Fund will calculate performance in accordance with formulas prescribed by the SEC.
In addition, the Fund may publish the ranking of its performance or the performance of a particular class of Fund shares by Thomson Reuters Lipper, Inc. ("Lipper"), a widely-recognized independent mutual fund monitoring service. Lipper monitors the performance of regulated investment companies and ranks the performance of the Fund and their classes against all other funds in similar categories, for both equity and "fixed income" funds. The Lipper performance rankings are based on total returns that include the reinvestment of capital gains distributions and income dividends but do not take sales charges or taxes into consideration.
From time to time the Fund may publish its rating or that of a particular class of Fund shares by Morningstar, Inc., an independent mutual fund monitoring service that rates mutual funds, in broad investment categories (e.g., domestic equity, international equity, taxable bond, or municipal bond) monthly, based upon the Fund's three, five and ten-year average annual total returns (when available) and a risk adjustment factor that reflects Fund performance relative to three-month U.S. Treasury bill monthly returns. Such returns are adjusted for fees and sales loads. There are five rating categories with a corresponding number of stars: highest (5), above average (4), neutral (3), below average (2) and lowest (1).
The total return on an investment made in the Fund or that of a particular class of Fund shares may be compared with the performance for the same period of one or more broad-based securities market indices, as described in a Prospectus. These indices are unmanaged indices of securities that do not reflect reinvestment of capital gains or take investment costs into consideration, as these items are not applicable to indices. The Fund's total returns also may be compared with the Consumer Price Index, a measure of change in consumer prices, as determined by the U.S. Bureau of Labor Statistics.
From time to time, the yields and the total returns of the Fund or that of a particular class of Fund shares may be quoted in and compared to other mutual funds with similar investment objectives in advertisements, shareholder reports or other communications to shareholders. The Fund also may include calculations in such communications that describe hypothetical investment results. (Such performance examples are based on an express set of assumptions and are not indicative of the performance of any Fund.) Such calculations may from time to time include discussions or illustrations of the effects of compounding in advertisements. "Compounding" refers to the fact that, if dividends or other distributions on the Fund's investment are reinvested by being paid in additional Fund shares, any future income or capital appreciation of the Fund would increase the value, not only of the original Fund investment, but also of the additional Fund shares received through reinvestment. As a result, the value of the Fund investment would increase more quickly than if dividends or other distributions had been paid in cash.
The Fund also may include discussions or illustrations of the potential investment goals of a prospective investor (including but not limited to tax and/or retirement planning), investment management techniques, policies or investment suitability of the Fund, economic conditions, legislative developments (including pending legislation), the effects of inflation and historical performance of various asset classes, including but not limited to stocks, bonds and U.S. Treasury bills.
From time to time advertisements or communications to shareholders may summarize the substance of information contained in shareholder reports (including the investment composition of the Fund, as well as the views of the Advisor as to current market, economic, trade and interest rate trends, legislative, regulatory and monetary developments, investment strategies and related matters believed to be of relevance to the Fund). The Fund also may include in advertisements, charts, graphs or drawings that illustrate the potential risks and rewards of investment in various investment vehicles, including but not limited to stock, bonds and U.S. Treasury bills, as compared to an investment in shares of the Fund, as well as charts or graphs that illustrate strategies such as dollar cost averaging and comparisons of hypothetical yields of investment in tax-exempt versus taxable investments. In addition, advertisements or shareholder communications may include a discussion of certain attributes or benefits to be derived by an investment in the Fund. Such advertisements or communications may include symbols, headlines or other material that highlight or summarize the information discussed in more detail therein. With proper authorization, the Fund may reprint articles (or excerpts) written regarding the Fund and provide them to prospective shareholders.
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Market Neutral ETF / 39
Investors also may judge, and the Fund may at times advertise, the performance of the Fund or that of a particular class of Fund shares by comparing it to the performance of other mutual funds or mutual fund portfolios with comparable investment objectives and policies, which performance may be contained in various unmanaged mutual fund or market indices or rankings. In addition to yield information, general information about the Fund that appears in a publication may also be quoted or reproduced in advertisements or in reports to shareholders.
Advertisements and sales literature may include discussions of specifics of a portfolio manager's investment strategy and process, including, but not limited to, descriptions of security selection and analysis. Advertisements may also include descriptive information about the investment advisor, including, but not limited to, its status within the industry, other services and products it makes available, total assets under management and its investment philosophy.
When comparing yield, total return and investment risk of an investment in shares of the Fund with other investments, investors should understand that certain other investments have different risk characteristics than an investment in shares of the Fund. For example, CDs may have fixed rates of return and may be insured as to principal and interest by the FDIC, while the Fund's returns will fluctuate and its share values and returns are not guaranteed. Money market accounts offered by banks also may be insured by the FDIC and may offer stability of principal. U.S. Treasury securities are guaranteed as to principal and interest by the full faith and credit of the U.S. government.
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Market Neutral ETF / 40
Section 6 | | Purchase and Redemption of Shares |
Creation Units
The Fund sells and redeems Shares in Creation Units on a continuous basis through the Distributor, without a sales load, at the NAV next determined after receipt of an order in proper form on any Business Day. A "Business Day" is any day on which the NYSE is open for business.
A Creation Unit is an aggregation of 10,000 shares. The Board may declare a split or a consolidation in the number of shares outstanding of the Fund or Trust, and make a corresponding change in the number of shares in a Creation Unit.
Authorized Participants
To purchase or redeem any Creation Units, you must be, or transact through, an Authorized Participant. In order to be an Authorized Participant, you must be either a broker-dealer or other participant ("Participating Party") in the Continuous Net Settlement System ("Clearing Process") of the National Securities Clearing Corporation ("NSCC") or a participant in DTC with access to the DTC system ("DTC Participant"), and you must execute an agreement ("Participant Agreement") with the Distributor that governs transactions in the Fund's Creation Units.
Investors who are not Authorized Participants but want to transact in Creation Units may contact the Distributor for the names of Authorized Participants. An Authorized Participant may require investors to enter into a separate agreement to transact through it for Creation Units and may require orders for purchases of shares placed with it to be in a particular form. Investors transacting through a broker that is not itself an Authorized Participant and therefore must still transact through an Authorized Participant may incur additional charges. There are expected to be a limited number of Authorized Participants at any one time.
Orders must be transmitted by an Authorized Participant by telephone or other transmission method acceptable to the Distributor. Market disruptions and telephone or other communication failures may impede the transmission of orders.
Transaction Fees
A fixed fee payable to the Custodian is imposed on each creation and redemption transaction regardless of the number of Creation Units involved in the transaction ("Fixed Fee"). Purchases and redemptions of Creation Units for cash or involving cash-in-lieu (as defined below) are required to pay an additional variable charge to compensate the Fund and its ongoing shareholders for brokerage and market impact expenses relating to Creation Unit transactions ("Variable Charge," and together with the Fixed Fee, the "Transaction Fees"). With the approval of the Board, the Advisor may waive or adjust the Transaction Fees, including the Fixed Fee and/or Variable Charge (shown in the table below), from time to time. In such cases, the Authorized Participant will reimburse the Fund for, among other things, any difference between the market value at which the securities and/or financial instruments were purchased by the Fund and the cash-in-lieu amount, applicable registration fees, brokerage commissions and certain taxes and other costs and expenses related to the execution of trades resulting from such transaction (up to the maximum amount shown below). In addition, purchasers of Creation Units are responsible for the costs of transferring the Deposit Securities to the account of the Fund.
Investors who use the services of a broker, or other such intermediary may be charged a fee for such services.
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Market Neutral ETF / 41
The following table sets forth the Fund's standard Transaction Fees and maximum additional charge (as described above):
Fee
for In Kind and Cash Purchases and Redemptions |
Maximum
Additional Variable Charge for Cash Purchases and Redemptions* | |
Timothy Plan Market Neutral ETF | $250 | 2% |
* | As a percentage of the amount invested. |
The Clearing Process
Transactions by an Authorized Participant that is a Participating Party using the NSCC system are referred to as transactions "through the Clearing Process." Transactions by an Authorized Participant that is a DTC Participant using the DTC system are referred to as transactions "outside the Clearing Process." The Clearing Process is an enhanced clearing process that is available only for certain securities and only to DTC participants that are also participants in the Continuous Net Settlement System of the NSCC. In-kind (portions of) purchase orders not subject to the Clearing Process will go through a manual clearing process run by DTC. Portfolio Deposits that include government securities must be delivered through the Federal Reserve Bank wire transfer system ("Federal Reserve System"). Fund Deposits that include cash may be delivered through the Clearing Process or the Federal Reserve System. In-kind deposits of securities for orders outside the Clearing Process must be delivered through the Federal Reserve System (for government securities) or through DTC (for corporate securities).
Foreign Securities
Because the portfolio securities of the Fund may trade on days that the Exchange is closed or are otherwise not Business Days for the Fund, shareholders may not be able to redeem their shares of the Fund, or to purchase or sell shares of the Fund on the Exchange, on days when the NAV of the Fund could be significantly affected by events in the relevant foreign markets.
Purchasing Creation Units
Portfolio Deposit. The consideration for a Creation Unit generally consists of the in-kind deposit of designated securities ("Deposit Securities") and an amount of cash in U.S. dollars ("Cash Component"). Together, the Deposit Securities and the Cash Component constitute the "Portfolio Deposit." The Cash Component serves the function of compensating for any differences between the net asset value per Creation Unit and the Deposit Securities. Thus, the Cash Component is equal to the difference between (x) the net asset value per Creation Unit of the Fund and (y) the market value of the Deposit Securities. If (x) is more than (y), the Authorized Participant will pay the Cash Component to the Fund. If (x) is less than (y), the Authorized Participant will receive the Cash Component from the Fund.
On each Business Day, prior to the opening of business on the Exchange (currently 9:30 a.m., Eastern Time), the Advisor through the Custodian makes available through NSCC the name and amount of each Deposit Security in the current Portfolio Deposit (based on information at the end of the previous Business Day) for the Fund and the (estimated) Cash Component, effective through and including the previous Business Day, per Creation Unit. The Deposit Securities announced are applicable, subject to any adjustments as described below, to purchases of Creation Units until the next announcement of Deposit Securities.
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Market Neutral ETF / 42
The Deposit Securities may change as rebalancing adjustments and corporate action events of the Underlying Index are reflected from time to time by the Advisor in the Fund's portfolio. The Deposit Securities may also change in response to the rebalancing and/or reconstitution of the Underlying Index. These adjustments will reflect changes known to the Sub-Advisor on the date of announcement to be in effect by the time of delivery of the Portfolio Deposit.
Payment of any stamp duty or the like shall be the sole responsibility of the Authorized Participant purchasing a Creation Unit. The Authorized Participant must ensure that all Deposit Securities properly denote change in beneficial ownership.
Custom Orders and Cash-in-lieu. The Fund may, in its sole discretion, permit or require the substitution of an amount of cash ("cash-in-lieu") to be added to the Cash Component to replace any Deposit Security. The Fund may permit or require cash-in-lieu when, for example, a Deposit Security may not be available in sufficient quantity for delivery or may not be eligible for transfer through the systems of DTC or the Clearing Process. Similarly, the Fund may permit or require cash in lieu of Deposit Securities when, for example, the Authorized Participant or its underlying investor is restricted under U.S. or local securities laws or policies from transacting in one or more Deposit Securities. The Fund will comply with the federal securities laws in accepting Deposit Securities including that the Deposit Securities are sold in transactions that would be exempt from registration under the 1933 Act. All orders involving cash-in-lieu are considered to be "Custom Orders."
Purchase Orders. To order a Creation Unit, an Authorized Participant must submit an irrevocable purchase order to the Distributor.
Timing of Submission of Purchase Orders. All orders to purchase shares of the Fund directly from the Fund must be placed for one or more Creation Units and in the manner and by the time (the "Cut-off Time") set forth in the Participant Agreement and/or applicable order form. The date on which such an order to purchase Creation Units (or an order to redeem Creation Units, as set forth below) is received and accepted is referred to as the "Transmittal Date."
Persons placing or effectuating custom orders and/or orders involving cash should be mindful of time deadlines imposed by intermediaries, such as DTC and/or the Federal Reserve Bank wire system, which may impact the successful processing of such orders to ensure that cash and securities are transferred by the "Settlement Date," which is generally the Business Day immediately following the Transmittal Date ("T+1") for cash and the second Business Day following the Transmittal Date for domestic securities ("T+2").
Orders Using the Clearing Process. If available, (portions of) orders may be settled through the Clearing Process. In connection with such orders, the Distributor or its agent transmits, on behalf of the Authorized Participant, such trade instructions as are necessary to effect the creation order. Pursuant to such trade instructions, the Authorized Participant agrees to deliver the requisite Portfolio Deposit to the Fund, together with such additional information as may be required by the Distributor. Cash Components will be delivered using either the Clearing Process or the Federal Reserve System.
Orders Outside the Clearing Process. If the Clearing Process is not available for (portions of) an order, Portfolio Deposits will be made outside the Clearing Process. Orders outside the Clearing Process must state that the DTC Participant is not using the Clearing Process and that the creation of Creation Units will be effected through DTC. The Portfolio Deposit transfer must be ordered by the DTC Participant on the Transmittal Date in a timely fashion so as to ensure the delivery of Deposit Securities (whether standard or custom) through DTC to the Fund account by 11:00 a.m., Eastern time, on T+1.
The Cash Component, along with any cash-in-lieu and Transaction Fee, must be transferred directly to the Custodian through the Federal Reserve System in a timely manner so as to be received by the Custodian no later than 12:00 p.m., Eastern Time, on T+1. If the Custodian does not receive both the Deposit Securities and the cash by the appointed time, the order may be canceled. A canceled order may be resubmitted the following Business Day but must conform to that Business Day's Portfolio Deposit. Authorized Participants that submit a canceled order will be liable to the Fund for any losses incurred by the Fund in connection therewith.
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Orders involving foreign Deposit Securities are expected to be settled outside the Clearing Process. Thus, upon receipt of an irrevocable purchase order, the Distributor will notify the Sub-Advisor and the Custodian of such order. The Custodian , who will have caused the appropriate local sub-custodian(s) of the Fund to maintain an account into which an Authorized Participant may deliver Deposit Securities (or cash -in-lieu), with adjustments determined by the Fund, will then provide information of the order to such local sub-custodian(s). The ordering Authorized Participant will then deliver the Deposit Securities (and any cash-in-lieu) to the Fund's account at the applicable local sub-custodian. The Authorized Participant must also make available on or before the contractual settlement date, by means satisfactory to the Fund, immediately available or same day funds in U.S. dollars estimated by the Fund to be sufficient to pay the Cash Component and Transaction Fee. When a relevant local market is closed due to local market holidays, the local market settlement process will not commence until the end of the local holiday period. Settlement must occur by 2:00 p.m., Eastern Time, on the contractual settlement date.
Acceptance of Purchase Order. All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Fund. The Fund's determination shall be final and binding.
The Fund reserves the absolute right to reject or revoke acceptance of a purchase order transmitted to it by the Distributor if (a) the order is not in proper form; (b) the investor(s), upon obtaining the shares ordered, would own 80% or more of the currently outstanding shares of the Fund; (c) the Deposit Securities delivered do not conform to the Deposit Securities for the applicable date; (d) acceptance of the Deposit Securities would have certain adverse tax consequences to the Fund; (e) the acceptance of the Portfolio Deposit would, in the opinion of counsel, be unlawful; (f) the acceptance of the Portfolio Deposit would otherwise, in the discretion of the Trust, Fund or the Advisor, have an adverse effect on the Trust, Fund or the rights of beneficial owners; or (g) in the event that circumstances outside the control of the Trust, the Distributor and the Advisor make it for all practical purposes impossible to process purchase orders. Examples of such circumstances include acts of God; public service or utility problems resulting in telephone, telecopy or computer failures; fires, floods or extreme weather conditions; market conditions or activities causing trading halts; systems failures involving computer or other informational systems affecting the Trust, the Distributor, DTC, NSCC, the Advisor, the Fund's Custodian, a sub-custodian or any other participant in the creation process; and similar extraordinary events. The Distributor shall notify an Authorized Participant of its rejection of the order. The Fund, the Custodian, any sub-custodian and the Distributor are under no duty, however, to give notification of any defects or irregularities in the delivery of Portfolio Deposits, and they shall not incur any liability for the failure to give any such notification.
Issuance of a Creation Unit. Once the Fund has accepted an order, upon next determination of the Fund's NAV, the Fund will confirm the issuance of a Creation Unit against receipt of payment, at such NAV. The Distributor will transmit a confirmation of acceptance to the Authorized Participant that placed the order.
Except as provided below, a Creation Unit will not be issued until the Fund obtains good title to the Deposit Securities, along with any cash-in-lieu and Transaction Fee. The delivery of Creation Units will generally occur no later than T+2.
In certain cases, Authorized Participants will create and redeem Creation Units on the same trade date. In these instances, the Trust reserves the right to settle these transactions on a net basis.
With respect to orders involving foreign Deposit Securities, when a local sub-custodian has confirmed to the Custodian that the Deposit Securities (or cash-in-lieu) have been delivered to the Fund's account with the sub- custodian, the Fund will issue and deliver the Creation Unit. As stated above, Creation Units are generally delivered on T+2. However, the Fund may settle Creation Unit transactions on a basis other than T+2 in order to accommodate foreign market holiday schedules, to account for different treatment among foreign and U.S. markets of dividend record dates and ex-dividend dates (that is the last day the holder of a security can sell the security and still receive dividends payable on the security), and in certain other circumstances.
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Market Neutral ETF / 44
The Fund may issue a Creation Unit prior to receiving good title to the Deposit Securities under the following circumstances if, pursuant to the applicable Participant Agreement, the relevant Authorized Participant provides an undertaking to deliver the missing Deposit Securities as soon as possible, which undertaking is secured by such Authorized Participant's delivery of cash in U.S. Dollars to the Custodian having a value equal to at least 105% of the value of the missing Deposit Securities ("Collateral") as adjusted by time to time by the Advisor. The Collateral will have a value greater than the NAV of the Creation Unit on the date the order is placed and must be delivered no later than 2:00 p.m., Eastern Time, on T+1. The value of the missing Deposit Securities is marked to market daily and the amount of Collateral is adjusted to make sure the Collateral value is at least 105% of the marked value. At any time, the Fund may use the Collateral to purchase the missing Deposit Securities, and the Authorized Participant will be liable to the Fund for any costs incurred thereby or losses resulting therefrom, whether or not they exceed the amount of the Collateral, including any Transaction Fee, any amount by which the purchase price of the missing Deposit Securities exceeds the market value of such securities on the Transmittal Date, brokerage and other transaction costs. The Trust will return any unused Collateral once all of the missing Deposit Securities have been received by the Fund. More information regarding the Fund's current procedures for collateralization is available from the Funds.
Cash Purchase Method. When cash purchases of Creation Units are available or specified for the Fund, they will be effected in essentially the same manner as in-kind purchases In the case of a cash purchase, the investor must pay the cash equivalent of the Portfolio Deposit. In addition, cash purchases will be subject to Transaction Fees, as described above.
The Fund reserves the right to offer purchases of Creation Units solely in cash if, on a given Business Day, the Fund announces before the open of trading that all purchases on that day will be made entirely in cash the Fund may also, on a given Business Day, require all Authorized Participants purchasing Creation Units on that day to deposit cash in lieu of some or all of the Deposit Securities because: (i) such securities are not eligible for transfer either through the NSCC or DTC or (ii) in the case of Foreign Funds holding non-U.S. investments, such securities are not eligible for trading due to local trading restrictions, local restrictions on securities transfers or other similar circumstances. The Fund may also permit an Authorized Participant to deposit cash in lieu of some or all of the Deposit Securities because: (i) such securities are not available in sufficient quantity or (ii) such securities are not eligible for trading by an Authorized Participant or the investor on whose behalf the Authorized Participant is acting.
Redeeming a Creation Unit
Redemption Basket. The consideration received in connection with the redemption of a Creation Unit generally consists of an in-kind basket of designated securities ("Redemption Securities") and an amount of cash in U.S. dollars ("Cash Component"). Together, the Redemption Securities and the Cash Component constitute the "Redemption Basket."
There can be no assurance that there will be sufficient liquidity in Shares in the secondary market to permit assembly of a Creation Unit. In addition, investors may incur brokerage and other costs in connection with assembling a Creation Unit.
The Cash Component serves the function of compensating for any differences between the net asset value per Creation Unit and the Redemption Securities. Thus, the Cash Component is equal to the difference between (x) the net asset value per Creation Unit of the Fund and (y) the market value of the Redemption Securities. If (x) is more than (y), the Authorized Participant will receive the Cash Component from the Fund. If (x) is less than (y), the Authorized Participant will pay the Cash Component to the Fund.
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If the Redemption Securities on a Business Day are different from the Deposit Securities, prior to the opening of business on the Exchange (currently 9:30 a.m., Eastern Time), the Advisor through the Custodian makes available through NSCC the name and amount of each Redemption Security in the current Redemption Basket (based on information at the end of the previous Business Day) for the Fund and the (estimated) Cash Component, effective through and including the previous Business Day, per Creation Unit. If the Redemption Securities on a Business Day are different from the Deposit Securities, all redemption requests that day will be processed outside the Clearing Process.
The Redemption Securities may change as rebalancing adjustments and corporate action events are reflected from time to time by the Sub-Advisor in the Fund's portfolio. These adjustments will reflect changes known to the Sub-Advisor on the date of announcement to be in effect by the time of delivery of the Redemption Basket.
The right of redemption may be suspended or the date of payment postponed: (i) for any period during which the NYSE is closed (other than customary weekend and holiday closings); (ii) for any period during which trading on the NYSE is suspended or restricted; (iii) for any period during which an emergency exists as a result of which disposal of the Shares or determination of the ETF's NAV is not reasonably practicable; or (iv) in such other circumstances as permitted by the SEC, including as described below.
Custom Redemptions and Cash-in-lieu. The Fund may, in its sole discretion, permit or require the substitution of an amount of cash ("cash-in-lieu") to be added to the Cash Component to replace any Redemption Security. The Fund may permit or require cash-in-lieu when, for example, a Redemption Security may not be available in sufficient quantity for delivery or may not be eligible for transfer through the systems of DTC or the Clearing Process. Similarly, the Fund may permit or require cash-in-lieu of Redemption Securities when, for example, the Authorized Participant or its underlying investor is restricted under U.S. or local securities law or policies from transacting in one or more Redemption Securities. The Fund will comply with the federal securities laws in satisfying redemptions with Redemption Securities, including that the Redemption Securities are sold in transactions that would be exempt from registration under the 1933 Act. All redemption requests involving cash-in-lieu are considered to be "Custom Redemptions."
Redemption Requests. To redeem a Creation Unit, an Authorized Participant must submit an irrevocable redemption request to the Distributor. An Authorized Participant will represent to the Fund that it will not attempt to place a redemption order for the purpose of redeeming any Creation Units, unless it first ascertains or has reasonable grounds to believe that as of the time of the settlement date: (i) it, or its customer, as the case may be, will own outright (or have full legal authority and legal beneficial right to tender) the requisite number of Fund shares for redemption, and (ii) all of the Shares that are in the Creation Unit to be redeemed have not been loaned or pledged to another party and are not the subject of a repurchase agreement, securities lending agreement or such other arrangement that would preclude the delivery of such Shares to the Fund on the settlement date. The Fund reserves the absolute right, in its sole discretion, to verify these representations, but will typically require verification in connection with higher levels of redemption activity and /or short interest in the Fund. If the Authorized Participant, upon receipt of a verification request, does not provide sufficient verification of the requested representations, the redemption request will not be considered to be in proper form and may be rejected by the Fund.
Timing of Submission of Redemption Requests. All orders to redeem shares of the Fund directly from the Fund must be placed for one or more Creation Units and in the manner and by the time (the "Cut-off Time") set forth in the Participant Agreement and/or applicable order form. The date on which such an order to redeem Creation Units is received and accepted is referred to as the "Transmittal Date."
A redemption request is deemed received if (i) such order is received by the Distributor by the Cut-off Time on such day and (ii) all other procedures set forth in the Participant Agreement are properly followed. Persons placing or effectuating Custom Redemptions and/or orders involving cash should be mindful of time deadlines imposed by intermediaries, such as DTC and/or the Federal Reserve System, which may impact the successful processing of such orders to ensure that cash and securities are transferred by the Settlement Date, as defined above.
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Market Neutral ETF / 46
Requests Using the Clearing Process. If available, (portions of) redemption requests may be settled through the Clearing Process. In connection with such orders, the Distributor transmits on behalf of the Authorized Participant, such trade instructions as are necessary to effect the redemption. Pursuant to such trade instructions, the Authorized Participant agrees to deliver the requisite Creation Unit(s) to the Fund, together with such additional information as may be required by the Distributor. Cash Components will be delivered using either the Clearing Process or the Federal Reserve System, as described above.
Requests Outside the Clearing Process. If the Clearing Process is not available for (portions of) an order, Redemption Baskets will be delivered outside the Clearing Process. Orders outside the Clearing Process must state that the DTC Participant is not using the Clearing Process and that the redemption will be effected through DTC. The Authorized Participant must transfer or cause to be transferred the Creation Unit(s) of shares being redeemed through the book-entry system of DTC so as to be delivered through DTC to the Custodian by 10:00 a.m., Eastern Time, on received T+1. In addition, the Cash Component must be received by the Custodian by 12:00 p.m., Eastern Time, on T+1. If the Custodian does not receive the Creation Unit(s) and Cash Component by the appointed times on T+1, the redemption will be rejected, except in the circumstances described below. A rejected redemption request may be resubmitted the following Business Day.
Orders involving foreign Redemption Securities are expected to be settled outside the Clearing Process. Thus, upon receipt of an irrevocable redemption request, the Distributor will notify the Sub-Advisor and the Custodian. The Custodian will then provide information of the redemption to the Fund's local sub-custodian(s). The redeeming Authorized Participant, or the investor on whose behalf is acting, will have established appropriate arrangements with a broker-dealer, bank or other custody provider in each jurisdiction in which the Redemption Securities are customarily traded and to which such Redemption Securities (and any cash-in-lieu) can be delivered from the Fund's accounts at the applicable local sub-custodian(s).
Acceptance of Redemption Requests. All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility and acceptance for deposit of any securities to be delivered shall be determined by the Trust. The Trust's determination shall be final and binding.
Delivery of Redemption Basket. Once the Fund has accepted a redemption request, upon next determination of the Fund's NAV, the Fund will confirm the issuance of a Redemption Basket, against receipt of the Creation Unit(s) at such NAV, any cash-in-lieu and Transaction Fee. A Creation Unit tendered for redemption and the payment of the Cash Component, any cash-in-lieu and Transaction Fee will be effected through DTC. The Authorized Participant, or the investor on whose behalf it is acting, will be recorded on the book-entry system of DTC.
The Redemption Basket will generally be delivered to the redeeming Authorized Participant within T+2. Except under the circumstances described below; however, a Redemption Basket generally will not be issued until the Creation Unit(s) are delivered to the Fund, along with the Cash Component, any cash-in-lieu and Transaction Fee.
In certain cases, Authorized Participants will create and redeem Creation Units on the same trade date. In these instances, the Trust reserves the right to settle these transactions on a net basis.
With respect to orders involving foreign Redemption Securities, the Fund may settle Creation Unit transactions on a basis other than T+2 in order to accommodate foreign market holiday schedules, to account for different treatment among foreign and U.S. markets of dividend record dates and ex-dividend dates (that is the last day the holder of a security can sell the security and still receive dividends payable on the security), and in certain other circumstances. When a relevant local market is closed due to local market holidays, the local market settlement process will not commence until the end of the local holiday period.
Statement of additional Information
Market Neutral ETF / 47
Cash Redemption Method. The Fund reserves the right to redeem Creation Units solely in cash if, on a given Business Day, the Fund announces before the open of trading that all redemptions on that day will be made entirely in cash. The Fund may also on a given Business Day, require all Authorized Participants redeeming Creation Units on that day to receive cash in lieu of some or all of the Deposit Securities because such securities are not eligible for transfer either through the NSCC or DTC. The Fund may also permit an Authorized Participant to receive cash in lieu of some or all of the Deposit Securities because: (i) such securities are not available in sufficient quantity, (ii) such securities are not eligible for trading by an Authorized Participant or the investor on whose behalf the Authorized Participant is acting, or (iii) a holder of Shares of the Fund holding non-U.S. investments would be subject to unfavorable income tax treatment if the holder receives redemption proceeds in kind. When cash redemptions of Creation Units are available or specified for the Fund, they will be effected in essentially the same manner as in-kind redemptions. In the case of a cash redemption, the investor will receive the cash equivalent of the Redemption Basket minus any Transaction Fees, as described above.
Statement of additional Information
Market Neutral ETF / 48
Section 7 | | Performance |
From time to time, the "standardized yield," "distribution return," "dividend yield," "average annual total return," "total return," and "total return at NAV" of an investment in each class of the Fund shares may be advertised. An explanation of how yields and total returns are calculated for each class and the components of those calculations are set forth below.
Yield and total return information may be useful to investors in reviewing the Fund's performance. The Fund's advertisement of its performance must, under applicable SEC rules, include the average annual total returns for the Fund for the 1, 5 and 10-year period (or the life of the Fund, if less) as of the most recently ended calendar quarter. This enables an investor to compare the Fund's performance to the performance of other funds for the same periods. However, a number of factors should be considered before using such information as a basis for comparison with other investments. Investments in the Fund are not insured; their yield and total return are not guaranteed and normally will fluctuate on a daily basis. When redeemed or sold, an investor's shares may be worth more or less than their original cost. Yield and total return for any given past period are not a prediction or representation by the Trust of future yields or rates of return on its shares. The yield and total returns of the Fund are affected by portfolio quality, portfolio maturity, the types of investments held and operating expenses.
Dividend Yield and Distribution Returns.
From time to time the Fund may quote a "dividend yield" or a "distribution return". Dividend yield is based on the dividends derived from net investment income during a one- year period. Distribution return includes dividends derived from net investment income and from net realized capital gains declared during a one-year period. The distribution return for a period is not necessarily indicative of the return of an investment since it may include capital gain distributions representing gains not earned during the period. Distributions, since they result in the reduction in the price of Fund shares, do not, by themselves, result in gain to shareholders. The "dividend yield" is calculated as follows:
Dividend
Yield of Fund = Dividends for a Period of One-Year
Max. Offering Price (last day of period)
Total Returns — General. Total returns assume that all dividends and net capital gains distributions during the period are reinvested to buy additional shares at NAV and that the investment is redeemed at the end of the period. After-tax returns reflect the reinvestment of dividends and capital gains distributions less the taxes due on those distributions. After-tax returns are calculated using the highest individual federal marginal income tax rates in effect on the reinvestment date and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown in the Prospectuses.
Total Returns — Before Taxes. The "average annual total return before taxes" of the Fund is an average annual compounded rate of return before taxes for each year in a specified number of years. It is the rate of return based on the change in value of a hypothetical initial investment of $1,000 ("P" in the formula below) held for a number of years ("n") to achieve an Ending Redeemable Value ("ERV"), according to the following formula:
(ERV/P)1/n-1 = Average Annual Total Return Before Taxes
The cumulative "total return before taxes" calculation measures the change in value of a hypothetical investment of $1,000 over an entire period greater than one year. Its calculation uses some of the same factors as average annual total return, but it does not average the rate of return on an annual basis. Total return is determined as follows:
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Market Neutral ETF / 49
ERV
- P = Total Return Before Taxes
P
Total Returns After Taxes on Distributions. The "average annual total return after taxes on distributions" of the Fund is an average annual compounded rate of return after taxes on distributions for each year in a specified number of years. It is the rate of return based on the change in value of a hypothetical initial investment of $1,000 ("P" in the formula below) held for a number of years ("n") to achieve an ending value at the end of the periods shown ("ATVD"), according to the following formula:
(ATVD/P)1/n-1 = Average Annual Total Return After Taxes on Distributions
Total Returns After Taxes on Distributions and Redemptions. The "average annual total return after taxes on distributions and redemptions" of the Fund is an average annual compounded rate of return after taxes on distributions and redemption for each year in a specified number of years. It is the rate of return based on the change in value of a hypothetical initial investment of $1,000 ("P" in the formula below) held for a number of years ("n") to achieve an ending value at the end of the periods shown ("ATVDR"), according to the following formula:
(ATVDR/P)1/n-1 = Average Annual Total Return After Taxes on Distributions and Redemptions
The cumulative "total return after taxes on distributions and redemptions" calculation measures the change in value of a hypothetical investment of $1,000 over an entire period greater than one year. Its calculation uses some of the same factors as average annual total return after taxes on distributions and redemptions, but it does not average the rate of return on an annual basis. Total return after taxes on distributions is determined as follows:
ATVDR
- P = Total Return After Taxes on Distributions and Redemptions
P
From time to time the Fund also may quote an "average annual total return at NAV" or a cumulative "total return at NAV." It is based on the difference in NAV at the beginning and the end of the period for a hypothetical investment in the Fund and takes into consideration the reinvestment of dividends and capital gains distributions.
Other Performance Comparisons
From time to time the Fund may publish the ranking of its performance by Lipper, Inc. ("Lipper"), a widely- recognized independent mutual fund monitoring service. Lipper monitors the performance of regulated investment companies and ranks the performance of the Funds against all other funds in similar categories, for both equity and fixed income funds. The Lipper performance rankings are based on total return that includes the reinvestment of capital gains distributions and income dividends but does not take sales charges or taxes into consideration.
From time to time the Fund may publish its rating by Morningstar, Inc., an independent mutual fund monitoring service that rates mutual funds, in broad investment categories (domestic equity, international equity, taxable bond, or municipal bond) monthly, based upon the Fund's three, five and ten-year average annual total returns (when available) and a risk adjustment factor that reflects Fund performance relative to three-month U.S. Treasury bill monthly returns. Such returns are adjusted for fees and sales loads. There are five rating categories with a corresponding number of stars: highest (5), above average (4), neutral (3), below average (2) and lowest (1).
The total return on an investment made in the Fund may be compared with the performance for the same period of one or more broad-based securities market indices, as described in the Prospectuses. These indices are unmanaged indices of securities that do not reflect reinvestment of capital gains or take investment costs into consideration, as these items are not applicable to indices. The Fund's total returns also may be compared with the Consumer Price Index, a measure of change in consumer prices, as determined by the U.S. Bureau of Labor Statistics.
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Market Neutral ETF / 50
From time to time, the yields and the total returns of the Fund may be quoted in and compared to other mutual funds with similar investment objectives in advertisements, shareholder reports or other communications to shareholders. The Fund also may include calculations in such communications that describe hypothetical investment results. (Such performance examples are based on an express set of assumptions and are not indicative of the performance of any Fund.) Such calculations may from time to time include discussions or illustrations of the effects of compounding in advertisements. "Compounding" refers to the fact that, if dividends or other distributions on the Fund's investment are reinvested by being paid in additional Fund shares, any future income or capital appreciation of the Fund would increase the value, not only of the original Fund investment, but also of the additional Fund shares received through reinvestment. As a result, the value of the Fund investment would increase more quickly than if dividends or other distributions had been paid in cash.
The Fund also may include discussions or illustrations of the potential investment goals of a prospective investor (including but not limited to tax and/or retirement planning), investment management techniques, policies or investment suitability of the Fund, economic conditions, legislative developments (including pending legislation), the effects of inflation and historical performance of various asset classes, including but not limited to stocks, bonds and Treasury bills.
From time to time advertisements or communications to shareholders may summarize the substance of information contained in shareholder reports (including the investment composition of the Fund, as well as the views of the Advisor as to current market, economic, trade and interest rate trends, legislative, regulatory and monetary developments, investment strategies and related matters believed to be of relevance to the Fund). The Fund also may include in advertisements, charts, graphs or drawings that illustrate the potential risks and rewards of investment in various investment vehicles, including but not limited to stock, bonds and Treasury bills, as compared to an investment in shares of the Fund, as well as charts or graphs that illustrate strategies such as dollar cost averaging and comparisons of hypothetical yields of investment in tax-exempt versus taxable investments. In addition, advertisements or shareholder communications may include a discussion of certain attributes or benefits to be derived by an investment in the Fund. Such advertisements or communications may include symbols, headlines or other material that highlight or summarize the information discussed in more detail therein. With proper authorization, the Fund may reprint articles (or excerpts) written regarding the Fund and provide them to prospective shareholders. The Fund's performance information is generally available by calling toll free 800-846-7526.
Investors also may judge, and the Fund may at times advertise, the performance of the Fund by comparing it to the performance of other mutual funds or mutual fund portfolios with comparable investment objectives and policies, which performance may be contained in various unmanaged mutual fund or market indices or rankings. In addition to yield information, general information about the Fund that appears in a publication may also be quoted or reproduced in advertisements or in reports to shareholders.
Advertisements and sales literature may include discussions of specifics of a portfolio manager's investment strategy and process, including, but not limited to, descriptions of security selection and analysis. Advertisements may also include descriptive information about the investment advisor, including, but not limited to, its status within the industry, other services and products it makes available, total assets under management and its investment philosophy.
When comparing yield, total return and investment risk of an investment in shares of the Fund with other investments, investors should understand that certain other investments have different risk characteristics than an investment in shares of the Fund. For example, CDs may have fixed rates of return and may be insured as to principal and interest by the FDIC, while the Fund's returns will fluctuate, and its share values and returns are not guaranteed. Money market accounts offered by banks also may be insured by the FDIC and may offer stability of principal. U.S. Treasury securities are guaranteed as to principal and interest by the full faith and credit of the U.S. government.
Statement of additional Information
Market Neutral ETF / 51
Section 8 | | Management of the Trust |
Board Leadership Structure
The Trust is governed by a Board of Trustees consisting of twelve Trustees, nine (9) of whom are not "interested persons" of the Trust within the meaning of that term under the 1940 Act (the "Independent Trustees"). The Chair of the Board is an Interested Trustee, who functions as the lead Trustee. Mr. Alan Ross, an "Independent Trustee", serves as Vice Chairman of the Board. The Chair serves as liaison between the Board and its Committees, and the Advisor and other service providers. The Chair is actively involved in setting the Board meeting agenda and participates on certain of the Board's Committees.
Board Role in Risk Oversight
In considering risks related to the Fund, the Board consults and receives reports from officers of the Fund and personnel of the Advisor, who are charged with the day-to-day risk oversight function. Matters regularly reported to the Board include certain risks involving the Fund's investment portfolio, trading practices, operational matters, financial and accounting controls, and legal and regulatory compliance. The Board regularly reviews reports relating to compliance and enterprise risk, including operational risk and personnel, reports related to the Trust's compliance program and the Chief Compliance Officer, and investment risks, that is, risks to the Fund resulting from pursuing the Fund's investment strategies (e.g., credit risk, liquidity risk and market risk).
Trustees and Officers
The following tables list the Trustees and Officers, their ages, position with the Trust, length of time served, principal occupations during the past five years and, where applicable, any directorships of other investment companies or companies whose securities are registered under the Securities Exchange Act of 1934, as amended, or who file reports under that Act. Each Trustee oversees 18 portfolios in the Trust. There is no defined term of office and each Trustee serves until the earlier of his or her resignation, retirement, removal, death, or the election of a qualified successor. Each Trustee's and Officer's address is c/o Timothy Partners, Ltd, 1055 Maitland Center Commons, Maitland, FL 32751
Trustee Qualifications
The following summarizes the experience and qualifications of the Trustees.
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Interested Trustees
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
Arthur D. Ally1 1055 Maitland Center Commons Maitland, FL 32751 Born: 1942 |
Trustee, Chairman, President, and Treasurer | Indefinite; Trustee and President since 1994 | 20 | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
President and controlling shareholder of Covenant Funds, Inc. (“CFI”), a holding company. President and general partner of Timothy Partners, Ltd. (“TPL”), the investment Advisor and principal underwriter to each Fund. CFI is also the managing general partner of TPL. | None | |||
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
Mathew D. Staver2 1055 Maitland Center Commons Maitland, FL 32751 Born: 1956 |
Trustee | Indefinite; Trustee since 2000 | 20 | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
An attorney specializing in free speech, appellate practice and religious liberty constitutional law. Founder of Liberty Counsel, a religious civil liberties education and legal defense organization. Host of two radio programs devoted to religious freedom issues. Editor of a monthly newsletter devoted to religious liberty topics. Mr. Staver has argued before the United States Supreme Court and has published numerous legal articles. | None | |||
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Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
Patrice Tsague3 1055 Maitland Center Commons Maitland, FL 32751 Born: 1973 |
Trustee | Indefinite; Trustee since 2011 | 20 | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
President and Chief Servant Officer of the Nehemiah Project International Ministries Inc. since 1999. | None | |||
1. | Mr. Ally is an “interested” Trustee, as defined in the 1940 Act, because of his positions with and financial interests in CFI and TPL. |
2. | Mr. Staver is an “interested” Trustee, as defined in the 1940 Act, because he has a limited partnership interest in TPL. |
3. | Mr. Tsague is an “interested” Trustee, as defined in the 1940 Act, because of a charitable relationship with TPL. |
Independent Trustees
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
Dale A. Bissonette 1055 Maitland Center Commons Maitland, FL 32751 Born: 1958 |
Trustee | Indefinite; Trustee since 2020 | 20 | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
President, Good Place Holdings, a Christian Centered Business Holding Company. | None | |||
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
Kenneth Blackwell 1055 Maitland Center Commons Maitland, FL 32751 Born: 1948 |
Trustee | Indefinite; Trustee from 2011 to 2020 and 2022 to present | 20 | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
Self-Employed Independent Public Policy Consultant; Other Directorships: Public Interest Legal Foundation; National Rifle Association; Columbia International University; International Foundation For Electoral Systems; Law Enforcement Legal Defense Fund; American Constitution Rights Union. | None | |||
Statement of additional Information
Market Neutral ETF / 54
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
Richard W. Copeland 1055 Maitland Center Commons Maitland, FL 32751 Born: 1947 |
Trustee | Indefinite; Trustee since 2005 | 20 | |
Principal
occupation during THE past Five years |
directorships held by trustee | |||
Retired. Associate Professor of Law Stetson University. Retired Principal of Copeland & Covert, Attorneys at Law, specializing in tax and estate planning. B.A. from Mississippi College, JD from the University of Florida and LLM Taxation from the University of Miami. | None | |||
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
Deborah Honeycutt 1055 Maitland Center Commons Maitland, FL 32751 Born: 1947 |
Trustee | Indefinite; Trustee since 2010 | 20 | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
Dr. Honeycutt is a licensed physician currently serving as Medical Director of Clayton State University Health Services in Morrow, GA, CEO of Minority Health Services in Atlanta, and as a volunteer at Good Shepherd Clinic. Dr. Honeycutt received her B.A. and M.D. at the University of Illinois. | None | |||
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
Bill Johnson 1055 Maitland Center Commons Maitland, FL 32751 Born: 1946 |
Trustee | Indefinite; Trustee since 2005 | 20 | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
President (and Founder) of the American Decency Association, Freemont, MI, since 1999. Previously served as Michigan State Director for American Family Association (1987-1999). Previously a public school teacher for 18 years. B.S. from Michigan State University and a Master of Religious Education from Grand Rapids Baptist Seminary. | None | |||
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Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
John C. Mulder 1055 Maitland Center Commons Maitland, FL 32751 Born: 1950 |
Trustee | Indefinite; Trustee since 2005 | 20 | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
President of WaterStone (FKA the Christian Community Foundation and National Foundation) since 2001. Prior: 22 years of executive experience for a group of banks and a trust company. B.A. in Economics from Wheaton College and MBA from the University of Chicago. | None | |||
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
Scott Preissler, Ph.D. 1055 Maitland Center Commons Maitland, FL 32751 Born: 1960 |
Trustee | Indefinite; Trustee since 2004 | 20 | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
Scott Preissler, Ph.D., is the Executive Director of Friendship Christian School in Suwanee, Georgia and The National Center for Stewardship & Generosity. He is a former professor and past President and CEO of The Christian Stewardship Association (CSA) and Southern Baptist state headquarters in Texas and Georgia. | None | |||
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
Abraham M. Rivera 1055 Maitland Center Commons Maitland, FL 32751 Born: 1969 |
Trustee | Indefinite; Trustee since 2020 | 20 | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
Pastor / President / Director, for La Puerta Life Center, Inc., a Florida corporation. | 1 | |||
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Market Neutral ETF / 56
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
Alan M. Ross 1055 Maitland Center Commons Maitland, FL 32751 Born: 1951 |
Trustee, Vice Chairman | Indefinite; Trustee since 2004 | 20 | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
Founder and CEO Kingdom Companies founded in 2000. Previously he served as President and CEO of Fellowship of Companies for Christ. Alan is currently the President of the Electric Power Reliability Alliance (EPRA), a nonprofit serving industrial, commercial and grid-edge electrical reliability practitioners. | None | |||
PRINCIPAL EXECUTIVE OFFICERS
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
Terry Covert 1055 Maitland Center Commons Maitland, FL 32751 Born: 1947 |
Executive Officer, Vice President | Officer since 2019 Indefinite Term | N/A | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
Chief Compliance Officer and General Counsel for the Advisor, Timothy Partners, Ltd; Partner, Copeland Covert & Smith PLLC, law firm. | N/A | |||
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
Cheryl Mumbert 1055 Maitland Center Commons Maitland, FL 32751 Born: 1970 |
Executive Officer, Vice President | Officer since 2019 Indefinite Term | N/A | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
Chief Marketing Officer for Advisor, Timothy Partners, Ltd. | N/A | |||
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Market Neutral ETF / 57
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
David D. Jones 1055 Maitland Center Commons Maitland, FL 32751 Born: 1957 |
Chief Compliance Officer | Since 2004, Indefinite Term | N/A | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
Co-founder and Managing Member, Drake Compliance, LLC (compliance consulting); founder and controlling shareholder, David Jones & Associates (law firm), 1998 to 2015. | N/A | |||
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
David James 225 Pictoria Drive Cincinnati, Ohio 45246 Born: 1970 |
Assistant Secretary | Assistant Secretary since 2022, Indefinite Term | N/A | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
As Executive Vice President, Chief Legal and Risk Officer at Ultimus Fund Solutions, since 2018; Department Head of State Street Bank and Trust Company’s Fund Administration Legal Department -2003-2018. | N/A | |||
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
Deryk Jones 4221 North 203rd St. Suite 100 Elkhorn, NE 68022 Born: 1988 |
AML Officer | AML Officer since 2022, Indefinite Term | N/A | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
Compliance Analyst since March 2018 | N/A | |||
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Market Neutral ETF / 58
Name, age & Address | Position(s)
Held with Trust |
Term
of Office & Length of Time Served |
Number
of portfolios in fund complex overseen by Trustee | |
Joseph E. Boatwright 1055 Maitland Center Commons Maitland, FL 32751 Born: 1930 |
Trustee Emeritus and Secretary | Indefinite; Trustee and Secretary since 1995, Trustee Emeritus as of 2020 | N/A | |
Principal
occupation during THE past Five years |
directorships
held by trustee | |||
Retired Minister. Currently serves as a consultant to the Greater Orlando Baptist Association. Served as Senior Pastor to Aloma Baptist Church from 1970-1996. | N/A | |||
ADDITIONAL INFORMATION ABOUT THE TRUSTEES
Each Trustee's experience, qualifications, attributes, or skills, both on an individual and combined basis with those of the other Trustees, lead the Board of Trustees to conclude that they are qualified to serve on the Board. The Board of Trustees believes that the Trustees' ability to review critically, evaluate, question and discuss information provided to them; to interact effectively with the Advisor, other service providers, legal counsel and independent public accountants; and to exercise effective business judgment in the performance of their duties as Trustees, support this conclusion. The Board of Trustees also considers the contributions each Trustee can make to the Board and the Trust a valuable asset.
As described in the table above, the Independent Trustees have served as such for a considerable period of time, which has provided them with knowledge of the business and operation of the Funds and the Trust. In addition, the following specific experience, qualifications, attributes and/or skills apply to each Trustee:
Arthur Ally served as a financial professional for nearly twenty years before establishing TPL, the advisor and distributor of the Timothy Plan Funds. Mr. Ally has a degree in accounting and economics and has earned numerous professional designations.
Mat Staver served as Dean of Liberty University School of Law and is the founder and chairperson of Liberty Counsel. Mr. Staver has argued before the United States Supreme Court and brings his extensive legal background to the Board.
Richard Copeland is a retired Associate Professor from Stetson University School of Business Administration. Retired Principal of Copeland & Covert, Attorneys at Law specializing in tax and estate planning. B.A. from Mississippi College, JD from the University of Florida, and LLM Taxation from the University of Miami.
Deborah Honeycutt is a physician practicing in the Atlanta, GA, area. Dr. Honeycutt has experience in managing and directing health clinics and as a family medical practitioner and brings extensive business experience, as well as experience in the health care sector, to the Board.
Bill Johnson has served in ministry by being on the front lines in the fight against pornography. Mr. Johnson brings a keen knowledge of the various forms of pornography and hands-on experience running a non-profit organization.
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John Mulder is the executive director of Waterstone, a charitable remainder trust custodian that serves persons across the United States. Mr. Mulder brings proficiency in taxation and the skills he has acquired in managing a national organization.
Scott Preissler, Ph.D., is the Executive Director of Friendship Christian School in Suwanee, Georgia. Dr. Preissler was a primary founder and 1st Executive Director of The National Center for Stewardship & Generosity. He was formerly a graduate school-chaired professor and past President and CEO of The Christian Stewardship Association (CSA). He served in steward leadership roles at the Southern Baptist state headquarters in Texas and Georgia. Dr. Preissler brings extensive organizational and nonprofit executive leadership/management experience to the Board.
Alan Ross is an entrepreneur specializing in corporate turn-around ventures and currently serves as the president of the Electric Power Reliability Alliance (EPRA). Mr. Ross offers the Board the wealth of knowledge he has gained in his experiences as a manager/owner of numerous companies.
Patrice Tsague brings a unique combined perspective from his career that includes counseling for international entrepreneurship and developing organizational techniques and avenues for businesses.
Pastor Abraham M. Rivera is the recipient of various honors and awards for his work in the community, including the United States Congressional Award for Hispanic Leadership. He is currently on the teaching staff of St. Thomas University. Mr. Rivera is the Pastor / President / Director for the La Puerta Life Center, Inc. in Florida.
Dale A. Bissonette is the President of Good Place Holdings, a Christian Centered Business holding Company. Mr. Bissonette adds diverse business skills and experience to the Board.
Kenneth Blackwell brings his vast experience and unique perspective gained as the former mayor of Cincinnati, Ohio, and also served as former Secretary of State for Ohio. Mr. Blackwell was an overseas ambassador, author, and celebrated business entrepreneur.
References to the experience, qualifications, attributes, or skills of the Trustees are pursuant to the requirements of the Securities and Exchange Commission. They do not indicate that the Board or any Trustee has special expertise or experience, and shall not impose any greater responsibility or liability on such Trustee or the Board by reason thereof.
BOARD STRUCTURE
The Board is responsible for overseeing the management and operations of the Trust and the Funds. The Board currently consists of eight Independent Trustees and three Trustees who are interested persons of the Trust. Arthur D. Ally, who is an interested person of the Trust, serves as Chair of the Board, Mr. Alan Ross serves as Vice-Chair of the Board, and the Lead Independent Trustee. Mr. Ross works with Mr. Ally to set the agendas for the Board and Committee meetings and chair meetings of the Independent Trustees. Generally, M. Ross serves as a liaison between the Independent Trustees and the Trust's management between Board meetings.
The Board has two standing committees: the Audit Committee and the Pricing Committee. Independent Trustees chair both committees and consist of Messrs. Bissonette, Ross, Mulder, Preissler, and Copeland, with Mr. Bissonette as chair. The members of the Committees are not "interested" persons of the Trust (as defined in the 1940 Act). The primary responsibilities of the Trust's Audit Committee are, as set forth in its charter, to make recommendations to the Board as to the engagement or discharge of the Trust's independent auditors (including the audit fees charged by auditors); the supervision of investigations into matters relating to audit matters; the review with the independent auditors of the results of audits; and addressing any other matters regarding audits. The Audit Committee met two times during the last fiscal year. The Pricing Committee was established in November 2013. The Committee will be called upon in the event a security requires a fair pricing analysis to establish the applicable Fund's net asset value ("NAV").
Statement of additional Information
Market Neutral ETF / 60
The Board holds four regular meetings annually to consider and act upon matters involving the Trust and the Funds. The Board also may hold special meetings to address matters arising between regular meetings. Beginning in March 2020, the Trustees may conduct quarterly meetings telephonically in accordance with relief granted by the U.S. Securities and Exchange Commission (the "SEC") to ease certain governance obligations in light of current travel concerns related to the COVID-19 pandemic. The Trustees acknowledge that all actions that require a vote of the Trustees at an in-person meeting would be ratified, as required by the SEC's relief, at a later in-person meeting. The Independent Trustees also regularly meet outside the presence of management and are advised by legal counsel. These meetings may take place in person or by telephone. Through the Audit Committee, the Independent Trustees consider and address important matters involving the Funds, including those presenting conflicts or potential conflicts of interest for Trust management. The Board has determined that its committee structure helps ensure that the Funds have effective and independent governance and oversight. Given the Advisor's sponsorship of the Trust, that investors have selected the Advisor to provide overall management to the Funds, and Mr. Ally's senior leadership role within the Advisor, the Board elected him Chairman. The Board reviews its structure regularly and believes that its leadership structure, including having at least two thirds Independent Trustees, coupled with the responsibilities undertaken by Mr. Ally as Chair, Mr. Ross as Vice-Chair and Lead Independent Trustee, is appropriate and in the best interests of the Trust, given its specific characteristics. The Board also believes its leadership structure facilitates the orderly and efficient flow of information to the Independent Trustees from Fund management.
BOARD OVERSIGHT OF RISK
An integral part of the Board's overall responsibility for overseeing the management and operations of the Trust is the Board's oversight of the risk management of the Trust's investment programs and business affairs. The Funds are subject to several risks, such as investment, credit, valuation, operational, legal, compliance, and regulatory risks. The Trust, the Advisor and the other service providers have implemented various processes, procedures and controls to identify risks to the Funds, to lessen the probability of their occurrence and to mitigate any adverse effect should they occur. Different processes, procedures, and controls are employed with respect to different types of risks. These systems include those embedded in the conduct of the regular operations of the Board and in the regular responsibilities of the officers of the Trust and the other service providers.
The Board exercises oversight of the risk management process through the Board itself and through the Audit Committee. In addition to adopting, and periodically reviewing, policies and procedures designed to address risks to the Funds, the Board requires management of the Advisor and the Trust, including the Trust's Chief Compliance Officer ("CCO"), to report to the Board and the Audit Committee on a variety of matters, including matters relating to risk management, at regular and special meetings. The Board and the Audit Committee receive regular reports from the Trust's independent public accountants on internal control and financial reporting matters. On at least an annual basis, the Independent Trustees meet separately with the Funds' CCO outside the presence of management to discuss issues related to compliance. Furthermore, the Board receives a quarterly report from the Funds' CCO regarding the operation of the compliance policies and procedures of the Trust and its primary service providers. The Board also receives quarterly reports from the Advisor on the investments and securities trading of the Funds, including their investment performance, as well as reports regarding the valuation of the Funds' securities. In addition, in its annual review of the Funds' advisory agreements, the Board reviews information provided by the Advisor relating to its operational capabilities, financial condition, and resources. The Board also conducts an annual self-evaluation that includes a review of its effectiveness in overseeing the number of Funds in the Trust and the effectiveness of its committee structure.
The Board recognizes that it is impossible to identify all risks that may affect a Fund or to develop processes, procedures, and controls to eliminate or mitigate every occurrence or effect. The Board may, at any time and at its discretion, change how it conducts its risk oversight role.
Statement of additional Information
Market Neutral ETF / 61
Trustee Ownership
Name of Director(1) | Fund | Dollar
Range of Equity Securities each Fund |
Aggregate
Dollar Range of Equity Securities in all Funds Overseen by a Director in the Timothy Plan Family of Funds |
Interested Trustees | |||
Arthur D. Ally | Small Cap Value | $1 - $10,000 | |
Large/Mid Cap Value | $1 - $10,000 | ||
Aggressive Growth | $1 - $10,000 | ||
Large/Mid Growth | $1 - $10,000 | ||
International | $1 - $10,000 | ||
Defensive Strategies | $1 - $10,000 | ||
Israel Common Values | $1 - $10,000 | ||
Growth and Income | $1 - $10,000 | ||
$10,001 - $50,000 | |||
Mathew D. Staver | Small Cap Value | $10,001 - $50,000 | |
Large Mid/Cap Value | $10,001 - $50,000 | ||
Aggressive Growth | $10,001 - $50,000 | ||
Large Mid/Growth | $10,001 -$50,000 | ||
Fixed Income | $10,001 - $50,000 | ||
Defensive Strategies | $10,001 - $50,000 | ||
Israel Common Values | $1 - $10,000 | ||
High Yield Bond | $10,001 - $50,000 | ||
International | $10,001 - $50,000 | ||
$100,001 - $500,000 | |||
Patrice Tsague | Strategic Growth | $10,001 - $50,000 | |
International | $10,001 - $50,000 | ||
Large Mid Cap Value | $1 - $10,000 | ||
$10,001 - $50,000 | |||
Independent Trustees | |||
Dale A. Bissonette | None | ||
Kenneth Blackwell | None | ||
Richard W. Copeland | Large Mid/Growth | $100,001 - $500,000 | |
Large/Mid Cap Value | $100,001 - $500,000 | ||
$500,001 - $1,000,000 |
Statement of additional Information
Market Neutral ETF / 62
Name of Director(1) | Fund | Dollar
Range of Equity Securities each Fund |
Aggregate
Dollar Range of Equity Securities in all Funds Overseen by a Director in the Timothy Plan Family of Funds |
Deborah T. Honeycutt | None | ||
Bill Johnson | None | ||
John C. Mulder | Defensive Strategies | $50,001 - $100,000 | |
International | $50,001 - $100,000 | ||
Large/Mid Cap Value | $50,001 - $100,000 | ||
$100,001 - $500,000 | |||
Scott Preissler, Ph.D. | None | ||
Abraham M. Rivera | None | ||
Alan M. Ross | Conservative Growth | $10,001 - $50,000 | |
Growth & Income | $10,001 - $50,000 | ||
Defensive Strategies | $10,001 - $50,000 | ||
Small Cap | $10,001 - $50,000 | ||
Large/Mid Cap Value | $10,001 - $50,000 | ||
Large/Mid Growth | $10,001 - $50,000 | ||
$50,001 - $100,000 |
(1) | Trustees, for their services to the Funds, may purchase Class A shares at NAV; commissions normally charged on A share purchases are waived. |
Compensation
Compensation was paid by the Trust to the Trustees during the past fiscal year ended September 30, 2022, as set forth in the table below:
Name of Person, Position | Aggregate Compensation from Funds |
Pension or Retirement Benefits Accrued As Part of Funds Expenses |
Estimated Annual Benefits Upon Retirement |
Total Compensation From Fund and Fund Complex Paid to Directors |
Interested Trustees | ||||
Arthur D. Ally, Chairman | $0 | $0 | $0 | $0 |
Statement of additional Information
Market Neutral ETF / 63
Name of Person, Position | Aggregate Compensation from Funds |
Pension or Retirement Benefits Accrued As Part of Funds Expenses |
Estimated Annual Benefits Upon Retirement |
Total Compensation From Fund and Fund Complex Paid to Directors |
Mathew D. Staver | $0 | $0 | $0 | $0 |
Patrice Tsague(1) | $1,250 | $0 | $0 | $1,250 |
Independent Trustees | ||||
Dale A. Bissonette | $5,000 | $0 | $0 | $5,000 |
Kenneth Blackwell | $1,250 | $0 | $0 | $1,250 |
Richard W. Copeland | $5,000 | $0 | $0 | $5,000 |
Deborah Honeycutt | $3,750 | $0 | $0 | $3,750 |
William Johnson | $3,750 | $0 | $0 | $3,750 |
John C. Mulder | $5,000 | $0 | $0 | $5,000 |
Scott Preissler, Ph.D. | $5,000 | $0 | $0 | $5,000 |
Abraham M. Rivera | $5,000 | $0 | $0 | $5,000 |
Alan M. Ross | $5,000 | $0 | $0 | $5,000 |
(1) | Patrice Tsague became an interested Trustee on February 18,2022. |
Code of ethics
The Trust, the Advisor, the investment managers and the Funds' underwriter have each adopted a Code of Ethics under Rule 17j-1 of the Investment Company Act of 1940. The personnel subject to the Code are permitted to invest in securities; however, the Advisor's and underwriter's employees are prohibited from purchasing securities that are held by the Funds. You may obtain a copy of the Code of Ethics from the Securities and Exchange Commission. Pursuant to Section 406 of the Sarbanes-Oxley Act of 2002, the Trustees amended the Codes of Ethics to accommodate the requirements of Section 406. The amended Codes of Ethics adopted by the Trust, TPL, and each Sub-Advisor, have each been reviewed and ratified by the Board.
Proxy Voting Policies
The Board of the Trust has approved proxy voting procedures for the Trust. These procedures set forth guidelines and procedures for the voting of proxies relating to securities held by the Funds. Records of the Funds' proxy voting records are maintained and are available for inspection. The Board is responsible for overseeing the implementation of the procedures. Copies of the proxy voting procedures have been filed with the Securities and Exchange Commission, which may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. The procedures are also available on the SEC's EDGAR database at the SEC's web site (www.sec.gov). Copies of the procedures can be obtained, after paying a duplicating fee, by electronic request (publicinvest@sec.gov) or by writing the SEC's Public Reference Section, Washington, DC 20549-0102. A copy will also be sent to you, free of charge, at your request by writing to the Trust at Gemini Fund Services, LLC, 4221 N. 203rd St, Suite 100, Elkhorn, NE 68022, or calling toll free at 800-662-0201. A summary of the Trust's Proxy Voting Procedures is also attached to this SAI as Appendix A.
Statement of additional Information
Market Neutral ETF / 64
Section 9 | | Investment Advisor |
and Other Service Providers |
Investment Advisor
The Trust has entered into a written investment advisory agreement with Timothy Partners, Ltd. ("TPL" or the "Advisor"), for the provision of investment advisory services to the Fund (the "Advisory Agreement"), subject to the supervision and direction of the Trust's Board of Trustees. The Advisory Agreement was last approved by the Trustees, including a majority of the Trustees who are not interested persons of the Trust or any person who is a party to the Agreement, at an in-person meeting held on November 18, 2022.
TPL has arranged for distribution, custody, fund administration, transfer agency and all other services necessary for the Funds to operate. The Advisor receives a fee for its services, (the "Management Fee"). From the Management Fee, the Advisor is obligated to pay or arrange for the payment of substantially all expenses of the Funds, including the cost of transfer agency, custody, fund administration and accounting, legal, audit, independent trustees and other services, except for interest expenses, distribution fees or expenses, brokerage expenses, acquired fund fees and expenses, taxes and extraordinary expenses such as litigation and other expenses not incurred in the ordinary course of the Fund's business.
The Advisor's Management Fee is designed to cause substantially all of the Fund's expenses to be paid and to compensate the Advisor for providing services for the Fund.
The Advisory Agreement may be renewed after its initial two year term only so long as such renewal and continuance are specifically approved at least annually by the Board of Trustees or by vote of a majority of the outstanding voting securities of the applicable Fund, and only if the terms of the renewal thereof have been approved by the vote of a majority of the Trustees of the Trust who are not parties thereto or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Advisory Agreement will terminate automatically in the event of its assignment.
More complete factors considered by the Trust's Board of Trustees in renewing the investment advisory agreement will be available in the Trust's annual report dated December 31, 2022.
The following schedule lists the Management Fee the Fund pays to the Advisor, as an annual percentage of its average daily net assets.
FUND | MANAGEMENT FEE |
Timothy Plan Market Neutral ETF | 0.65% |
The Sub-Advisory Agreement
The Sub-Advisor, Victory Capital Management, Inc., serves as the Fund's investment sub-advisor pursuant to a written sub-advisory agreement. The Sub-Advisory Agreement was last approved by the Trustees, including a majority of the Trustees who are not interested persons of the Trust or any person who is a party to the Agreement, at an in-person meeting held on November 18, 2022 (the "Sub-Advisory Agreement"). Unless sooner terminated, the Sub-Advisory Agreement between the Sub-Advisor and the Advisor, on behalf of the Fund, provides that it will continue in effect as to the Fund for two years and for consecutive one- year terms thereafter, provided that such renewal is approved at least annually by the Trustees or by vote of the majority of the outstanding shares of the Fund and, in either case, by a majority of the Trustees who are not parties to the Sub-Advisory Agreement or "interested persons" (as defined in the 1940 Act) of any party to the Sub-Advisory Agreement, by votes cast in person at a meeting called for such purpose. The Sub-Advisory Agreement is terminable as to the Fund at any time on 60 days written notice without penalty by a vote of the majority of the outstanding shares of the Fund, by vote of the Trustees, or by the Advisor. The Sub-Advisory Agreement also terminates automatically in the event of any assignment, as defined by the 1940 Act.
Statement of additional Information
Market Neutral ETF / 65
More complete factors considered by the Trust's Board of Trustees in renewing the investment sub-advisory agreement will be available in the Trust's annual report dated December 31, 2022.
Portfolio Managers
This section includes information about the Fund's portfolio managers, including information concerning other accounts they manage, the dollar range of Fund shares they own and how they are compensated.
Other Accounts
The following table lists the number and types of accounts managed by each individual and assets under management in those accounts as of September 30, 2022.
Registered Investment Company Accounts | Pooled Investment Vehicle | ||||||
Accounts | Other Accounts | ||||||
Assets Managed (in millions) |
No. of Accts | Assets Managed (in millions) |
No. of Accts | Assets Managed (in millions) | No. of Accounts | Total Assets Managed (in millions) | |
Free Foutz | $555.70 | 6 | $0 | 0 | $0 | 0 | $555.70 |
Mannik Dhillon All Accounts |
$60,279.89 | 60 | $63.68 | 4 | $144.13 | 3 | $60,487.70 |
Accts w/ performance fees | $23,633.26 | 15 | $0 | 0 | $0 | 0 | $23,633.26 |
Scott Kefer | |||||||
Lance Humphrey |
Fund Ownership
As of December 31, 2022 the portfolio managers of the Funds do not own any securities of the Funds.
The Sub-Advisor has designed the structure of its portfolio managers' compensation to (1) align portfolio managers' interests with those of the Sub-Advisor's clients with an emphasis on long-term, risk-adjusted investment performance, (2) help the Sub-Advisor attract and retain high-quality investment professionals, and (3) contribute to the Sub-Advisor's overall financial success. Each of the portfolio managers receives a base salary plus an annual incentive bonus for managing the Fund, separate accounts, other investment companies, other pooled investment vehicles and other accounts (including any accounts for which the Advisor receives a performance fee) (together, "Accounts"). A portfolio manager's base salary is dependent on the manager's level of experience and expertise. The Sub-Advisor monitors each manager's base salary relative to salaries paid for similar positions with peer firms by reviewing data provided by various independent third-party consultants that specialize in competitive salary information. Such data, however, is not considered to be a definitive benchmark.
Statement of additional Information
Market Neutral ETF / 66
The Sub-Advisor's portfolio managers may participate in the equity ownership plan of the Sub-Advisor's parent company. There is an ongoing annual equity pool granted to certain employees based on their contribution to the firm.
Eligibility for participation in these incentive programs depends on the manager's performance and seniority.
Conflicts of Interest
The Sub-Advisor's portfolio managers are often responsible for managing one or more Funds as well as other accounts, such as separate accounts, and other pooled investment vehicles, such as collective trust funds or unregistered hedge funds. A portfolio manager may manage other accounts which have materially higher fee arrangements than the Fund and may, in the future, manage other accounts which have a performance-based fee. A portfolio manager also may make personal investments in accounts they manage or support. The side-by-side management of the Funds along with other accounts may raise potential conflicts of interest by incenting a portfolio manager to direct a disproportionate amount of: (1) their attention; (2) limited investment opportunities, such as less liquid securities or initial public offering; and/or (3) desirable trade allocations, to such other accounts. In addition, certain trading practices, such as cross-trading between Funds or between the Fund and another account, raise conflict of interest issues. The Sub-Advisor has adopted numerous compliance policies and procedures, including a Code of Ethics, brokerage and trade allocation policies and procedures, which seek to address the conflicts associated with managing multiple accounts for multiple clients. In addition, the Sub-Advisor has a designated Chief Compliance Officer (selected in accordance with the federal securities laws) and compliance staff whose activities are focused on monitoring the activities of Sub-Advisor employees in order to detect and address potential and actual conflicts of interest. However, there can be no assurance that the Sub-Advisor's compliance program will achieve its intended result.
Compliance Services
The Trust has entered into an Agreement with Drake Compliance LLC, pursuant to which Drake furnishes compliance oversight services to the Trust related to the design, administration and oversight of a compliance program for the Trust in accordance with Rule 38a-1 under the Investment Company Act of 1940, as amended. The open-end traditional Funds in the Trust, in the aggregate, compensate Drake for these services on a pro rata basis. With respect to the ETF's in the Trust, the Advisor pays their proportionate share of Drake's compensation.
ADMINISTRATOR, FUND ACCOUNTANT AND TRANSFER AGENT
Citi Fund Services Ohio, Inc. ("CFSO") serves as administrator and fund accountant to the Fund, and Citibank, N.A. ("Citibank") serves as transfer agent to the Funds, pursuant to a written Agreement dated November 30, 2018, by and between TPL, CFSO and Citibank (the "Services Agreement"). CFSO and Citibank assist in supervising all operations of the Funds (other than those performed by TPL and/or Victory Capital either as investment advisor or sub-advisor), subject to the supervision of the Board.
Under the Services Agreement, for the services that Citi renders to the Fund, TPL pays Citi an annual fee, computed daily and paid monthly, from the fees it receives from the Funds. In addition, TPL reimburses Citi for all of their reasonable out-of-pocket expenses incurred as a result of providing the services under the Services Agreement.
Unless sooner terminated, the Services Agreement continues in effect as to the Fund for a period of three years and for consecutive one-year terms thereafter, provided that such continuance is approved by the Board or by vote of a majority of the outstanding shares of the Fund and, in either case, by a majority of the Trustees who are not parties to the Services Agreement or "interested persons" (as defined in the 1940 Act) of any party to the Services Agreement. The Services Agreement provides that CFSO shall not be liable for any error of judgment or mistake of law or any loss suffered by the Fund in connection with the matters to which the Services Agreement relates, except a loss resulting from bad faith, willful misfeasance, negligence, or reckless disregard of its obligations and duties under the Services Agreement.
Statement of additional Information
Market Neutral ETF / 67
CFSO calculates certain Trust expenses and make certain disbursements; calculates capital gain and net investment income distribution information; prepares shareholder reports and reports to the SEC on Forms N-CEN, N-Q and N-PORT, as applicable; coordinates dividend payments; calculates the Fund's performance information; files the Trust's tax returns; monitors the Fund's status as regulated investment companies under the Code; assists in developing portfolio compliance procedures; assists with regulatory compliance; and assists in the annual audit of the Funds.
Citibank, N.A. ("Citibank"), located at 388 Greenwich St., New York, New York 10013, serves as transfer agent for the Funds and in that capacity pursuant to a Transfer Agency Services Agreement. Under its agreement with the Funds, Citibank has agreed, among other things, to (1) perform and facilitate the performance of purchases and redemptions of Creation Units by Authorized Participants; (2) record and calculate the number of outstanding Fund shares; (3) maintain shareholder accounts; (4) perform duties relating to anti-money laundering and identity theft prevention; and make periodic reports to the Board and regulators regarding its operations.
Custodian
General. Citibank, N.A., 388 Greenwich Street, New York, NY, 10013, serves as the custodian of the Fund's assets pursuant to a Global Custodial and Agency Services Agreement dated November 30, 2018 (the "Custody Agreement"). The Custodian's responsibilities include safeguarding and controlling the Fund's cash and securities, handling the receipt and delivery of securities, and collecting interest and dividends on the Fund's investments. Pursuant to the Custody Agreement, the Custodian also maintains original entry documents and books of record and general ledgers; posts cash receipts and disbursements; and records purchases and sales based upon communications from the Advisor. The Custodian may, with the approval of the Fund and at its own expense, open and maintain a subcustody account or accounts on behalf of the Fund, provided that it shall remain liable for the performance of all of its duties under its respective Custody Agreement. The Custodian has entered into a sub-custodian agreement with Goldman Sachs for derivatives transactions.
Foreign Custody. Rule 17f-5 under the 1940 Act, which governs the custody of investment company assets outside the United States, allows a mutual fund's board of directors to delegate to a "Foreign Custody Manager" the selection and monitoring of foreign sub-custodian arrangements for the Trust's assets. Accordingly, the Board delegated these responsibilities to the Custodian pursuant to the Custody Agreement. As Foreign Custody Manager, the Custodian must (a) determine that the assets of the International Funds held by a foreign sub-custodian will be subject to reasonable care, based on the standards applicable to custodians in the relevant market; (b) determine that the Trust's foreign custody arrangements are governed by written contracts in compliance with Rule 17f-5 (or, in the case of a compulsory depository, by such a contract and/or established practices or procedures); and (c) monitor the appropriateness of these arrangements and any material change in the relevant contract, practices or procedures. In determining appropriateness, the Custodian will not evaluate a particular country's investment risks, such as (a) the use of compulsory depositories, (b) such country's financial infrastructure, (c) such country's prevailing custody and settlement practices, (d) nationalization, expropriation or other governmental actions, (e) regulation of the banking or securities industry, (f) currency controls, restrictions, devaluations or fluctuations, and (g) market conditions that affect the orderly execution of securities transactions or affect the value of securities. The Custodian will provide to the Board quarterly written reports regarding the Trust's foreign custody arrangements.
Distributor. Foreside Fund Services, LLC, 3 Canal Plaza, Suite 100, Portland, ME 04101, serves as the distributor of Creation Units (the "Distributor") for the Fund on an agency basis. The Trust has entered into a Distribution Agreement dated April 29, 2019 ("Distribution Agreement"), under which the Distributor agrees to receive orders from Authorized Participants to create and redeem shares in Creation Unit aggregations, and transmit such orders to the Trust's Custodian and transfer agent. The Distributor's principal address is Three Canal Plaza, Portland, Maine 04101. The Distributor is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and a member of the Financial Industry Regulatory Authority, Inc. ("FINRA"). Shares will be continuously offered for sale only in Creation Units. The Distributor has no role in determining the investment policies of the Funds or which securities are to be purchased or sold by the Funds. No compensation is payable by the Trust to the Distributor for such distribution services. However, the Advisor has entered into an agreement with the Distributor under which it makes payments to the Distributor in consideration for its services under the Distribution Agreement. The payments made by the Advisor to the Distributor do not represent an additional expense to the Trust or its shareholders.
Statement of additional Information
Market Neutral ETF / 68
The Distribution Agreement will continue for two years from its effective date and is renewable thereafter. The continuance of the Distribution Agreement must be specifically approved at least annually (i) by the vote of the Trustees or by a vote of the shareholders of the Fund and (ii) by the vote of a majority of the Trustees who are not "interested persons" of the Trust and have no direct or indirect financial interest in the operations of the Distribution Agreement or any related agreement, cast in person at a meeting called for the purpose of voting on such approval. The Distribution Agreement is terminable, without penalty, by the Trust on 60 days' written notice when authorized either by majority vote of its outstanding voting Shares or by a vote of a majority of its Board (including a majority of the Independent Trustees), or by the Distributor on 60 days' written notice, and will automatically terminate in the event of its assignment. The Distribution Agreement provides that in the absence of willful misfeasance, bad faith or gross negligence on the part of the Distributor, or reckless disregard by it of its obligations thereunder, the Distributor shall not be liable for any action or failure to act in accordance with its duties thereunder.
Codes of Ethics. Each of the Trust, the Advisor, and the Sub-Advisor has adopted a Code of Ethics in accordance with Rule 17j-1 under the 1940 Act. The Advisor Code of Ethics applies to all Access Personnel (the Advisor's directors and officers and employees with investment advisory duties) and all Supervised Personnel (all of the Advisor's directors, officers and employees). Each Code of Ethics provides that Access Personnel must refrain from certain trading practices. Each Code also requires all Access Personnel (and, in the Advisor Code, all Supervised Personnel) to report certain personal investment activities, including, but not limited to, purchases or sales of securities that may be purchased or held by the Funds. Violations of any Code of Ethics can result in penalties, suspension, or termination of employment.
Statement of additional Information
Market Neutral ETF / 69
Section 10 | | Proxy Voting Policies |
and Procedures |
Proxy Voting Procedures
The Proxy Voting Officer
Advisor hereby appoints Mr. Terry Covert as the person responsible for voting all proxies relating to securities held in the Fund's accounts (the "Proxy Voting Officer") when called upon by a Sub-Advisor to vote. The Proxy Voting Officer shall take all reasonable efforts to monitor corporate actions, obtain all information sufficient to allow an informed vote on the matter, and ensure that all proxy votes are cast in a timely fashion and in a manner consistent with this Policy.
If, in the Proxy Voting Officer's reasonable belief, it is in the best interest of the Fund shareholders to cast a particular vote in a manner that is contrary to this policy, the Advisor shall submit a request for a waiver to the Board of Trustees of the Trust (the "Board"), stating the facts and reasons for the Proxy Voting Officer's belief. The Proxy Voting Officer shall proceed to vote the proxy in accordance with the decision of the Board.
In addition, if, in the Proxy Voting Officer's reasonable belief, it is in the best interest of the Fund shareholders to abstain from voting on a particular proxy solicitation, the Proxy Voting Officer shall make a record summarizing the reasons for the Proxy Voting Officer's belief and shall present this summary to the Board along with other reports required.
The Fund's Proxy Voting Policy provides that the Fund, in accordance with SEC rules, annually will disclose on Form N-PX the Fund's proxy voting record. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is updated each year by August 31st and is available without charge, upon request, by calling toll free 800 846 7526 or by accessing the SEC's website at sec.gov.
Statement of additional Information
Market Neutral ETF / 70
Section 11 | | Portfolio Transactions |
and Brokerage |
Subject to the general supervision of the Board and the Advisor, the Sub-Advisor is responsible for making decisions with respect to the purchase and sale of portfolio securities on behalf of the Fund. The Sub-Advisor is also responsible for the implementation of those decisions, including the selection of broker/dealers to effect portfolio transactions, the negotiation of commissions, and the allocation of principal business and portfolio brokerage.
Transactions on stock exchanges involve the payment of brokerage commissions. In transactions on stock exchanges in the United States, these commissions are negotiated. Traditionally, commission rates have generally been fixed for trades on stock markets outside the United States. In recent years, however, an increasing number of overseas stock markets have adopted a system of negotiated rates. It is expected that equity securities will ordinarily be purchased in the primary markets, whether over-the-counter or listed, and that listed securities may be purchased in the over-the-counter market if such market is deemed the primary market. In the case of securities traded on the over-the-counter markets, there is generally no stated commission, but the price usually includes an undisclosed commission or markup. In underwritten offerings, the price includes a disclosed, fixed commission (the underwriter's concession) or discount.
Fixed income and convertible securities are bought and sold through broker-dealers acting on a principal basis. These trades are not charged a commission, but rather are marked up or marked down by the executing broker- dealer. Neither the Advisor nor the Sub-Advisor know the actual value of the markup/markdown. However, the Advisor has determined that the Sub-Advisor attempts to ascertain whether the overall price of a security is reasonable through the use of competitive bids. Orders to buy or sell convertible securities and fixed income securities are placed on a competitive basis with a reasonable attempt made to obtain three competitive bids or offers. Exceptions are: (1) where the bid/ask spread is 5 basis points or less, provided the order is actually filled at the bid or better for sales and at the ask or better for purchases; (2) securities for which there are only one or two market makers; (3) block purchases considered relatively large; (4) swaps, a simultaneous sale of one security and purchase of another in substantially equal amounts for the same account, intended to take advantage of an aberration in a spread relationship, realize losses, etc.; and (5) purchases and/or sales of fixed income securities for which, typically, more than one offering of the same issue is unobtainable; subject to a judgment by the trader that the bid is competitive.
It is the policy of the Sub-Advisor to obtain the "best execution" of its clients' securities transactions. The Sub-Advisor strives to execute each client's securities transactions in such a manner that the client's total costs or proceeds in each transaction are the most favorable under the circumstances. Commission rates paid on securities transactions for client accounts must reflect comparative market rates.
In purchasing and selling the Fund's portfolio securities, it is the Sub-Advisor's policy to obtain quality execution at the most favorable prices through responsible broker/dealers and, in the case of agency transactions, at competitive commission rates where such rates are negotiable. In selecting broker/dealers to execute the Fund's portfolio transactions, consideration is given to such factors as the price of the security, the rate of the commission, the size difficulty of the order, the reliability, integrity, financial condition, general execution and operational capabilities of competing brokers and dealers, their expertise in particular markets and the brokerage and research services they provide to the Sub-Advisor or the Funds. It is not the Sub-Advisor's practice to seek the lowest available commission rate where it is believed that a broker or dealer charging a higher commission rate would offer greater reliability or provide better price or execution.
As permitted by Section 28(e) of the Securities Exchange Act of 1934 , the Sub-Advisor may cause the Fund to pay broker- dealers that provide brokerage and research services a commission rate that exceeds the amount other broker/dealers would have charged for the transaction if the Sub-Advisor determines in good faith that the greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker/dealer viewed in terms of either a particular transaction or the Sub-Advisor's overall responsibilities to the Fund or to its other clients. The term "brokerage and research services" includes advice as to the value of securities, the advisability of investing in, purchasing, or selling securities, and the availability of securities or of purchasers or sellers of securities; furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts; and effecting securities transactions and performing functions incidental thereto such as clearance and settlement.
Statement of additional Information
Market Neutral ETF / 71
The brokerage and research services are in addition to and do not replace the services and research that the Advisor performs, and do not reduce the investment advisory fees payable to the Advisor by the Funds. Such information may be useful to the Advisor in serving both the Funds and other clients and, conversely, such supplemental research information obtained by the placement of orders on behalf of other clients may be useful to the Advisor in carrying out its obligations to the Funds.
Brokerage commissions may never be used to compensate a third party for client referrals unless the client has directed such an arrangement. In addition, brokerage commissions may never be used to obtain research and/or services for the benefit of any employee or non-client entity.
The Sub-Advisor, under the oversight of the Advisor, will make a good faith determination that the commissions paid are reasonable in relationship to the value of the services received and continually reviews the quality of execution it receives from and the commission rates charged by the brokers it uses to carry out trades for its clients. The Sub-Advisor will also consider the full range and quality of a broker's services in placing brokerage including, but not limited to, the value of research provided, execution capability, commission rate, willingness and ability to commit capital and responsiveness. The lowest possible commission cost alone does not determine broker selection. The transaction that represents the best quality execution for a client account will be executed. Commission ranges and the actual commission paid for trades of listed stocks and over-the-counter stocks may vary depending on, but not limited to, the liquidity and volatility of the stock and services provided to the Sub-Advisor by the broker.
Some brokers executing trades for the Sub-Advisor may, from time to time, receive liquidity rebates in connection with the routing of trades to Electronic Communications Networks. Since the Sub-Advisor is not a broker, however, it is ineligible to receive such rebates and does not obtain direct benefits for the Funds from this broker practice.
Investment decisions for the Fund are made independently from those made for the other Funds or any other investment company or account managed by the Sub-Advisor. Such other investment companies or accounts may also invest in the same securities and may follow similar investment strategies as the Funds. The Sub-Advisor may combine transaction orders ("bunching" or "blocking" trades) for more than one client account where such action appears to be equitable and potentially advantageous for each account (e.g., for the purpose of reducing brokerage commissions or obtaining a more favorable transaction price.) The Sub-Advisor will aggregate transaction orders only if it believes that the aggregation is consistent with its duty to seek best execution for its clients and is consistent with the terms of investment advisory agreements with each client for whom trades are being aggregated. Both equity and fixed- income securities may be aggregated. When making such a combination of transaction orders for a new issue or secondary market trade in an equity security, the Advisor adheres to the following objectives:
• | Fairness to the Fund both in the participation of execution of orders for their account, and in the allocation of orders for the accounts of more than one client. |
• | Allocation of all orders in a timely and efficient manner. |
In some cases, aggregating trades may affect the price paid or received by the Fund or the size of the position obtained by the Fund in an adverse manner relative to the result that would have been obtained if only the Fund had participated in or been allocated such trades.
Statement of additional Information
Market Neutral ETF / 72
The aggregation of transactions for advisory accounts and proprietary accounts (including partnerships and other accounts in which the Sub-Advisor or its associated persons are partners or participants, and managed employee accounts) is permissible. No proprietary account may be favored over any other participating account and such practice must be consistent with the Sub-Advisor's Code of Ethics.
Equity trade orders are executed based only on trade instructions received from portfolio managers by the trading desk. Portfolio managers may enter trades to meet the full target allocation immediately or may meet the allocation through moves in incremental blocks. Orders are processed on a "first-come, first-served" basis. At times, a rotation system may determine "first-come, first-served" treatment when the equity trading desk receives the same order for multiple accounts simultaneously. The Sub-Advisor will utilize a rotation whereby the Funds, even if aggregated with other orders, are in the first block(s) to trade within the rotation. To aggregate orders, the equity trading desk must determine that all accounts in the order will benefit. Any new trade that can be blocked with an existing open order may be added to the open order to form a larger block. The Sub-Advisor receives no additional compensation or remuneration of any kind as a result of the aggregation of trades. All accounts participating in a block execution receive the same execution price, an average share price, for securities purchased or sold on a trading day. Execution prices may not be carried overnight. Any portion of an order that remains unfilled at the end of a given day shall be rewritten (absent contrary instructions) on the following day as a new order. Accounts with trades executed the next day will receive a new daily average price to be determined at the end of the following day.
Where the full amount of a block execution is not executed, the partial amount actually executed will be allocated on a pro rata basis whenever possible. The following execution methods maybe used in place of a pro rata procedure: relative size allocations, security position weighting, priority for specialized accounts, or a special allocation based on compliance approval.
After the proper allocation has been completed, excess shares must be sold in the secondary market, and may not be reallocated to another managed account.
In making investment decisions for the Fund, the Sub-Advisor will not inquire or take into consideration whether an issuer of securities proposed for purchase or sale by the Fund is a customer of the Sub-Advisor, its parents, subsidiaries or affiliates, and, in dealing with their commercial customers, the Sub-Advisor, its parents, subsidiaries and affiliates will not inquire or take into consideration whether securities of such customers are held by the Funds. Portfolio securities will not be purchased from or sold to the Sub-Advisor, or the Distributor, or any affiliated person of any of them acting as principal, except to the extent permitted by rule or order of the SEC.
Affiliated Brokerage
The Board has authorized the allocation of brokerage to affiliated broker-dealers on an agency basis to effect portfolio transactions. The Board has adopted procedures incorporating the standards of Rule 17e-1 under the 1940 Act, which require that the commission paid to affiliated broker-dealers must be "reasonable and fair compared to the commission, fee or other remuneration received, or to be received, by other broker-dealers in connection with comparable transactions involving similar securities during a comparable period of time."
The Trust will not acquire portfolio securities issued by, make savings deposits in, or enter into repurchase or reverse repurchase agreements with the Sub-Advisor or its affiliates. From time to time, when determined by the Sub-Advisor to be advantageous to the Fund, the Sub-Advisor may execute portfolio transactions through affiliated broker-dealers. All such transactions must be completed in accordance with procedures approved by the Board. The percentage of trades executed through an affiliated broker-dealer for the Fund may be higher relative to trades executed by unaffiliated dealers, so long as the trades executed by the affiliated broker-dealer are consistent with best execution.
No payments were made to any affiliated brokers since inception.
Statement of additional Information
Market Neutral ETF / 73
Allocation of Brokerage in Connection with Research Services
As of December 31, 2022, Advisor, through agreements or understandings with brokers, or otherwise through an internal allocation procedure, did not direct brokerage transactions of the Timothy Plan Funds to brokers due to research services provided.
Securities of Regular Brokers or Dealers
The SEC requires the Trust to provide certain information for those Funds that held securities of their regular brokers or dealers (or their parents) during the Trust's most recent fiscal year.
As of December 31, 2022, the Timothy Plan Market Neutral ETF had not held any securities of their regular broker or dealers.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its acquisition if the Sub-Advisor believes that such a disposition is consistent with attaining the investment objective of the Fund. The Fund's portfolio turnover rates stated in the Prospectus are calculated by dividing the lesser of the Fund's purchases or sales of portfolio securities for the year by the monthly average value of the portfolio securities. The calculation excludes all securities whose maturities, at the time of acquisition, were one year or less. Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.
The turnover rate for the Fund will vary from year-to-year and depending on market conditions, turnover could be greater in periods of unusual market movement and volatility. A high rate of portfolio turnover (over 100%) will generally involve correspondingly greater transaction costs, which must be borne directly by the Fund and ultimately by its shareholders. High portfolio turnover may result in the realization of substantial net capital gains. To the extent short-term capital gains are realized, distributions attributable to such gains will be ordinary income for federal income tax purposes.
Statement of additional Information
Market Neutral ETF / 74
Section 12 | | Dividends, Capital Gains |
and Distributions |
The Fund intends to distribute substantially all of its net investment income and net capital gains, if any, to shareholders within each calendar year as well as on a fiscal year basis to the extent required for the Fund to qualify for favorable federal tax treatment. The Fund declares and pays capital gains annually. Ordinarily, dividends from net investment income, if any, are declared and paid monthly by the Fund.
For this purpose, the net income of the Fund, from the time of the immediately preceding determination thereof, shall consist of all interest income accrued on the portfolio assets of the Fund, dividend income, if any, income from securities loans, if any and realized capital gains and losses on the Fund's assets, less all expenses and liabilities of the Fund chargeable against income. Interest income shall include discount earned, including both original issue and market discount, on discount paper accrued ratably to the date of maturity. Expenses, including the compensation payable to the Advisor, are accrued each day. The expenses and liabilities of the Fund shall include those appropriately allocable to the Fund as well as a share of the general expenses and liabilities of the Trust in proportion to the Fund's share of the total net assets of the Trust.
Statement of additional Information
Market Neutral ETF / 75
Section 13 | | Taxes |
The information set forth in the prospectuses that relates to federal income taxation is only a summary of certain key federal income tax considerations generally affecting purchasers of shares of the Fund. The following is only a summary of certain additional income and excise tax considerations generally affecting the Fund and its shareholders that are not described in the prospectuses. No attempt has been made to present a complete explanation of the federal tax treatment of the Fund or the implications to shareholders and the discussions here and in the Fund's prospectus are not intended as substitutes for careful tax planning. Accordingly, potential purchasers of shares of the Funds are urged to consult their tax advisors with specific reference to their own tax circumstances. Special tax considerations may apply to certain types of investors subject to special treatment under the Code (including, for example, insurance companies, banks and tax-exempt organizations). In addition, the tax discussion in the prospectuses and this SAI is based on tax law in effect on the date of the prospectuses and this SAI; such laws and regulations may be changed by legislative, judicial, or administrative action, sometimes with retroactive effect.
Qualification as a Regulated Investment Company
The Fund intends to qualify as a regulated investment company under Subchapter M of the Code. As a regulated investment company, the Fund is not subject to federal income tax on the portion of its net investment income (i.e., taxable interest, dividends and other taxable ordinary income, net of expenses) and net capital gain (i.e., the excess of long-term capital gains over short-term capital losses) that it distributes to shareholders, provided that it distributes at least the sum of 90% of its investment company taxable income (i.e., net investment income and the excess of net short-term capital gain over net long-term capital loss) and 90% of its tax-exempt income (net of expenses allocable thereto) for the taxable year (the "Distribution Requirement") and satisfies certain other requirements of the Code that are described below. Distributions by the Fund made during the taxable year or, under specified circumstances, within twelve months after the close of the taxable year, will be considered distributions of income and gains for the taxable year and will therefore count toward satisfaction of the Distribution Requirement.
If the Fund has a net capital loss (i.e., an excess of capital losses over capital gains) for any year beginning on or before December 31, 2019, the amount thereof may be carried forward up to eight years and treated as a short-term capital loss that can be used to offset capital gains in such future years. There is no limitation on the number of years to which net capital losses arising in years beginning after December 31, 2019, may be carried. Any such net capital losses are utilized before net capital losses arising in years beginning on or before December 31, 2019. As explained below, however, such carryforwards may be subject to limitations on availability. Under Code Sections 382 and 383, if the Fund has an "ownership change," then the Fund's use of its capital loss carryforwards in any year following the ownership change will be limited to an amount equal to the NAV of the Fund immediately prior to the ownership change multiplied by the long-term tax-exempt rate (which is published monthly by the IRS) in effect for the month in which the ownership change occurs. The Funds will use their best efforts to avoid having an ownership change with respect to any Fund that has capital loss carryforwards. However, because of circumstances that may be beyond the control or knowledge of the Fund, there can be no assurance that such the Fund will not have, or has not already had, an ownership change. If the Fund has or has had an ownership change, then the Fund will be subject to federal income taxes on any capital gain net income for any year following the ownership change in excess of the annual limitation on the capital loss carryforwards unless distributed by the Fund. Any distributions of such capital gain net income will be taxable to shareholders as described under "Fund Distributions" below. CLCFs are not subject to expiration.
In addition to satisfying the Distribution Requirement, a regulated investment company must derive at least 90% of its gross income from dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies (to the extent such currency gains are directly related to the regulated investment company's principal business of investing in stock or securities), other income (including but not limited to gains from options, futures, or forward contracts) derived with respect to its business of investing in such stock, securities, or currencies and net income from interests in qualified publicly traded partnerships (the "Income Requirement").
Statement of additional Information
Market Neutral ETF / 76
In general, gain or loss recognized by the Fund on the disposition of an asset will be a capital gain or loss. In addition, gain will be recognized as a result of certain constructive sales, including short sales "against the box." However, gain recognized on the disposition of a debt obligation (including municipal obligations) purchased by the Fund at a market discount (generally, at a price less than its principal amount) will be treated as ordinary income to the extent of the portion of the market discount that accrued while the Fund held the debt obligation. In addition, under the rules of Code Section 988, gain or loss recognized on the disposition of a debt obligation denominated in a foreign currency or an option with respect thereto, and gain or loss recognized on the disposition of a foreign currency forward contract, futures contract, option or similar financial instrument, or of foreign currency itself, except for regulated futures contracts or non-equity options subject to Code Section 1256 (unless the Fund elects otherwise), generally will be treated as ordinary income or loss to the extent attributable to changes in foreign currency exchange rates.
Further, the Code also treats as ordinary income a portion of the capital gain attributable to a transaction where substantially all of the expected return is attributable to the time value of the Fund's net investment in the transaction and: (1) the transaction consists of the acquisition of property by the Fund and a contemporaneous contract to sell substantially identical property in the future; (2) the transaction is a straddle within the meaning of Section 1092 of the Code; (3) the transaction is one that was marketed or sold to the Fund on the basis that it would have the economic characteristics of a loan but the interest-like return would be taxed as capital gain; or (4) the transaction is described as a conversion transaction in the Treasury Regulations. The amount of such gain that is treated as ordinary income generally will not exceed the amount of the interest that would have accrued on the net investment for the relevant period at a yield equal to 120% of the applicable federal rate, reduced by the sum of: (1) prior inclusions of ordinary income items from the conversion transaction and (2) the capitalized interest on acquisition indebtedness under Code Section 263(g), among other amounts. However, if the Fund has a built-in loss with respect to a position that becomes a part of a conversion transaction, the character of such loss will be preserved upon a subsequent disposition or termination of the position. No authority exists that indicates that the character of the income treated as ordinary under this rule will not pass through to the Fund's shareholders.
In general, for purposes of determining whether capital gain or loss recognized by the Fund on the disposition of an asset is long-term or short-term, the holding period of the asset may be affected (as applicable, depending on the type of the Fund involved) if (1) the asset is used to close a "short sale" (which includes for certain purposes the acquisition of a put option) or is substantially identical to another asset so used, (2) the asset is otherwise held by the Fund as part of a "straddle" (which term generally excludes a situation where the asset is stock and Fund grants a qualified covered call option (which, among other things, must not be deep-in-the-money) with respect thereto), or (3) the asset is stock and the Fund grants an in-the-money qualified covered call option with respect thereto. In addition, the Fund may be required to defer the recognition of a loss on the disposition of an asset held as part of a straddle to the extent of any unrecognized gain on the offsetting position.
Income from options on individual securities written by the Fund will not be recognized by the Fund for tax purposes until an option is exercised or lapses. Any gain recognized by the Fund on the lapse of, or any gain or loss recognized by the Fund from a closing transaction with respect to, an option written by the Fund will be treated as a short-term capital gain or loss. If the Fund enters into a closing transaction, the difference between the premiums received and the amount paid by the Fund to close out its position will generally be treated as short-term capital gain or loss. If an option written by the Fund is exercised, thereby requiring the Fund to sell the underlying security, the premium will increase the amount realized upon the sale of the security, and the character of any gain on such sale of the underlying security as short-term or long-term capital gain will depend on the holding period of the Fund in the underlying security. Because the Fund will not have control over the exercise of the options it writes, such exercises or other required sales of the underlying securities may cause the Fund to realize gains or losses at inopportune times.
For taxable years beginning after December 31, 2019 a regulated investment company, in determining its investment company taxable income and net capital gain (i.e., the excess of net long-term capital gain over net short- term capital loss) for any taxable year, may elect (unless it has made a taxable year election for excise tax purposes as discussed below, in which case different rules apply) to treat all or any part of certain net capital losses incurred after December 31 of a taxable year, and certain net ordinary losses incurred after September 30 or December 31 of a taxable year, as if they had been incurred in the succeeding taxable year.
Statement of additional Information
Market Neutral ETF / 77
In addition to satisfying the Income and Distribution Requirements described above, the Fund must satisfy an asset diversification test in order to qualify as a regulated investment company. Under this test, at the close of each quarter of the Fund's taxable year, at least 50% of the value of the Fund's assets must consist of cash and cash items, U.S. government securities, securities of other regulated investment companies and securities of other issuers (provided that, with respect to each issuer, the Fund has not invested more than 5% of the value of the Fund's total assets in securities of each such issuer and the Fund does not hold more than 10% of the outstanding voting securities of each such issuer), and no more than 25% of the value of its total assets may be invested in the securities of any one issuer (other than U.S. government securities and securities of other regulated investment companies), two or more issuers that the Fund controls and that are engaged in the same or similar trades or businesses (other than securities of other regulated investment companies), or the securities of one or more qualified publicly traded partnerships. Generally, an option (call or put) with respect to a security is treated as issued by the issuer of the security, not the issuer of the option. For purposes of asset diversification testing, obligations issued or guaranteed by certain agencies or instrumentalities of the U.S. government, such as the Federal Agricultural Mortgage Corporation, the Federal Farm Credit System Financial Assistance Corporation, FHLB, FHLMC, FNMA, GNMA and SLMA, are treated as U.S. government securities.
The Fund may invest in futures contracts, options on futures contracts, ETFs and other similar investment vehicles that provide exposure to commodities such as gold or other precious metals, energy or other commodities. Income or gain, if any, from such investments may not be qualifying income for purposes of the Income Requirements and the Fund's investments in such instruments may not be treated as an investment in a "security" for purposes of the asset diversification test.
If for any taxable year the Fund does not qualify as a regulated investment company after taking into account cure provisions available for certain failures to so qualify (certain of which would result in the imposition of a tax on the Fund), all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders and such distributions will be taxable to the shareholders as dividends to the extent of the Fund's current and accumulated earnings and profits. Such distributions may be eligible for: (i) the dividends-received deduction, in the case of corporate shareholders; or (ii) treatment as "qualified dividend income," in the case of non-corporate shareholders. In addition, to qualify again to be taxed as a regulated investment company in a subsequent year, the Fund would be required to distribute to shareholders its earnings and profits attributable to non-qualifying years. Further, if the Fund failed to qualify for a period greater than two taxable years, then, in order to qualify as a regulated investment company in a subsequent year, the Fund would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if the Fund had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of ten years.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company that fails to distribute in each calendar year an amount equal to 98% of its ordinary taxable income for the calendar year and 98.2% of its capital gain net income for the one-year period ended on September 30 of such calendar year (or, with respect to capital gain net income, at the election of a regulated investment company having a taxable year ending November 30 or December 31, for its taxable year (a "taxable year election")). Tax-exempt interest on municipal obligations is not subject to the excise tax. The balance of such income must be distributed during the next calendar year. For the foregoing purposes, a regulated investment company is treated as having distributed any amount on which it is subject to income tax for any taxable year ending in such calendar year and, if it so elects, the amount on which qualified estimated tax payments are made by it during such calendar year (in which case the amount it is treated as having distributed in the following calendar year will be reduced).
Statement of additional Information
Market Neutral ETF / 78
For purposes of calculating the excise tax, a regulated investment company: (1) reduces its capital gain net income (but not below its net capital gain) by the amount of any net ordinary loss for the calendar year, (2) excludes specified gains and losses, including foreign currency gains and losses and ordinary gains or losses arising as a result of a PFIC (as defined below) mark-to-market election (or upon the actual disposition of the PFIC stock subject to such election) incurred after September 30 of any year (or after the end of its taxable year if it has made a taxable year election) in determining the amount of ordinary taxable income for the current calendar year (and, instead, includes such specified gains and losses in determining the company's ordinary taxable income for the succeeding calendar year); and (3) applies mark to market provisions which treat property as disposed of on the last day of a taxable year as if the taxable year ended on September 30 (or on the last day of its taxable year if it has made a taxable year election). In addition, a regulated investment company may elect to determine its ordinary income for the calendar year without regard to any net ordinary loss (determined without respect to specified gains and losses taken into account in clause (2) of the preceding sentence) attributable to the portion of the calendar year which is after the beginning of the taxable year which begins in such calendar year. Any amount of net ordinary loss not taken into account for a calendar year by reason of the preceding sentence will be treated as arising on the first day of the following calendar year.
The Fund intends to make sufficient distributions or deemed distributions of its ordinary taxable income and capital gain net income prior to the end of each calendar year to avoid liability for the excise tax. However, investors should note that the Fund may in certain circumstances be required to liquidate portfolio investments to make sufficient distributions to avoid excise tax liability.
Fund Investments
Certain transactions that may be engaged in by the Fund (such as regulated futures contracts, certain foreign currency contracts and options on stock indexes and futures contracts) will be subject to special tax treatment as "Section 1256 Contracts." Section 1256 Contracts are treated as if they are sold for their fair market value on the last business day of the taxable year, even though a taxpayer's obligations (or rights) under such Section 1256 Contracts have not terminated (by delivery, exercise, entering into a closing transaction, or otherwise) as of such date. Any gain or loss recognized as a consequence of the year-end deemed disposition of Section 1256 Contracts is taken into account for the taxable year together with any other gain or loss that was recognized previously upon the termination of Section 1256 Contracts during that taxable year. Any capital gain or loss for the taxable year with respect to Section 1256 Contracts (including any capital gain or loss arising as a consequence of the year-end deemed sale of such Section 1256 Contracts) generally is treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss. The Fund, however, may elect not to have this special tax treatment apply to Section 1256 Contracts that are part of a "mixed straddle" with other investments of the Fund that are not Section 1256 Contracts.
The Fund may enter into notional principal contracts, including interest rate swaps, caps, floors and collars. Treasury Regulations provide, in general, that the net income or net deduction from a notional principal contract for a taxable year is included in or deducted from gross income for that taxable year. The net income or deduction from a notional principal contract for a taxable year equals the total of all of the periodic payments (generally, payments that are payable or receivable at fixed periodic intervals of one year or less during the entire term of the contract) that are recognized from that contract for the taxable year, all of the non-periodic payments (including premiums for caps, floors and collars) that are recognized from that contract for the taxable year and any termination payments that are recognized from that contract for the taxable year. No portion of a payment by a party to a notional principal contract is recognized prior to the first year to which any portion of a payment by the counterparty relates. A periodic payment is recognized ratably over the period to which it relates. In general, a non-periodic payment must be recognized over the term of the notional principal contract in a manner that reflects the economic substance of the contract. A non-periodic payment that relates to an interest rate swap, cap, floor, or collar is recognized over the term of the contract by allocating it in accordance with the values of a series of cash-settled forward or option contracts that reflect the specified index and notional principal amount upon which the notional principal contract is based (or under an alternative method provided in Treasury Regulations). A termination payment is recognized in the year the notional principal contract is extinguished, assigned, or terminated (i.e., in the year the termination payment is made).
Statement of additional Information
Market Neutral ETF / 79
The Fund may purchase securities of certain foreign investment funds or trusts that constitute passive foreign investment companies ("PFICs") for federal income tax purposes. If the Fund invests in a PFIC, it has three separate options. First, it may elect to treat the PFIC as a qualified electing fund (a "QEF"), in which event the Fund will each year have ordinary income equal to its pro rata share of the PFIC's ordinary earnings for the year and long-term capital gain equal to its pro rata share of the PFIC's net capital gain for the year, regardless of whether the Fund receives distributions of any such ordinary earnings or capital gains from the PFIC. In order to make this election with respect to a PFIC in which it invests, the Fund must obtain certain information from the PFIC on an annual basis, which the PFIC may be unwilling or unable to provide. Second, the Fund that invests in marketable stock of a PFIC may make a mark-to-market election with respect to such stock. Pursuant to such election, the Fund will include as ordinary income any excess of the fair market value of such stock at the close of any taxable year over the Fund's adjusted tax basis in the stock. If the adjusted tax basis of the PFIC stock exceeds the fair market value of the stock at the end of a given taxable year, such excess will be deductible as ordinary loss in an amount equal to the lesser of the amount of such excess or the net mark-to-market gains on the stock that the Fund included in income in previous years. Solely for purposes of Code Sections 1291 through 1298, the Fund's holding period with respect to its PFIC stock subject to the election will commence on the first day of the first taxable year beginning after the last taxable year for which the mark-to-market election applied. If the Fund makes the mark-to-market election in the first taxable year it holds PFIC stock, it will not incur the tax described below under the third option.
Finally, if the Fund does not elect to treat the PFIC as a QEF and does not make a mark-to-market election, then, in general, (1) any gain recognized by the Fund upon the sale or other disposition of its interest in the PFIC or any excess distribution received by the Fund from the PFIC will be allocated ratably over the Fund's holding period of its interest in the PFIC stock, (2) the portion of such gain or excess distribution so allocated to the year in which the gain is recognized or the excess distribution is received shall be included in the Fund's gross income for such year as ordinary income (and the distribution of such portion by the Fund to shareholders will be taxable as a dividend, but such portion will not be subject to tax at the Fund level), (3) the Fund shall be liable for tax on the portions of such gain or excess distribution so allocated to prior years in an amount equal to, for each such prior year, (i) the amount of gain or excess distribution allocated to such prior year multiplied by the highest corporate tax rate in effect for such prior year, plus (ii) interest on the amount determined under clause (i) for the period from the due date for filing a return for such prior year until the date for filing a return for the year in which the gain is recognized or the excess distribution is received, at the rates and methods applicable to underpayments of tax for such period, and (4) the distribution by the Fund to its shareholders of the portions of such gain or excess distribution so allocated to prior years (net of the tax payable by the Fund thereon) will be taxable to the shareholders as a dividend.
Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by the Fund may be treated as debt securities that are issued originally at a discount. Generally, the amount of the original issue discount ("OID") is treated as interest income and is included in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. A portion of the OID includable in income with respect to certain high-yield corporate debt securities (including certain pay-in-kind securities) may be treated as a dividend for U.S. federal income tax purposes.
Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by the Fund in the secondary market may be treated as having market discount. Generally, any gain recognized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the "accrued market discount" on such debt security. Market discount generally accrues in equal daily installments. The Fund may make one or more of the elections applicable to debt securities having market discount, which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less from the date of issuance) that may be acquired by the Fund may be treated as having acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or OID, in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. The Fund may make one or more of the elections applicable to debt securities having acquisition discount, or OID, which could affect the character and timing of recognition of income.
Statement of additional Information
Market Neutral ETF / 80
The Fund that holds the foregoing kinds of securities may be required to pay out as an income distribution each year an amount, which is greater than the total amount of cash interest the Fund actually received. Such distributions may be made from the cash assets of the Fund or by liquidation of portfolio securities, if necessary (including when it is not advantageous to do so). The Fund may realize gains or losses from such liquidations. In the event the Fund realizes net capital gains from such transactions, its shareholders may receive a larger capital gain distribution, if any, than they would in the absence of such transactions.
Gain or loss on the sale of securities by the Fund will generally be long-term capital gain or loss if the securities have been held by the Fund for more than one year. Gain or loss on the sale of securities held for one year or less will be short-term capital gain or loss.
The Fund may invest in preferred securities or other securities the federal income tax treatment of which may not be clear or may be subject to recharacterization by the IRS. To the extent the tax treatment of such securities or the income from such securities differs from the tax treatment expected by the Fund, it could affect the timing or character of income recognized by the Fund, potentially requiring the Fund to purchase or sell securities, or otherwise change its portfolio, in order to comply with the tax rules applicable to regulated investment companies under the Code.
The Fund may invest a portion of its net assets in below investment grade securities. Investments in these types of securities may present special tax issues for the Fund. Federal income tax rules are not entirely clear about issues such as when the Fund may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless securities, how payments received on obligations in default should be allocated between principal and income and whether modifications or exchanges of debt obligations in a bankruptcy or workout context are taxable. These and other issues could affect the Fund's ability to distribute sufficient income to preserve its status as a regulated investment company or to avoid the imposition of U.S. federal income or excise tax.
Fund Distributions
The Fund anticipates distributing substantially all of its investment company taxable income for each taxable year. Such distributions will be treated as dividends for federal income tax purposes and may be taxable to non- corporate shareholders as long-term capital gains (a "qualified dividend"), provided that certain requirements, as discussed below, are met. Dividends received by corporate shareholders and dividends that do not constitute qualified dividends are taxable as ordinary income. The portion of dividends received from the Fund that are qualified dividends generally will be determined on a look-through basis. If the aggregate qualified dividends received by the Fund are less than 95% of the Fund's gross income (as specially computed), the portion of dividends received from the Fund that constitute qualified dividends will be reported by the Fund and cannot exceed the ratio that the qualified dividends received by the Fund bears to its gross income. If the aggregate qualified dividends received by the Fund equal at least 95% of its gross income, then all of the dividends received from the Fund will constitute qualified dividends.
No dividend will constitute a qualified dividend (1) if it has been paid with respect to any share of stock that the Fund has held for less than 61 days (91 days in the case of certain preferred stock) during the 121-day period (181- day period in the case of certain preferred stock) beginning on the date that is 60 days (90 days in the case of certain preferred stock) before the date on which such share becomes ex-dividend with respect to such dividend, excluding for this purpose, under the rules of Code Section 246(c), any period during which the Fund has an option to sell, is under a contractual obligation to sell, has made and not closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has otherwise diminished its risk of loss by holding other positions with respect to, such (or substantially identical) stock; (2) if the noncorporate shareholder fails to meet the holding period requirements set forth in (1) with respect to its shares in the Fund to which the dividend is attributable; or (3) to the extent that the Fund (or shareholder, as applicable) is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in property substantially similar or related to stock with respect to which an otherwise qualified dividend is paid.
Statement of additional Information
Market Neutral ETF / 81
Dividends received by the Fund from a foreign corporation may be qualified dividends if (1) the stock with respect to which the dividend is paid is readily tradable on an established securities market in the U.S., (2) the foreign corporation is incorporated in a possession of the U.S. or (3) the foreign corporation is eligible for the benefits of a comprehensive income tax treaty with the U.S. that includes an exchange of information program (and that the Treasury Department determines to be satisfactory for these purposes). The Treasury Department has issued guidance identifying which treaties are satisfactory for these purposes. Notwithstanding the above, dividends received from a foreign corporation that for the taxable year of the corporation in which the dividend was paid, or the preceding taxable year, is a PFIC will not constitute qualified dividends.
Distributions attributable to dividends received by the Fund from domestic corporations will qualify for the 70% dividends-received deduction ("DRD") for corporate shareholders only to the extent discussed below. Distributions attributable to interest received by the Fund will not, and distributions attributable to dividends paid by a foreign corporation generally should not, qualify for the DRD.
Ordinary income dividends paid by the Fund with respect to a taxable year may qualify for the 70% DRD generally available to corporations (other than corporations such as S corporations, which are not eligible for the deduction because of their special characteristics, and other than for purposes of special taxes such as the accumulated earnings tax and the personal holding company tax) to the extent of the amount of dividends received by the Fund from domestic corporations for the taxable year. No DRD will be allowed with respect to any dividend (1) if it has been received with respect to any share of stock that the Fund has held for less than 46 days (91 days in the case of certain preferred stock) during the 91-day period (181-day period in the case of certain preferred stock) beginning on the date that is 45 days (90 days in the case of certain preferred stock) before the date on which such share becomes ex- dividend with respect to such dividend, excluding for this purpose under the rules of Code Section 246(c) any period during which the Fund has an option to sell, is under a contractual obligation to sell, has made and not closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option (or an in-the-money qualified call option) to buy, or has otherwise diminished its risk of loss by holding other positions with respect to, such (or substantially identical) stock; (2) to the extent that the Fund is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property; or (3) to the extent the stock on which the dividend is paid is treated as debt-financed under the rules of Code Section 246A. Moreover, the DRD for a corporate shareholder may be disallowed or reduced (1) if the corporate shareholder fails to satisfy the foregoing requirements with respect to its shares of the Fund or (2) by application of Code Section 246(b), which in general limits the DRD to 70% of the shareholder's taxable income (determined without regard to the DRD and certain other items).
The Fund may either retain or distribute to shareholders its net capital gain for each taxable year. The Fund currently intends to distribute any such amounts. If net capital gain is distributed and reported as a capital gain dividend, it will be taxable to shareholders as long-term capital gain, regardless of the length of time the shareholder has held his shares or whether such gain was recognized by the Fund prior to the date on which the shareholder acquired his shares. The Code provides, however, that under certain conditions none of the capital gain recognized upon the Fund's disposition of domestic qualified "small business" stock will be subject to tax (with certain limitations).
Conversely, if the Fund elects to retain its net capital gain, the Fund will be subject to tax thereon (except to the extent of any available capital loss carryovers) at the corporate tax rates. If the Fund elects to retain its net capital gain, it is expected that the Fund also will elect to have shareholders of record on the last day of its taxable year treated as if each received a distribution of his pro rata share of such gain, with the result that each shareholder will be required to report his pro rata share of such gain on his tax return as long-term capital gain, will receive a refundable tax credit for his pro rata share of tax paid by the Fund on the gain, and will increase the tax basis for his shares by an amount equal to the deemed distribution less the tax credit.
Statement of additional Information
Market Neutral ETF / 82
Distributions by the Fund that do not constitute ordinary income dividends, qualified dividends, exempt-interest dividends, or capital gain dividends will be treated as a return of capital to the extent of (and in reduction of) the shareholder's tax basis in his shares; any excess will be treated as gain from the sale of his shares, as discussed below.
Distributions by the Fund will be treated in the manner described above regardless of whether such distributions are paid in cash or reinvested in additional shares of the Fund (or of another Fund). Shareholders receiving a distribution in the form of additional shares will be treated as receiving a distribution in an amount equal to the fair market value of the shares received, determined as of the reinvestment date. In addition, if the NAV at the time a shareholder purchases shares of the Fund reflects undistributed net investment income, recognized net capital gain, or unrealized appreciation in the value of the assets of the Fund, distributions of such amounts will be taxable to the shareholder in the manner described above, although such distributions economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by the Fund into account in the year in which the distributions are made. However, dividends declared in October, November or December of any year and payable to shareholders of record on a specified date in such a month will be deemed to have been received by the shareholders (and paid by the Fund) on December 31 of such calendar year if such dividends are actually paid in January of the following year. In addition, certain other distributions made after the close of the Fund's taxable year may be "spilled back" and treated as paid by the Fund (except for the purposes of the 4% nondeductible excise tax) during such taxable year. In such case, a shareholder will be treated as having received such dividends in the taxable year in which the distributions were actually made. Shareholders will be advised annually as to the U.S. federal income tax consequences of distributions made (or deemed made) during the year.
Certain U.S. shareholders, including individuals and estates and trusts, are subject to an additional 3.8% Medicare tax on all or a portion of their "net investment income," which should include dividends from the Fund and net gains from the disposition of shares of the Fund. U.S. shareholders are urged to consult their own tax advisors regarding the implications of the additional Medicare tax resulting from an investment in the Fund.
The Fund will be required in certain cases to withhold and remit to the U.S. Treasury backup withholding taxes at the applicable rate on ordinary income dividends, qualified dividends and capital gain dividends, and the proceeds of redemption of shares, paid to any shareholder (1) who has failed to provide a correct taxpayer identification number, (2) who is subject to backup withholding for failure to report the receipt of interest or dividend income properly, or (3) who has failed to certify to the Fund that it is not subject to backup withholding or is an "exempt recipient" (such as a corporation). Amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a shareholder's U.S. federal income tax liability provided the required information is furnished to the IRS.
The Fund’s distributions are taxable and will be taxed as ordinary income or capital gains, unless you are investing through a tax-deferred account, such as a 401(k) plan, individual retirement account (IRA) or 529 college savings plan. Tax-deferred arrangements may be taxed later upon withdrawal of monies from those accounts.
Sale or Redemption of Shares
A Fund shareholder will recognize gain or loss on the sale or redemption of shares of the Fund (including an exchange of shares of the Fund for shares of another Fund) in an amount equal to the difference between the proceeds of the sale or redemption and the shareholder's adjusted tax basis in the shares. All or a portion of any loss so recognized may be disallowed if the shareholder purchases other shares of the same Fund within 30 days before or after the sale or redemption. In general, any gain or loss arising from (or treated as arising from) the sale or redemption of shares of the Fund will be considered capital gain or loss and will be long-term capital gain or loss if the shares were held for longer than one year. However, any capital loss arising from the sale or redemption of shares held for six months or less will be disallowed to the extent of the amount of exempt-interest dividends received on such shares (unless the loss is with respect to shares of the Fund for which the holding period began after December 22, 2010, and the Fund declares exempt-interest dividends on a daily basis in an amount equal to at least 90% of its net tax-exempt interest and distributes such dividends at least monthly) and (to the extent not disallowed) will be treated as a long-term capital loss to the extent of the amount of capital gain dividends received on such shares. For this purpose, the special holding period rules of Code Section 246(c) (discussed above in connection with the dividends-received deduction for corporations) generally will apply in determining the holding period of shares. Capital losses in any year are deductible only to the extent of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
Statement of additional Information
Market Neutral ETF / 83
If a shareholder (1) incurs a sales load in acquiring shares of the Fund, (2) disposes of such shares less than 91 days after they are acquired and (3) subsequently acquires, during the period beginning on the date of the disposition referred to in clause (2) and ending on January 31 of the calendar year following the calendar year that includes the date of such disposition, shares of the Fund or another Fund at a reduced sales load pursuant to a right acquired in connection with the acquisition of the shares disposed of, then the sales load on the shares disposed of (to the extent of the reduction in the sales load on the shares subsequently acquired) shall not be taken into account in determining gain or loss on such shares but shall be treated as incurred on the acquisition of the subsequently acquired shares.
Tax Shelter and Other Reporting Requirements
If a shareholder realizes a loss on the disposition of shares of the Fund of at least $2 million in any single taxable year, or at least $4 million in any combination of taxable years (for an individual shareholder) or at least $10 million in any single taxable year, or at least $20 million in any combination of taxable years (for a corporate shareholder), the shareholder must file with the Internal Revenue Service a disclosure statement on Form 8886. Shareholders should consult their tax advisors to determine the applicability of this requirement in light of their individual circumstances.
Foreign Taxation
Income received by the Fund from sources within foreign countries may be subject to withholding and other taxes imposed by such countries. Tax treaties and conventions between certain countries and the U.S. may reduce or eliminate such taxes. If more than 50% of the value of the Fund's total assets at the close of its taxable year consists of securities of foreign corporations, the Fund may be able to elect to "pass through" to the Fund's shareholders the amount of eligible foreign income and similar taxes paid by the Fund. If this election is made, a shareholder generally subject to tax will be required to include in gross income (in addition to taxable dividends actually received) his or her pro rata share of the foreign taxes paid by the Fund, and may be entitled either to deduct (as an itemized deduction) his or her pro rata share of foreign taxes in computing his or her taxable income or to use it as a foreign tax credit against his or her U.S. federal income tax liability, subject to certain limitations. In particular, a shareholder must hold his or her shares (without protection from risk of loss) on the ex-dividend date and for at least 15 more days during the 30-day period surrounding the ex-dividend date to be eligible to claim a foreign tax credit with respect to a gain dividend. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Each shareholder will be notified within 60 days after the close of the Fund's taxable year whether the foreign taxes paid by the Fund will "pass through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholder's U.S. tax attributable to his or her total foreign source taxable income. For this purpose, if the pass-through election is made, the source of the Fund's income will flow through to shareholders of the Fund. With respect to the Fund, gains from the sale of securities will be treated as derived from U.S. sources and certain currency fluctuation gains, including fluctuation gains from foreign currency-denominated debt securities, receivables and payables will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income, and to certain other types of income. A shareholder may be unable to claim a credit for the full amount of his or her proportionate share of the foreign taxes paid by the Fund.
Statement of additional Information
Market Neutral ETF / 84
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership ("foreign shareholder"), depends on whether the income from the Fund is "effectively connected" with a U.S. trade or business carried on by such shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or business carried on by a foreign shareholder, subject to the discussion below with respect to "interest-related dividends" and "short-term capital gain dividends," ordinary income dividends (including dividends that would otherwise be treated as qualified dividends to an applicable non-foreign shareholder) paid to such foreign shareholder will be subject to a 30% U.S. withholding tax (or lower applicable treaty rate) upon the gross amount of the dividend. Such foreign shareholder would generally be exempt from U.S. federal income tax, including withholding tax, on gains realized on the sale of shares of the Fund, capital gain dividends and capital gains retained by the Fund.
U.S. withholding tax generally does not apply to amounts designated by the Fund as an "interest-related dividend" or a "short-term capital gain dividend." The aggregate amount treated as an interest-related dividend for a year is limited to the Fund's qualified net interest income for the year, which is the excess of the sum of the Fund's qualified interest income (generally, its U.S.-source interest income) over the deductions properly allocable to such income. The aggregate amount treated as a "short-term capital gain dividend" is limited to the excess of the Fund's net short-term capital gain over its net long-term capital loss. In order to qualify for this exemption from withholding, a foreign investor needs to comply with applicable certification requirements relating to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN, W-8BEN-E or substitute Form). In the case of shares held through an intermediary, the intermediary may withhold even if the Fund reported the payment as qualified net interest income or qualified short-term capital gain. Foreign investors should contact their intermediaries with respect to the application of these rules to their accounts.
If the income from the Fund is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then any dividends, and any gains realized upon the sale or redemption of shares of the Fund will be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Fund may be required to withhold backup withholding taxes at the applicable rate on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish the Fund with proper notification of their foreign status.
Both dividends in respect of stock of the Fund, and, after December 31, 2018, gross proceeds from the sale of stock of the Fund, held by or through certain foreign financial institutions (including investment funds), require withholding tax at a rate of 30%, unless various certification, information reporting, due diligence and other applicable requirements (different from, and in addition to, those described above) are satisfied. Payments to a foreign financial institution generally will be subject to withholding unless, among other things, it enters into an agreement with the U.S. Treasury to obtain information with respect to and report on accounts held by certain U.S. persons or U.S. owned foreign entities, and to withhold on payments made to certain account holders. Payments to a foreign entity that is not a foreign financial institution generally will be subject to withholding if such entity or another non- financial foreign entity is the beneficial owner of the payment unless, among things, the beneficial owner or payee either certifies that the beneficial owner of the payment does not have any "substantial United States owners" or provides certain identifying information with respect to each of its substantial United States owners. Alternatively, such payments may be exempt from U.S. withholding pursuant to an intergovernmental approach whereby the government of a foreign country enters into an agreement with the U.S. Treasury providing for the collection and reporting of specified financial information. Payments that are taken into account as effectively connected income are not subject to these withholding rules. Foreign shareholders should consult their own tax advisors as to the applicability and consequences of this new legislation to them.
The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty might be different from those described herein. Foreign shareholders are urged to consult their own tax advisors with respect to the particular tax consequences to them of an investment in the Fund, including the applicability of foreign taxes.
Statement of additional Information
Market Neutral ETF / 85
Cost Basis Reporting
The Fund is generally required by law to report to shareholders and the IRS on Form 1099-B "cost basis" information for shares of the Fund acquired on or after September 30, 2019, and sold or redeemed after that date. Upon a disposition of such shares, the Fund will be required to report the adjusted cost basis, the gross proceeds from the disposition, and the character of realized gains or losses attributable to such shares. These requirements do not apply to investments through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement plan. The "cost basis" of a share is generally its purchase price adjusted for dividend reinvestments, returns of capital, and other corporate actions. "Cost basis" is used to determine whether a sale or other disposition of the shares results in a gain or loss.
The Funds will permit shareholders to elect among several IRS-accepted cost basis methods to determine the cost basis in their shares. If a shareholder does not affirmatively elect a cost basis method, then the Fund's default cost basis calculation method, which is currently the average cost method, will be applied to their account. Non-Covered shares (those shares purchased before September 30, 2019 and those shares that do not have complete cost basis information, regardless of purchase date) will be used first for any redemptions made after September 30, 2019, regardless of your cost basis method of election unless you have chosen the specific identification method and have designated covered shares (those purchased after September 30, 2019) at the time of your redemption. The cost basis method elected or applied may not be changed after the settlement date of a sale of shares.
If a shareholder holds shares through a broker, the shareholder should contact that broker with respect to the reporting of cost basis information.
Shareholders are urged to consult their tax advisors regarding specific questions with respect to the application of the new cost basis reporting rules and, in particular, which cost basis calculation method to elect.
Effect of Future Legislation, Foreign, State and Local Tax Considerations
The foregoing general discussion of U.S. federal income and excise tax consequences is based on the Code and the Treasury Regulations issued thereunder as in effect on the date of this SAI. Future legislative or administrative changes or court decisions may significantly change the conclusions expressed herein and any such changes or decisions may have a retroactive effect.
Rules of foreign, state and local taxation of ordinary income dividends, qualified dividends, exempt-interest dividends and capital gain dividends from regulated investment companies may differ from the rules for U.S. federal income taxation described above. Shareholders are urged to consult their tax advisors as to the consequences of these and other foreign, state and local tax rules affecting an investment in the Fund.
Statement of additional Information
Market Neutral ETF / 86
Section 14 | | Additional Information |
Description of Shares
As a Delaware business trust, the Trust need not hold regular annual shareholder meetings and, in the normal course, does not expect to hold such meetings. The Trust, however, must hold shareholder meetings for such purposes as, for example: (1) approving certain agreements as required by the 1940 Act; (2) changing fundamental investment objectives, policies, and restrictions of the Funds; and (3) filling vacancies on the Board of Trustees of the Trust in the event that less than a majority of the Trustees were elected by shareholders. Under the Trust's Amended and Restated Agreement and Declaration of Trust dated August 19, 2015 ("Declaration of Trust"), each Trustee will continue in office until the termination of the Trust or his/her earlier death, incapacity, resignation or removal. Vacancies may be filled by a majority of the remaining Trustees, except insofar as the 1940 Act may require the election by shareholders. Therefore, the Trust expects that there will be no meetings of shareholders for the purpose of electing Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders or unless matters arise requiring a vote of shareholders under the Agreement and Declaration of Trust or the 1940 Act. At such time, the Trustees then in office will call a shareholders meeting. In addition, holders of record of not less than two-thirds of the outstanding shares of the Trust may remove a Trustee from office by a vote cast in person or by proxy at a shareholder meeting called for that purpose at the request of holders of 10% or more of the outstanding shares of the Trust. The Funds have the obligation to assist in such shareholder communications. Except as set forth above, Trustees will continue in office and may appoint successor Trustees.
The Declaration of Trust authorizes the Trustees to issue an unlimited number of shares, which are units of beneficial interest, with no par value. The Declaration of Trust authorizes the Trustees to divide or redivide any unissued shares of the Trust into one or more additional series by setting or changing in any one or more aspects their respective preferences, conversion or other rights, voting power, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such conversion or exchange rights as the Trustees may grant in their discretion. When issued for payment as described in the Prospectuses and this SAI, the Trust's shares will be fully paid and non-assessable. In the event of a liquidation or dissolution of the Trust, shares of the Fund are entitled to receive the assets available for distribution belonging to the Fund, and a proportionate distribution, based upon the relative asset values of the respective series, of any general assets not belonging to any particular series that are available for distribution. The Board may classify and reclassify the shares of the Fund into classes of shares at a future date.
Shareholders of the Funds are entitled to one vote per share (with proportional voting for fractional shares) on such matters as shareholders are entitled to vote ("share-based voting"). Alternatively (except where the 1940 Act requires share-based voting), the Trustees in their discretion may determine that shareholders are entitled to one vote per dollar of NAV (with proportional voting for fractional dollar amounts). Shareholders of all series and classes will vote together as a single class on all matters except (1) when required by the 1940 Act or when the Trustees have determined that a matter affects one or more series or classes materially differently, shares shall be voted by individual series or class; and (2) when the Trustees have determined that the matter affects only the interests of a particular series or class, then only shareholders of such series or class shall be entitled to vote thereon.
There will normally be no meetings of shareholders for the purpose of electing Trustees unless and until such time as less than a majority of the Trustees have been elected by the shareholders, at which time the Trustees then in office will call a shareholders' meeting for the election of Trustees. A meeting shall be held for such purpose upon the written request of the holders of not less than one-third of the outstanding shares. Upon written request by ten or more shareholders of record meeting the qualifications of Section 16(c) of the 1940 Act, (i.e., persons who have been shareholders of record for at least six months and who hold shares having an NAV of at least $25,000 or constituting 1% of the outstanding shares, whichever is less) stating that such shareholders wish to communicate with the other shareholders for the purpose of obtaining the signatures necessary to demand a meeting to consider removal of a Trustee, the Trust will provide a list of shareholders or disseminate appropriate materials (at the expense of the requesting shareholders). Except as set forth above, the Trustees shall continue to hold office and may appoint their successors.
Statement of additional Information
Market Neutral ETF / 87
The Declaration of Trust permits the Trustees to take certain actions without obtaining shareholder approval, if the Trustees determine that doing so would be in the best interests of shareholders. These actions include: (a) reorganizing the Fund with another investment company or another series of the Trust; (b) liquidating the Fund; and (c) amending the Declaration of Trust, provided that it is consistent with the fair and equitable treatment of all shareholders and that shareholder approval is not otherwise required by the 1940 Act or other applicable law.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted to the holders of the outstanding voting securities of an investment company such as the Trust shall not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding shares, as defined under the 1940 Act, of each series affected by the matter. For purposes of determining whether the approval of a majority of the outstanding shares of the Fund will be required in connection with a matter, the Fund will be deemed to be affected by a matter unless it is clear that the interests of the Fund and any other series in the matter are identical, or that the matter does not affect any interest of other series of the Trust. Under Rule 18f-2, the approval of an investment advisory agreement or any change in investment policy would be effectively acted upon with respect to the Fund only if approved by a majority of the outstanding shares of such Fund. However, Rule 18f-2 also provides that the ratification of independent accountants, the approval of principal underwriting contracts and the election of Trustees may be effectively acted upon by shareholders of the Trust voting without regard to the Fund.
Shareholder and Trustee Liability
The Delaware Statutory Trust Act provides that a shareholder of a Delaware statutory trust shall be entitled to the same limitation of personal liability extended to shareholders of Delaware corporations and the Declaration of Trust provides that shareholders of the Trust shall not be liable for the obligations of the Trust. The Declaration of Trust also provides for indemnification out of the trust property of any shareholder held personally liable solely by reason of his or her being or having been a shareholder. The risk of a shareholder incurring financial loss on account of shareholder liability is considered to be extremely remote.
The Declaration of Trust states further that to the fullest extent permitted by Delaware law, no Trustee or officer of the Trust shall be personally liable in connection with the administration or preservation of the assets of the Funds or the conduct of the Trust's business; nor shall any Trustee, officer, or agent be personally liable to any person for any action or failure to act except for his own bad faith, willful misfeasance, gross negligence, or reckless disregard of his duties. The Declaration of Trust also provides that all persons having any claim against the Trustees or the Trust shall look solely to the assets of the Trust for payment.
Disclosure of Portfolio Holdings
The Board has adopted policies with respect to the disclosure of the Fund's portfolio holdings by the Fund, the Advisor, or their affiliates. These policies provide that the Fund's portfolio holdings information generally may not be disclosed to any party prior to the information becoming public. Certain limited exceptions are described below. These policies apply to disclosures to all categories of persons, including individual investors, institutional investors, intermediaries who sell shares of the Fund, third parties providing services to the Fund (accounting agent, print vendors, etc.), rating and ranking organizations (Lipper, Morningstar, etc.) and affiliated persons of the Fund.
The Trust's Chief Compliance Officer is responsible for monitoring the Fund's compliance with these policies and for providing regular reports (at least annually) to the Board regarding the adequacy and effectiveness of the policy and recommend changes, if necessary.
Statement of additional Information
Market Neutral ETF / 88
Public Disclosure. Each business day, the Fund's portfolio holdings information will generally be provided for dissemination through the facilities of the National Securities Clearing Corporation ("NSCC") and/or other fee-based subscription services to NSCC members and/or subscribers to those other fee-based subscription services, including Authorized Participants (as defined below), and to entities that publish and/or analyze such information in connection with the process of purchasing or redeeming Creation Units or trading shares of the Fund in the secondary market. This information typically reflects the Fund's anticipated holdings on the current business day.
For in-kind creations, a basket composition file, which includes the names and quantities of Deposit Securities to deliver in exchange for a Creation Unit of Shares, together with an estimated Cash Component for the current business day, will be publicly disseminated daily prior to the opening of the Exchange via the NSCC. The basket represents one Creation Unit of the Fund. The Trust and the Advisor will not disseminate non-public information concerning the Fund's portfolio holdings. However, access to information concerning the Fund's portfolio holdings may be permitted to personnel of third party service providers, including the Fund's custodian, transfer agent, auditors and counsel, as may be necessary to conduct business in the ordinary course in a manner consistent with such service providers' agreements with the Trust on behalf of the Fund.
The Fund also discloses its complete portfolio holdings in its annual and semiannual reports to shareholders, which are sent to shareholders no later than 60 days after the relevant fiscal period (June 30th and December 31st, respectively) and are available on the Fund's website, etf.timothyplan.com. The Fund also files its complete portfolio holdings as of the end of its first and third fiscal quarters (September 30th and March 31st, respectively) with the SEC on Form N-Q no later than 60 days after the relevant fiscal period. You can find these filings on the SEC's website, sec.gov.
Non-Public Disclosures. The Advisor may authorize the disclosure of non-public portfolio holdings information under certain limited circumstances. The Fund's policies provide that non-public disclosures of the Fund's portfolio holdings may only be made if: (i) the Fund has a "legitimate business purpose" (as determined by the President of the Trust) for making such disclosure; and (ii) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information and describes any compensation to be paid to the Fund or any "affiliated person" of the Advisor or Distributor, including any arrangement to maintain assets in the Fund or in other investment companies or accounts managed by the Advisor or by any "affiliated person" of the Advisor or Distributor.
The Advisor will consider any actual or potential conflicts of interest between the Advisor and the Fund's shareholders and will act in the best interest of the Fund's shareholders with respect to any such disclosure of portfolio holdings information. If a potential conflict can be resolved in a manner that does not present detrimental effects to Fund shareholders, the Advisor may authorize release of portfolio holdings information. Conversely, if the potential conflict cannot be resolved in a manner that does not present detrimental effects to Fund shareholders, the Advisor will not authorize such release.
Ongoing Arrangements to Disclose Portfolio Holdings. As previously authorized by the Board and/or the Trust's executive officers, the Fund periodically discloses non- public portfolio holdings on a confidential basis to various service providers that require such information in order to assist the Fund in its day-to-day operations, as well as public information to certain ratings organizations. These entities are described in the following table. The table also includes information as to the timing of these entities receiving the portfolio holdings information from the Fund. In none of these arrangements does the Fund or any "affiliated person" of the Advisor or Distributor receive any compensation, including any arrangement to maintain assets in the Fund or in other investment companies or accounts managed by the Advisor or by any "affiliated person" of the Advisor or Distributor.
Statement of additional Information
Market Neutral ETF / 89
Type of Service Provider | Name of Service Provider | Timing of Release of Portfolio Holdings Information |
Advisor | Timothy Partners, Ltd | Daily |
Sub-Advisor | Victory Capital Management Inc. | Daily |
Distributor | Foreside Fund Services, LLC | Daily |
Custodian | Citibank, N.A. | Daily |
Fund Accountant | Citi Fund Services Ohio, Inc. | Daily |
Financial Data Service | FactSet Research Systems, Inc. | Daily |
Independent Registered Public Accounting Firm | Cohen & Company, Ltd. | Annual Reporting Period: within 15 business days of end of reporting period. |
Printer for Financial Reports | Merrill Corporation | Up to 30 days before distribution to shareholders |
Legal Counsel, for EDGAR filings on Forms N-CSR and Form N-Q | David Jones, Esq | Up to 30 days before filing with the SEC |
Ratings Agency | Lipper | Daily, but on the following day |
Ratings Agency | Morningstar | Daily, but on the following day |
Financial Data Service | Bloomberg L.P. | Daily, but on the following day |
These service providers are required to keep all non-public information confidential and are prohibited from trading based on the information or otherwise using the information, except as necessary in providing services to the Fund.
There is no guarantee that the Fund's policies on use and dissemination of holdings information will protect the Fund from the potential misuse of holdings by individuals or firms in possession of such information.
Principal Holders of Fund Shares
As of December 31, 2022, the Fund had not yet commenced operations, so there are no shareholders to report.
Expenses
Unless agreed upon otherwise with a third party and the Board of Trustees, all expenses incurred in administration of the Funds will be paid by the Advisor, including investment management fees; fees and expenses of the Board of Trustees; interest charges; taxes; expenses of valuing assets; expenses of continuing registration and qualification of the Funds and the shares under federal and state law; share issuance expenses; fees and disbursements of independent accountants and legal counsel; fees and expenses of custodians, including, transfer agents and shareholder account servicing organizations; expenses of preparing, printing and mailing prospectuses, reports, proxies, notices and statements sent to shareholders; expenses of shareholder meetings; costs of investing in underlying funds; and insurance premiums. Expenses incurred for the operation of a particular Fund, including the expenses of communications with its shareholders, are paid by the Advisor.
Statement of additional Information
Market Neutral ETF / 90
The Fund is liable for nonrecurring expenses, including litigation to which they may from time to time be a party. The Fund is also responsible for paying brokerage commissions and related expenses.
Independent Registered Public Accounting Firm
The firm of Cohen & Company, Ltd., 1350 Euclid Ave., Suite 800, Cleveland, Ohio 44115, has been selected as the independent registered public accounting firm for the Funds for the fiscal year ending December 31, 2023. Cohen & Company, Ltd. performs an annual audit of the Funds' financial statements and provides financial, tax, and accounting consulting services as requested.
Financial Statements
The Trust's financial statements, including the notes thereto, dated December 31, 2022 which have been audited by Cohen & Company, Ltd., Independent Registered Public Accounting Firm, are incorporated by reference from the Timothy Plan's December 31, 2022 Annual Report to Shareholders.
Miscellaneous
As used in the Prospectuses and in this SAI, "assets belonging to the Fund" (or "assets belonging to the Fund") means the consideration received by the Trust upon the issuance or sale of shares of the Fund, together with all income, earnings, profits and proceeds derived from the investment thereof, including any proceeds from the sale, exchange, or liquidation of such investments and any funds or payments derived from any reinvestment of such proceeds and any general assets of the Trust, which general liabilities and expenses are not readily identified as belonging to a particular series that are allocated to that series by the Trustees. The Trustees may allocate such general assets in any manner they deem fair and equitable. It is anticipated that the factor that will be used by the Trustees in making allocations of general assets to a particular series will be the relative NAV of each respective series at the time of allocation. Assets belonging to a particular series are charged with the direct liabilities and expenses in respect of that series and with a share of the general liabilities and expenses of each of the series not readily identified as belonging to a particular series, which are allocated to each series in accordance with its proportionate share of the NAVs of the Trust at the time of allocation. The timing of allocations of general assets and general liabilities and expenses of the Trust to a particular series will be determined by the Trustees and will be in accordance with generally accepted accounting principles. Determinations by the Trustees as to the timing of the allocation of general liabilities and expenses and as to the timing and allocable portion of any general assets with respect to a particular series are conclusive.
As used in the Prospectuses and in this SAI, a "vote of a majority of the outstanding shares" of the Fund means the affirmative vote of the lesser of (a) 67% or more of the shares of the Fund present at a meeting at which the holders of more than 50% of the outstanding shares of the Fund are represented in person or by proxy, or (b) more than 50% of the outstanding shares of the Fund.
The Prospectus and this SAI are not an offering of the securities described in these documents in any state in which such offering may not lawfully be made. No salesman, dealer, or other person is authorized to give any information or make any representation other than those contained in the Prospectus and this SAI.
While this SAI and each Prospectus describe pertinent information about the Trust and the Funds, neither this SAI nor any Prospectus represents a contract between the Trust or the Fund and any shareholder.
STATEMENT OF ADDITIONAL INFORMATION
MARKET NEUTRAL ETF / 91
PART C. OTHER INFORMATION
Item 28. | Exhibits |
Item 29. | Persons Controlled by or Under Common Control with Registrant - None |
Item 30. | Indemnification |
Under the terms of the Delaware Business Trust Act (effective 2002 the Delaware Statutory Trust Act) and the Registrant’s Agreement and Declaration of Trust and By-Laws, no officer or Trustee of the Trust shall have any liability to the Trust or its shareholders for damages, except to the extent such limitation of liability is precluded by Delaware law, the Agreement and Declaration of Trust or the By-Laws.
The Delaware Business Trust Act, section 3817, permits a business trust to indemnify any trustee, beneficial owner, or other person from and against any claims and demands whatsoever. Section 3803 protects a trustee, when acting in such capacity, from liability to any person other than the business trust or beneficial owner for any act, omission, or obligation of the business trust or any trustee thereof, except as otherwise provided in the Agreement and Declaration of Trust.
The Agreement and Declaration of Trust provides that the Trustees shall not be responsible or liable in any event for any neglect or wrong-doing of any officer, agent, employee, manager or principal underwriter of the Trust, nor shall any Trustee be responsible for the act or omission of any other Trustee, and, subject to the provisions of the By-Laws, the Trust out of its assets may indemnify and hold harmless each and every officer and Trustee of the Trust from and against any and all claims, demands, costs, losses, expenses, and damages whatsoever arising out of or related to such Trustee’s performance of his or her duties as a officer or Trustee of the Trust; provided that nothing contained in the Agreement and Declaration of Trust shall indemnify, hold harmless or protect any officer or Trustee from or against any liability to the Trust or any shareholder to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
The By-Laws provide indemnification for an officer or Trustee who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Trust), by reason of the fact that such person is or was an agent of the Trust, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding, if it is determined that such person acted in good faith and reasonably believed: (a) in the case of conduct in his official capacity as an agent of the Trust, that his conduct was in the Trust’s best interests and (b) in all other cases, that his conduct was at least not opposed to the Trust’s best interests and (c) in the case of a criminal proceeding, that he had no reasonable cause to believe the conduct of that person was unlawful.
The termination of any proceeding by judgment, order or settlement shall not of itself create a presumption that the person did not meet the requisite standard of conduct set forth above. The termination of any proceeding by conviction, or a plea of nolo contendere or its equivalent, or any entry of an order of probation prior to judgment, shall create a rebuttable presumption that the person did not meet the requisite standard of conduct set forth above.
The By-Laws further provide indemnification for an officer or Trustee who was or is a party or is threatened to be made a party to any proceeding by or in the right of the Trust to procure a judgment in its favor by reason of the fact that the person is or was an agent of the Trust, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of that action if that person acted in good faith, in a manner that person believed to be in the best interests of the Trust and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.
The By-Laws provide no right to indemnification for any liability arising by reason of willful misfeasance, bad faith, gross negligence, or the reckless disregard of the duties involved in the conduct of an officer’s or Trustee’s office with the Trust. Further no indemnification shall be made:
(a) In respect of any proceeding as to which an officer or Trustee shall have been adjudged to be liable on the basis that personal benefit was improperly received by him, whether or not the benefit resulted from an action taken in the person’s official capacity; or
(b) In respect of any proceeding as to which an officer or Trustee shall have been adjudged to be liable in the performance of that person’s duty to the Trust, unless and only to the extent that the court in which that action was brought shall determine upon application that in view of all the relevant circumstances of the case, that person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine; however, in such case, indemnification with respect to any proceeding by or in the right of the Trust or in which liability shall have been adjudged by reason of the disabling conduct set forth in the preceding paragraph shall be limited to expenses; or
(c) Of amounts paid in settling or otherwise disposing of a proceeding, with or without court approval, or of expenses incurred in defending a proceeding which is settled or otherwise disposed of without court approval, unless the required approval as set forth below is obtained.
The By-Laws provide to the extent that an officer or Trustee has been successful, on the merits or otherwise, in the defense of any proceeding as set forth above before a court or other body before whom a proceeding was brought, the officer or Trustee shall be indemnified against expenses actually and reasonably incurred by the officer or Trustee in connection therewith, provided that the Board of Trustees, including a majority who are disinterested, non-party Trustees, also determines that based upon a review of the facts, the officer or Trustee was not liable by reason of the disabling conduct also as set forth above.
Except as provided for in the preceding paragraph, the By-Laws provide that any indemnification provided therein shall be made by the Trust only if authorized in the specific case on a determination that indemnification of the officer or Trustee is proper in the circumstances because the officer or Trustee has met the applicable standard of conduct as set forth above and is not prohibited from indemnification because of the disabling conduct also as set forth above, by:
(a) A majority vote of a quorum consisting of Trustees who are not parties to the proceeding and are not interested persons of the Trust (as defined in the Investment Company Act of 1940);
(b) A written opinion by an independent legal counsel; or
(c) The shareholders; however, shares held by an officer or Trustee who is a party to the proceeding may not be voted on the subject matter.
The By-Laws permit expenses incurred in defending any proceeding as set forth above to be advanced by the Trust before the final disposition of the proceeding if (a) receipt of a written affirmation by the officer or Trustee of his good faith belief that he has met the standard of conduct necessary for indemnification as set forth therein and a written undertaking by or on behalf of the officer or Trustee, such undertaking being an unlimited general obligation to repay the amount of the advance if it is ultimately determined that he has not me those requirements, and (b) a determination would not preclude indemnification as set forth therein. Determinations and authorizations of payments must be made in the manner specified above for determining that the indemnification is permissible.
No indemnification or advance is permitted under the By-Laws, with limited exceptions as set forth therein, in any circumstances where it appears:
(a) That it would be inconsistent with a provision of the Agreement and Declaration of Trust of the Trust, a resolution of the shareholders, or an agreement in effect at the time of accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
The Trustees and officers of the Trust are entitled and empowered under the Agreement and Declaration of Trust and By-Laws, to the fullest extent permitted by law, to purchase errors and omissions liability insurance with assets of the Trust, whether or not a Fund would have the power to indemnify him against such liability under the Agreement and Declaration of Trust or By-Laws.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to the Trustees, the officers, the underwriter or control persons of the Registrant pursuant to the foregoing provisions, the Registrant has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable.
Item 31. | Business and Other Connections of the Investment Manager |
(1.) | Covenant Funds, Inc., a Florida corporation and the managing general partner of the advisor, Timothy Partners, Ltd. Arthur D. Ally, is President and 75% shareholder of this corporation. |
Item 32. | Principal Underwriter. |
(1.a) | Timothy Partners, Ltd. is the principal underwriter for the Trust and currently acts only as an underwriter for the Trust. |
(1.b) | The table below sets forth certain information as to the Underwriter’s directors, officers and control persons: |
Name and Principal Business Address |
Positions and Offices with the Underwriter |
Positions and Offices with the Trust | ||
Arthur D. Ally 1055 Maitland Center Commons Maitland, FL 32751 |
President of Timothy Partners, Ltd. | Chairman, President and Treasurer |
(1. c) None
Item 33. | Location of Accounts and Records. |
Each account, book or other document required to be maintained by Section 31(a) of the 1940 Act and Rules 17 CFR 270.31a-1 to 31a-3 promulgated thereunder, is maintained by the Trust at 1055 Maitland Center Commons, Maitland, Florida 32751, except for those maintained by the Trust’s custodians, US Bank, N.A., 425 Vine Street, Cincinnati, Ohio, 45202, CitiBank, N.A. 388 Greenwich Street, New York, NY 10013 and the Registrant’s administrator, transfer, redemption/ dividend disbursing agent and accounting services agent, Gemini Fund Services, Inc., 4221 N. 203rd St, Suite 100, Elkhorn, NE 68022-3474.
Each adviser (or sub-adviser) will maintain physical possession of the accounts, books and other documents required to be maintained by Rule 31a-1(f) at the address of record for each separate series of the Trust that the adviser manages.
Item 34. | Management Services None |
Item 35. | Undertakings. |
Registrant hereby undertakes, if requested by the holders of at least 10% of the Registrant’s outstanding shares, to call a meeting of shareholders for the purpose of voting upon the question of removal of a director(s) and to assist in communications with other shareholders in accordance with Section 16(c) of the 1940 Act, as though Section 16(c) applied.
Registrant hereby undertakes to furnish each person to whom a prospectus is delivered with a copy of its latest annual report to shareholders, upon request and without charge.
Registrant hereby undertakes to carry out all indemnification provisions of its Agreement and Declaration of Trust and By-Laws in accordance with Investment Company Act Release No. 11330 (Sept. 4, 1980) and successor releases.
Insofar as indemnifications for liability arising under the Securities Act of 1933, as amended (“1933 Act”), may be permitted to directors, officers and controlling person of the Registrant pursuant to the provision under Item 27 herein, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication.
EXHIBIT INDEX
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, The Timothy Plan (the “Trust”) hereby certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the city of Maitland and the State of Florida on January 24, 2023.
THE TIMOTHY PLAN | |||
By: | /s/ Arthur D. Ally | ||
ARTHUR D. ALLY | |||
Chairman, President and Treasurer | |||
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
Signature | Title | Date | ||
/s/ Arthur D. Ally |
Chairman, President, Treasurer &Trustee | January 24, 2023 | ||
ARTHUR D. ALLY | ||||
/s/ Mathew D. Staver* |
Trustee | January 24, 2023 | ||
MATHEW D. STAVER | ||||
/s/ Deborah Honeycutt* |
Trustee | January 24, 2023 | ||
DEBORAH HONEYCUTT | ||||
/s/ Dale Bissonette* |
Trustee | January 24, 2023 | ||
DALE BISSONETTE | ||||
/s/ Scott Preissler* |
Trustee | January 24, 2023 | ||
SCOTT PREISSLER | ||||
/s/ Alan M. Ross* |
Trustee | January 24, 2023 | ||
ALAN M. ROSS | ||||
/s/ Richard W. Copeland* |
Trustee | January 24, 2023 | ||
RICHARD W. COPELAND | ||||
/s/ Abraham M. Rivera* |
Trustee | January 24, 2023 | ||
ABRAHAM M. RIVERA | ||||
/s/ William W. Johnson* |
Trustee | January 24, 2023 | ||
WILLAM W. JOHNSON | ||||
/s/ John C. Mulder* |
Trustee | January 24, 2023 | ||
JOHN C. MULDER | ||||
/s/ Patrice Tsague* |
Trustee | January 24, 2023 | ||
PATRICE TSAGUE | ||||
/s/ Kenneth Blackwell* |
Trustee | January 24, 2023 | ||
KENNETH BLACKWELL |
* | Signed pursuant to a Power of Attorney by Arthur D. Ally. |
THE TIMOTHY PLAN INVESTMENT ADVISORY AGREEMENT
JANUARY 19, 1994
CONSOLIDATED AND RESTATED
AS OF FEBRUARY 26, 2021
THIS AGREEMENT, originally made by and between THE TIMOTHY PLAN, a Delaware business trust, (hereinafter called the "Trust") and TIMOTHY PARTNERS, LTD., a Florida limited partnership, (hereinafter called "Investment Adviser") as of January 19, 1994, and as amended from time to time from that date to the present, is hereby consolidated and restated as of February 26, 2021.
WITNESSETH:
WHEREAS, the Trust has been organized and operates as an investment company registered under the Investment Company Act of 1940 (the "1940 Act") and engages in the business of investing and reinvesting its assets in securities, and the Investment Adviser is a registered Investment Adviser under the Investment Advisers Act of 1940 (the "Advisers Act") and engages in the business of providing investment management services; and
WHEREAS, the Trust has selected the Investment Adviser to serve as the investment adviser for the Trust effective as of the date of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, and each of the parties hereto intending to be legally bound, it is agreed as follows:
1. The Trust hereby employs the Investment Adviser to manage the investment and reinvestment of each series of the Trust, as may be created by the Board of Trustees from time to time, and as set forth on Schedule A to this Agreement, and to administer its affairs, subject to the direction of the Board of Trustees and officers of the Trust for the periods and on the terms hereinafter set forth. The Investment Adviser hereby accepts such employment and agrees during such period to render the services and assume the obligations herein set forth for the compensation herein provided. The Investment Adviser shall for all purposes herein, be deemed to be an independent contractor, and shall, unless otherwise expressly provided and authorized, have no authority to act for or to represent the Trust in any way, or in any way be deemed an agent of the Trust. The Investment Adviser shall regularly make decisions as to what securities to purchase and sell on behalf of each series of the Trust set forth on Schedule A and shall record and implement such decisions and shall furnish the Board of Trustees of the Trust with such information and reports regarding the Trust's investments as the Investment Adviser deems appropriate or as the Trustees of the Trust may reasonably request. Subject to compliance with the requirements of the 1940 Act, the Investment Adviser may retain as a sub-adviser to the Trust, at the Investment Adviser's own expense, any investment adviser registered under the Advisers Act.
2. The Trust shall conduct its own business and affairs and shall bear the expenses and salaries necessary and incidental thereto including, but not in limitation of the foregoing, the costs incurred in: the maintenance of its corporate existence; the maintenance of its own books, records and procedures; dealing with its own shareholders; the payment of dividends; transfer of stock, including issuance, redemption and repurchase of shares; preparation of share certificates; reports and notices to shareholders; calling and holding of shareholders' meetings; miscellaneous office expenses; brokerage commissions; custodian fees; legal and accounting fees; and taxes. Partners and employees of the Investment Adviser say be trustees, officers and employees of the funds of which Timothy Partners, Ltd. is Investment Adviser. Partners and employees of the Investment Adviser who are trustees, officers and/or employees of the Trust shall not receive any compensation from the Trust for acting in such dual capacity.
In the conduct of the respective businesses of the parties hereto and in the performance of this Agreement, the Trust and Investment Adviser may share facilities common to each, with appropriate proration of expenses between them.
3. (a) The Investment Adviser shall place and execute Trust orders for the purchase and sale of portfolio securities with broker/dealers. Subject to the primary objective of obtaining the best available prices and execution, the Investment Adviser will place orders for the purchase and sale of portfolio securities for the Trust with such broker/dealers as it may select from time to time, including brokers who provide statistical, factual and financial information and services to the Trust, to the Investment Adviser, or to any other fund for which the Investment Adviser provides investment advisory services and/or with broker/dealers who sell shares of the Trust or who sell shares of any other fund for which the Investment Adviser provides investment advisory services. Broker/dealers who sell shares of the funds of which Timothy Partners, Ltd. is Investment Adviser, shall only receive orders for the purchase or sale of portfolio securities to the extent that the placing of such orders is in compliance with the Rules of the Securities and Exchange Commission and the Financial Industry Reglatory Authority (“FINRA”).
(b) Notwithstanding the provisions of subparagraph (a) above and subject to such policies and procedures as may be adopted by the Board of Trustees and officers of the Trust, the Investment Adviser may ask the Trust and the Trust may agree to pay a member of an exchange, broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another member of an exchange, broker or dealer would have charged for effecting that transaction, in such instances where it and the Investment Adviser have determined in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such member, broker or dealer, viewed in terms of either that particular transaction or the Investment Adviser's overall responsibilities with respect to the Trust and to other funds for which the Investment Adviser exercises investment discretion.
4. As compensation for the services to be rendered to the Trust by the Investment Adviser under the provisions of this Agreement, each series of the Trust set forth on Schedule A shall pay to the Investment Adviser from such series' assets an annual fee equal to the percentage of the daily average net assets of such series as shall be set forth on Schedule A, payable on a monthly basis.
If this Agreement is terminated prior to the end of any calendar month, the management fee for each series of the Trust shall be prorated for the portion of any month in which this Agreement is in effect according to the proportion which the number of calendar days, during which the Agreement is in effect, bears to the number of calendar days in the month, and shall be payable within 10 days after the date of termination.
5. The services to be rendered by the Investment Adviser to the Trust under the provisions of this Agreement are not to be deemed to be exclusive, and the Investment Adviser shall be free to render similar or different services to others so long as its ability to render the services provided for in this Agreement shall not be impaired thereby.
6. The Investment Adviser, its partners, employees, and agents may engage in other businesses, may render investment advisory services to other investment companies, or to any other corporation, association, firm or individual, and may render underwriting services to the Trust or to any other investment company, corporation, association, firm or individual.
7. In the absence of willful misfeasance, bad faith, gross negligence, or a reckless disregard of the performance of duties of the Investment Adviser to the Trust, the Investment Adviser shall not be subject to liabilities to the Trust or to any shareholder of the Trust for any action or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security, or otherwise.
8. The Trust agrees that, in the event that the Investment Adviser ceases to be the Trust's investment adviser for any reason, the Trust will (unless the Investment Adviser otherwise agrees in writing) promptly take all necessary steps to propose to the shareholders at the next regular meeting that the Trust change to a name not including the word "Timothy." The Trust agrees that the word "Timothy" in its name is derived from the name of the Investment Adviser and is the property of the Investment Adviser for copyright and all other purposes and that therefore such word may be freely used by the Investment Adviser as to other investment activities or other investment products.
9. This Agreement shall be executed and become effective as of the date written below if approved by the vote of a majority of the outstanding voting securities of the Trust. For any additional series of the Trust to be included in this Agreement in the future, this Agreement shall become effective as to such series upon approval of the Board of Trustees pursuant to the requirements of the Investment Company Act of 1940., and be approved by the vote of a majority of the outstanding voting securities of such series. This Agreement shall continue in effect for a period of two years and may be renewed thereafter only so long as such renewal and continuance is specifically approved at least annually by the Board of Trustees or by vote of a majority of the outstanding voting securities of the Trust and only if the terms and the renewal hereof have been approved by the vote of a majority of the Trustees of the Trust who are not parties hereto or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. No amendment to this Agreement shall be effective unless the terms thereof have been approved by the vote of a majority of the outstanding voting securities of the Trust and by the vote of a majority of Trustees of the Trust who are not parties to the Agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. Notwithstanding the foregoing, this Agreement may be terminated by the Trust at any time, without the payment of a penalty, on sixty days' written notice to the Investment Adviser of the Trust's intention to do so, pursuant to action by the Board of Trustees of the Trust or pursuant to a vote of a majority of the outstanding voting securities of the Trust. The Investment Adviser may terminate this Agreement at any time, without the payment of penalty on sixty days' written notice to the Trust of its intention to do so. Upon termination of this Agreement, the obligations of all the parties hereunder shall cease and terminate as of the date of such termination, except for any obligation to respond for a breach of this Agreement committed prior to such termination, and except for the obligation of the Trust to pay to the Investment Adviser the fee provided in Paragraph 4 hereof, prorated to the date of termination. This Agreement shall automatically terminate in the event of its assignment.
10. This Agreement shall extend to and bind the heirs, executors, administrators and successors of the parties hereto.
11. For the purposes of this Agreement, the terms "vote of a majority of the outstanding voting securities"; "interested persons"; and "assignment" shall have the meaning defined in the Investment Company Act of 1940.
IN WITNESS WHEREOF, the parties hereto have caused their corporate seals to be affixed and duly attested and their presents to be signed by their duly authorized officers the 19th day of JANUARY, 1994.
Attest: | THE TIMOTHY PLAN |
By: |
Arthur D. Ally |
Attest: | TIMOTHY PARTNERS, LTD. | ||
By: COVENANT FUNDS, INC. | |||
Managing General Partner |
By: |
Arthur D. Ally, President |
SCHEDULE A
TO INVESTMENT ADVISORY AGREEMENT
DATED JANUARY 19, 1994
AMENDED AS OF
FEBRUARY 26, 2021
Name of Trust Series | Investment
Advisory Fee |
Timothy Plan Aggressive Growth Fund | 0.85% |
Timothy Plan Large/Mid Cap Growth Fund | 0.85% |
Timothy Plan Small Cap Value Fund | 0.85% |
Timothy Plan Large/Mid Cap Value Fund | 0.85% |
Timothy Plan Growth and Income Fund | 0.85% |
Timothy Plan International Fund | 1.00% |
Timothy Plan Israel Common Value Fund | 1.00% |
Timothy Plan Defensive Strategies Fund | 0.60% |
Timothy Plan Fixed Income Fund | 0.60% |
Timothy Plan High Yield Bond Fund | 0.60% |
Timothy Plan Strategic Growth Fund | 0.65% |
Timothy Plan Conservative Growth Fund | 0.65% |
Timothy Plan Strategic Growth Portfolio Variable Series | 0.10% |
Timothy Plan Conservative Growth Portfolio Variable Series | 0.10% |
Timothy Plan US Large/Mid Cap Core ETF | 0.52% |
Timothy Plan Small Cap Core ETF | 0.52% |
Timothy Plan High Dividend Stock ETF | 0.52% |
Timothy Plan International ETF | 0.62% |
THE TIMOTHY PLAN INVESTMENT ADVISORY AGREEMENT
JANUARY 19, 1994
CONSOLIDATED AND RESTATED
AS OF FEBRUARY 26, 2021
Amended as of July 27, 2021
THIS AGREEMENT, originally made by and between THE TIMOTHY PLAN, a Delaware business trust, (hereinafter called the "Trust") and TIMOTHY PARTNERS, LTD., a Florida limited partnership, (hereinafter called "Investment Adviser") as of January 19, 1994, and as amended from time to time from that date to the present, is hereby consolidated and restated as of February 26, 2021.
WITNESSETH:
WHEREAS, the Trust has been organized and operates as an investment company registered under the Investment Company Act of 1940 (the "1940 Act") and engages in the business of investing and reinvesting its assets in securities, and the Investment Adviser is a registered Investment Adviser under the Investment Advisers Act of 1940 (the "Advisers Act") and engages in the business of providing investment management services; and
WHEREAS, the Trust has selected the Investment Adviser to serve as the investment adviser for the Trust effective as of the date of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, and each of the parties hereto intending to be legally bound, it is agreed as follows:
1. The Trust hereby employs the Investment Adviser to manage the investment and reinvestment of each series of the Trust, as may be created by the Board of Trustees from time to time, and as set forth on Schedule A to this Agreement, and to administer its affairs, subject to the direction of the Board of Trustees and officers of the Trust for the periods and on the terms hereinafter set forth. The Investment Adviser hereby accepts such employment and agrees during such period to render the services and assume the obligations herein set forth for the compensation herein provided. The Investment Adviser shall for all purposes herein, be deemed to be an independent contractor, and shall, unless otherwise expressly provided and authorized, have no authority to act for or to represent the Trust in any way, or in any way be deemed an agent of the Trust. The Investment Adviser shall regularly make decisions as to what securities to purchase and sell on behalf of each series of the Trust set forth on Schedule A and shall record and implement such decisions and shall furnish the Board of Trustees of the Trust with such information and reports regarding the Trust's investments as the Investment Adviser deems appropriate or as the Trustees of the Trust may reasonably request. Subject to compliance with the requirements of the 1940 Act, the Investment Adviser may retain as a sub-adviser to the Trust, at the Investment Adviser's own expense, any investment adviser registered under the Advisers Act.
2. The Trust shall conduct its own business and affairs and shall bear the expenses and salaries necessary and incidental thereto including, but not in limitation of the foregoing, the costs incurred in: the maintenance of its corporate existence; the maintenance of its own books, records and procedures; dealing with its own shareholders; the payment of dividends; transfer of stock, including issuance, redemption and repurchase of shares; preparation of share certificates; reports and notices to shareholders; calling and holding of shareholders' meetings; miscellaneous office expenses; brokerage commissions; custodian fees; legal and accounting fees; and taxes. Partners and employees of the Investment Adviser may be trustees, officers and employees of the funds of which Timothy Partners, Ltd. is Investment Adviser. Partners and employees of the Investment Adviser who are trustees, officers and/or employees of the Trust shall not receive any compensation from the Trust for acting in such dual capacity.
In the conduct of the respective businesses of the parties hereto and in the performance of this Agreement, the Trust and Investment Adviser may share facilities common to each, with appropriate proration of expenses between them.
3. (a) The Investment Adviser shall place and execute Trust orders for the purchase and sale of portfolio securities with broker/dealers. Subject to the primary objective of obtaining the best available prices and execution, the Investment Adviser will place orders for the purchase and sale of portfolio securities for the Trust with such broker/dealers as it may select from time to time, including brokers who provide statistical, factual and financial information and services to the Trust, to the Investment Adviser, or to any other fund for which the Investment Adviser provides investment advisory services and/or with broker/dealers who sell shares of the Trust or who sell shares of any other fund for which the Investment Adviser provides investment advisory services. Broker/dealers who sell shares of the funds of which Timothy Partners, Ltd. is Investment Adviser, shall only receive orders for the purchase or sale of portfolio securities to the extent that the placing of such orders is in compliance with the Rules of the Securities and Exchange Commission and the Financial Industry Regulatory Authority (“FINRA”).
(b) Notwithstanding the provisions of subparagraph (a) above and subject to such policies and procedures as may be adopted by the Board of Trustees and officers of the Trust, the Investment Adviser may ask the Trust and the Trust may agree to pay a member of an exchange, broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another member of an exchange, broker or dealer would have charged for effecting that transaction, in such instances where it and the Investment Adviser have determined in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such member, broker or dealer, viewed in terms of either that particular transaction or the Investment Adviser's overall responsibilities with respect to the Trust and to other funds for which the Investment Adviser exercises investment discretion.
4. As compensation for the services to be rendered to the Trust by the Investment Adviser under the provisions of this Agreement, each series of the Trust set forth on Schedule A shall pay to the Investment Adviser from such series' assets an annual fee equal to the percentage of the daily average net assets of such series as shall be set forth on Schedule A, payable on a monthly basis.
If this Agreement is terminated prior to the end of any calendar month, the management fee for each series of the Trust shall be prorated for the portion of any month in which this Agreement is in effect according to the proportion which the number of calendar days, during which the Agreement is in effect, bears to the number of calendar days in the month, and shall be payable within 10 days after the date of termination.
5. The services to be rendered by the Investment Adviser to the Trust under the provisions of this Agreement are not to be deemed to be exclusive, and the Investment Adviser shall be free to render similar or different services to others so long as its ability to render the services provided for in this Agreement shall not be impaired thereby.
6. The Investment Adviser, its partners, employees, and agents may engage in other businesses, may render investment advisory services to other investment companies, or to any other corporation, association, firm or individual, and may render underwriting services to the Trust or to any other investment company, corporation, association, firm or individual.
7. In the absence of willful misfeasance, bad faith, gross negligence, or a reckless disregard of the performance of duties of the Investment Adviser to the Trust, the Investment Adviser shall not be subject to liabilities to the Trust or to any shareholder of the Trust for any action or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security, or otherwise.
8. The Trust agrees that, in the event that the Investment Adviser ceases to be the Trust's investment adviser for any reason, the Trust will (unless the Investment Adviser otherwise agrees in writing) promptly take all necessary steps to propose to the shareholders at the next regular meeting that the Trust change to a name not including the word "Timothy." The Trust agrees that the word "Timothy" in its name is derived from the name of the Investment Adviser and is the property of the Investment Adviser for copyright and all other purposes and that therefore such word may be freely used by the Investment Adviser as to other investment activities or other investment products.
9. This Agreement shall be executed and become effective as of the date written below if approved by the vote of a majority of the outstanding voting securities of the Trust. For any additional series of the Trust to be included in this Agreement in the future, this Agreement shall become effective as to such series upon approval of the Board of Trustees pursuant to the requirements of the Investment Company Act of 1940., and be approved by the vote of a majority of the outstanding voting securities of such series. This Agreement shall continue in effect for a period of two years and may be renewed thereafter only so long as such renewal and continuance is specifically approved at least annually by the Board of Trustees or by vote of a majority of the outstanding voting securities of the Trust and only if the terms and the renewal hereof have been approved by the vote of a majority of the Trustees of the Trust who are not parties hereto or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. No amendment to this Agreement shall be effective unless the terms thereof have been approved by the vote of a majority of the outstanding voting securities of the Trust and by the vote of a majority of Trustees of the Trust who are not parties to the Agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. Notwithstanding the foregoing, this Agreement may be terminated by the Trust at any time, without the payment of a penalty, on sixty days' written notice to the Investment Adviser of the Trust's intention to do so, pursuant to action by the Board of Trustees of the Trust or pursuant to a vote of a majority of the outstanding voting securities of the Trust. The Investment Adviser may terminate this Agreement at any time, without the payment of penalty on sixty days' written notice to the Trust of its intention to do so. Upon termination of this Agreement, the obligations of all the parties hereunder shall cease and terminate as of the date of such termination, except for any obligation to respond for a breach of this Agreement committed prior to such termination, and except for the obligation of the Trust to pay to the Investment Adviser the fee provided in Paragraph 4 hereof, prorated to the date of termination. This Agreement shall automatically terminate in the event of its assignment.
10. This Agreement shall extend to and bind the heirs, executors, administrators and successors of the parties hereto.
11. For the purposes of this Agreement, the terms "vote of a majority of the outstanding voting securities"; "interested
persons"; and "assignment" shall have the meaning defined in the Investment Company Act of 1940.
IN WITNESS WHEREOF, the parties hereto have caused their corporate seals to be affixed and duly attested and their presents to be signed by their duly authorized officers the 19th day of JANUARY, 1994.
Attest: | THE TIMOTHY PLAN | |||
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By: | ![]() |
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Arthur D. Ally | ||||
Attest: | ||||
TIMOTHY PARTNERS, LTD. | ||||
By: COVENANT FUNDS, INC. Managing General Partner | ||||
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By: | ![]() |
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Arthur D. Ally, President |
SCHEDULE A
TO INVESTMENT ADVISORY AGREEMENT
DATED JANUARY 19, 1994
CONSOLIDATED AS OF FEBRUARY 26, 2021
LAST AMENDED AS OF
July 27, 2021
Name of Trust Series | Investment Advisory Fee |
Timothy Plan Aggressive Growth Fund | 0.85% |
Timothy Plan Large/Mid Cap Growth Fund | 0.85% |
Timothy Plan Small Cap Value Fund | 0.85% |
Timothy Plan Large/Mid Cap Value Fund | 0.85% |
Timothy Plan Growth and Income Fund | 0.85% |
Timothy Plan International Fund | 1.00% |
Timothy Plan Israel Common Value Fund | 1.00% |
Timothy Plan Defensive Strategies Fund | 0.60% |
Timothy Plan Fixed Income Fund | 0.60% |
Timothy Plan High Yield Bond Fund | 0.60% |
Timothy Plan Strategic Growth Fund | 0.65% |
Timothy Plan Conservative Growth Fund | 0.65% |
Timothy Plan Strategic Growth Portfolio Variable Series | 0.10% |
Timothy Plan Conservative Growth Portfolio Variable Series | 0.10% |
Timothy Plan US Large/Mid Cap Core ETF | 0.52% |
Timothy Plan Small Cap Core ETF | 0.52% |
Timothy Plan High Dividend Stock ETF | 0.52% |
Timothy Plan International ETF | 0.62% |
Timothy Plan Large/Mid Cap Core Enhanced ETF | 0.52% |
Timothy Plan High Dividend Stock Enhanced ETF | 0.52% |
THE TIMOTHY PLAN INVESTMENT ADVISORY AGREEMENT
JANUARY 19, 1994
CONSOLIDATED AND RESTATED
AS OF FEBRUARY 26, 2021
Amended as of November 21, 2022
THIS AGREEMENT, originally made by and between THE TIMOTHY PLAN, a Delaware business trust, (hereinafter called the "Trust") and TIMOTHY PARTNERS, LTD., a Florida limited partnership, (hereinafter called "Investment Adviser") as of January 19, 1994, and as amended from time to time from that date and consolidated and restated as of February 26, 2021, is hereby amended as follows:
WITNESSETH:
WHEREAS, the Trust has been organized and operates as an investment company registered under the Investment Company Act of 1940 (the "1940 Act") and engages in the business of investing and reinvesting its assets in securities, and the Investment Adviser is a registered Investment Adviser under the Investment Advisers Act of 1940 (the "Advisers Act") and engages in the business of providing investment management services; and
WHEREAS, the Trust has selected the Investment Adviser to serve as the investment advisor for the Trust; and
WHEREAS, the Trust has initiated the filing of a new ETF named the Timothy Plan Market Neutral ETF, and the parties hereto desire that the Advisor shall provide those services set forth in the Investment Advisory Agreement dated January 19, 1994 as restated on February 26, 2021.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and as set forth in the Investment Advisory Agreement dated January 19, 1994 as restated on February 26, 2021, and each of the parties hereto intending to be legally bound, it is agreed as follows:
1. The Trust hereby employs the Investment Adviser to manage the investment and reinvestment of the new series of the Trust referred to as the Timothy Plan Market Neutral ETF and the Investment Adviser hereby accepts such employment and agrees render the services and assume the obligations as set forth in the Timothy Plan Investment Advisory Agreement as Restated and shall provide such services for the compensation herein provided on Schedule A attached hereto.
2. This Amendment shall be executed and become effective as of the date written below if approved by the vote of a majority of the outstanding voting securities of the Trust. This Agreement shall continue in effect for a period of two years and may be renewed thereafter only so long as such renewal and continuance is specifically approved at least annually by the Board of Trustees or by vote of a majority of the outstanding voting securities of the Trust and only if the terms and the renewal hereof have been approved by the vote of a majority of the Trustees of the Trust who are not parties hereto or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval.
IN WITNESS WHEREOF, the parties hereto have caused their corporate seals to be affixed and duly attested and their presents to be signed by their duly authorized officers the 21st day of November, 2022.
Attest: | THE TIMOTHY PLAN |
By: |
Arthur D. Ally |
Attest: | TIMOTHY PARTNERS, LTD. | ||
By: COVENANT FUNDS, INC. | |||
Managing General Partner |
By: |
Arthur D. Ally, President |
SCHEDULE A
TO INVESTMENT ADVISORY AGREEMENT
DATED JANUARY 19, 1994
CONSOLIDATED AS OF FEBRUARY 26, 2021
LAST AMENDED AS OF
November 21, 2022
Name of Trust Series | Investment
Advisory Fee |
Timothy Plan Aggressive Growth Fund | 0.85% |
Timothy Plan Large/Mid Cap Growth Fund | 0.85% |
Timothy Plan Small Cap Value Fund | 0.85% |
Timothy Plan Large/Mid Cap Value Fund | 0.85% |
Timothy Plan Growth and Income Fund | 0.85% |
Timothy Plan International Fund | 1.00% |
Timothy Plan Israel Common Value Fund | 1.00% |
Timothy Plan Defensive Strategies Fund | 0.60% |
Timothy Plan Fixed Income Fund | 0.60% |
Timothy Plan High Yield Bond Fund | 0.60% |
Timothy Plan Strategic Growth Fund | 0.65% |
Timothy Plan Conservative Growth Fund | 0.65% |
Timothy Plan Strategic Growth Portfolio Variable Series | 0.10% |
Timothy Plan Conservative Growth Portfolio Variable Series | 0.10% |
Timothy Plan US Large/Mid Cap Core ETF | 0.52% |
Timothy Plan Small Cap Core ETF | 0.52% |
Timothy Plan High Dividend Stock ETF | 0.52% |
Timothy Plan International ETF | 0.62% |
Timothy Plan Large/Mid Cap Core Enhanced ETF | 0.52% |
Timothy Plan High Dividend Stock Enhanced ETF | 0.52% |
Timothy Plan Market Neutral ETF | 0.65% |
AMENDMENT
TO
SUB-ADVISORY AGREEMENT
THIS AMENDMENT NO. 1 dated as of July 28, 2021 to the Sub-Advisory Agreement dated as of Feb. 25, 2019 (the “Agreement”) is made by and between the Timothy Partners, Ltd., a Florida Limited Partnership (“Advisor”), and Victory Capital Management Inc., a New York corporation (“Sub-Advisor”). Capitalized terms not otherwise defined herein are to be ascribed the meaning set forth in the Agreement
WITNESSETH:
WHEREAS, the Advisor and the Sub-Advisor entered into the Agreement for investment advisory services to the funds set forth on Schedule “A” of the Agreement;
WHEREAS, the Advisor and the Sub-Advisor desire to amend the Agreement to reflect the addition of two new exchange traded funds (each a “Fund”); and
NOW, THEREFORE, in consideration of the foregoing and subject to the terms and conditions set forth herein, the parties hereby agree to amend the Agreement as follows:
1. | Schedule A to the Agreement is hereby supplemented by adding two new Funds effective July 28, 2021. |
2. | Other Provisions. Except as amended hereby, the parties acknowledge that all other provisions of the Agreement shall remain in full force and effect. |
IN WITNESS WHEREOF, the parties have executed or caused this Amendment to the Agreement to be executed as of the date first above written.
VICTORY CAPITAL MANAGEMENT INC. | TIMOTHY PARTNERS, LTD. | ||||
By: | ![]() |
By: | ![]() |
Name: | Michael D. Policarpo | Name: | Art Ally | ||
Title: | President, CFO and CAO | Title: | President |
Schedule A
(as supplemented effective July 28, 2021)
Sub-Advisory Fee Schedule
Timothy Plan US Large/Mid Cap Core Enhanced ETF (TPLE)
Timothy Plan High Dividend Stock Enhanced ETF (TPHE)
The Sub-Advisory Fee for the two Funds listed above shall be:
1. | For the first 6 months following the launch of the two Funds commencing, a fee of 0.00% will be assessed on the first $10 million in aggregate assets invested in both Funds. A fee of 0.125% will be assessed on the two Funds’ for aggregate net assets between $10 million and $20 million. A fee of 0.235% bps will be assessed on the two Funds’ aggregate net assets above $20 million. |
2. | Thereafter, the management fee payable by the Advisor to the Sub-Advisory under the Sub-Advisory Agreement shall be 0.235% basis points on all assets, subject to the minimum monthly fee of $1,500, for each of the Funds. |
The minimum monthly fee is subject to increase based on Index Provider fee schedule.
ORDER
FORM and
DERIVATIVE PRODUCT SCHEDULE
TO THE VICTORY CAPITAL INDEX LICENSE AGREEMENT
Licensee | Timothy Partners, LTD |
Index License Agreement Effective Date | April 30, 2019 |
Schedule Effective Date | June 28, 2021 |
This Order Form and Derivative Product Schedule ("Schedule") together with the Index License Agreement between Victory Capital Management Inc. and Licensee referenced above ("Index Agreement"), governs Licensee’s license to, and use of the Index and Marks, to create the Derivative Product detailed herein. All capitalized terms not defined herein shall be assigned the same definition as set forth in the Index Agreement.
1. | Victory Index(es) and Marks. |
Victory Index(es) | Victory US Large/Mid Cap Long/Cash Volatility Weighted BRI Index Victory US Large/Mid Cap Long/Cash Volatility Weighted BRI Index TR Victory US Large Cap High Dividend Long/Cash Volatility Weighted BRI Index Victory US Large Cap High Dividend Long/Cash Volatility Weighted BRI Index TR |
Victory Marks | Victory |
2. | Licensee Marks |
Licensee Marks | Timothy Plan Biblically Responsible Investing Screen |
Permissible Derivative Product.
2.1 The term "Derivative Product" shall include the following account(s) that replicate an Index(es) for the Licensee’s or a third party sub-licensee's use in managing assets:
Permissible Derivative Products: | TIMOTHY PLAN US LARGE/MID CAP CORE ENHANCED ETF TIMOTHY PLAN HIGH DIVIDEND STOCK ENHANCED ETF |
Permitted Use:
For Licensee's use as follows: For Licensee to sub-license the Indexes as a basis for trading in proprietary account(s) sponsored by Sub-Licensee
3. | Schedule Term; Termination. |
The term of this Schedule shall commence as of the Schedule Effective Date and continue for three (3) years from when a Derivative Product starts tracking one of the Indexes calculated by Licensor. The Schedule shall renew automatically for additional one (1) year renewal terms, unless terminated by a party by the delivery of written notice to the other parties not less than ninety (90) days prior to the start of the next Renewal Term.
The Schedule shall terminate once there are no longer any Derivative Products publicly offered or in the event the Index Agreement terminates.
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4. | Fees. |
No separate fee is contemplated under this Schedule. Reference is made to the fee arrangements set forth in the Index Agreement.
5. | Additional Terms and Conditions. |
(a) | Submission of Public Materials. For Derivative Product offerings which may be sold and/or marketed to the public, Licensee shall provide Licensor with a copy of any informational or promotional materials referring or relating to such offering, including, any prospectus, offering memorandum, registration statement, circular, advertisement, or brochure at least three (3) business days prior to its initial dissemination to third parties. Licensee need not resupply a copy of any material that is substantially like material previously submitted to Licensor and is identical as it describes the Licensor or its operations, the Indexes or the Licensor Marks, or the authorization, review or endorsement of Licensor of the Derivative Products. If Licensor reasonably objects by written notice to Licensee to any material as it describes Licensor, the Index or the Licensor Marks or the authorization, review of endorsement of Licensor of the Derivative Product within three (3) business days of Licensor's review, Licensee shall modify or withdraw such material to Licensor's satisfaction. |
(b) | Public Offering Documents Disclosure. In any prospectus, offering memorandum, contract or in some other conspicuous written manner, for each Derivative Product to each third party involved in such issuance, Licensee shall insure that substantially the following language appears (in conspicuous type, such as eleven (11) point type and the second paragraph in bold) so as to be enforceable under applicable local laws): |
The Derivative Products are not sponsored, endorsed, sold or promoted by Victory Capital or its affiliates (collectively, the "Corporations"). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Funds. The Corporations make no representation or warranty, express or implied to the owners of the Funds or any member of the public regarding the advisability of investing in securities generally or in the Funds particularly, or the ability of the Victory BRI Indexes to track general stock market performance. The Corporations have no obligation to take the needs of the Adviser, the Funds or Fund shareholders into consideration in determining, composing or calculating the Victory BRI Indexes.
The Corporations do not guarantee the accuracy and/or uninterrupted calculation of the Victory BRI Indexes or any data included therein. The Corporations make no warranty, express or implied, as to results to be obtained by Adviser, the Funds or Fund shareholders, or any other person or entity from the use of the Victory BRI Indexes or any data included therein. The Corporations make no express or implied warranties, and expressly disclaim all warranties of merchantability or fitness for a particular purpose or use with respect to the Victory BRI Indexes or any data included therein. Without limiting any of the foregoing, in no event shall the Corporations have any liability for any lost profits or special, incidental, punitive, indirect, or consequential damages, even if notified of the possibility of such damages.
6. | Additional Terms and Conditions. |
(a) | Ownership. Except for the Licensee Marks, Licensor shall retain all right, title and interest to the Indexes and Licensee Methodology detailed herein, including but not limited to all patent, trademark, copyright, trade secret and all other intellectual property rights in the foregoing. Licensor retains all right, title and interest in and to the Licensor Marks and all Index calculation data, including but not limited to all patent, trademark, copyright, trade secret and all other intellectual property rights in the foregoing. Each Party shall, at the other Party's expense, reasonably cooperate with the other Party in the maintenance, registration, and enforcement of other Party’s rights. |
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(b) | [Reserved.] |
IN WITNESS WHEREOF, the Parties hereto, have executed this Schedule as of the Schedule Effective Date:
Victory Capital Management Inc.: | Licensee: Timothy Partners, Ltd. | ||||
By: | ![]() |
By: | ![]() |
||
Name (Print): | Michael D. Policarpo | Name (Print): | Art Ally | ||
Title: | President, CFO and CAO | Title: | President | ||
Date: | 07/27/2021 | Date: | 7-28-21 |
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ETF DISTRIBUTION AGREEMENT
This distribution agreement (the “Agreement”) is effective this 10th day of January 2023, and made by Timothy Plan, a Delaware business trust (the “Trust”) having its principal place of business at 1055 Maitland Center Commons, Maitland, FL 32751, and Foreside Fund Services, LLC, a Delaware limited liability company (the “Distributor”) having its principal place of business at Three Canal Plaza, Suite 100, Portland, ME 04101.
WHEREAS, the Trust is a registered open-end management investment company organized under the Investment Company Act of 1940, as amended (the “1940 Act”) with separate and distinct series (each series a “Fund”) registered with the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”);
WHEREAS, the Trust intends to create and redeem shares of beneficial interest (the “Shares”) of each Fund on a continuous basis and list the Shares on one or more national securities exchanges (together, the “Listing Exchanges”);
WHEREAS, the Distributor is registered with the SEC as a broker-dealer under the Securities Exchange Act of 1934, as amended (the “1934 Act”), and is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”);
WHEREAS, the Trust desires to retain the Distributor to (i) act as the principal underwriter of the Funds with respect to the creation and redemption of Creation Units of each Fund, and (ii) hold itself available to review and approve orders for such Creation Units in the manner set forth in the Trust’s Prospectus; and
WHEREAS, the Distributor desires to provide the services described herein to the Trust subject to the terms and conditions set forth below.
NOW THEREFORE, in consideration of the mutual promises and undertakings herein contained, the parties agree as follows:
1. Appointment. The Trust hereby appoints the Distributor to serve as the principal underwriter of the Funds with respect to the creation and redemption of Creation Units of each Fund listed in Exhibit A hereto (as may be amended by the Trust from time to time on written notice to the Distributor) on the terms and for the period set forth in this Agreement and subject to the registration requirements of the federal securities laws and of the laws governing the sale of securities in the various states, and the Distributor hereby accepts such appointment and agrees to act in such capacity hereunder.
2. Definitions. Wherever they are used herein, the following terms have the following respective meanings:
(a) “Prospectus” means the Prospectus and Statement of Additional Information constituting parts of the Registration Statement of the Trust under the 1933 Act and the 1940 Act as such Prospectus and Statement of Additional Information may be amended or supplemented and filed with the SEC from time to time;
(b) “Registration Statement” means the registration statement most recently filed from time to time by the Trust with the SEC and effective under the 1933 Act and the 1940 Act, as such registration statement is amended by any amendments thereto at the time in effect;
(c) All other capitalized terms used but not defined in this Agreement shall have the meanings ascribed to such terms in the Registration Statement and the Prospectus.
3. Duties of the Distributor
(a) The Distributor agrees to serve as the principal underwriter of the Funds in connection with the review and approval of all Purchase and Redemption Orders of Creation Units of each Fund by Authorized Participants that have executed an Authorized Participant Agreement with the Distributor and Transfer Agent/ Index Receipt Agent. Nothing herein shall affect or limit the right and ability of the Transfer Agent/ Index Receipt Agent to accept Fund Securities, Deposit Securities, and related Cash Components through or outside the Clearing Process, and as provided in and in accordance with the Registration Statement and Prospectus. The Trust acknowledges that the Distributor shall not be obligated to approve any certain number of orders for Creation Units.
(b) The Distributor agrees to use commercially reasonable efforts to provide the following services to the Trust with respect to the continuous distribution of Creation Units of each Fund: (i) at the request of the Trust, the Distributor shall enter into Authorized Participant Agreements between and among Authorized Participants, the Distributor and the Transfer Agent/Index Receipt Agent, for the purchase and redemption of Creation Units of the Funds, (ii) the Distributor shall approve and maintain copies of confirmations of Creation Unit purchase and redemption order acceptances; (iii) upon request, the Distributor will make available copies of the Prospectus to purchasers of such Creation Units and, upon request, the Statement of Additional Information; and (iv) the Distributor shall maintain telephonic, facsimile and/or access to direct computer communications links with the Transfer Agent.
(c) The Distributor shall ensure that all direct requests to Distributor for Prospectuses, Statements of Additional Information, product descriptions and periodic fund reports, as applicable, are fulfilled.
(d) The Distributor agrees to make available, at the Trust’s request, one or more members of its staff to attend, either via telephone or in person, Board meetings of the Trust in order to provide information with regard to the Distributor’s services hereunder and for such other purposes as may be requested by the Board of Trustees of the Trust.
(e) Distributor shall review and approve, prior to use, all Trust marketing materials (“Marketing Materials”) for compliance with SEC and FINRA advertising rules and will file all Marketing Materials required to filed with FINRA. The Distributor agrees to furnish to the Trust’s investment adviser any comments provided by FINRA with respect to such materials.
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(f) The Distributor shall not offer any Shares and shall not approve any creation or redemption order hereunder if and so long as the effectiveness of the Registration Statement then in effect or any necessary amendments thereto shall be suspended under any of the provisions of the 1933 Act or if and so long as a current prospectus as required by Section 10 of the 1933 Act is not on file with the SEC; provided, however, that nothing contained in this paragraph shall in any way restrict or have any application to or bearing upon the Trust’s obligation to redeem or repurchase any Shares from any shareholder in accordance with provisions of the Prospectus or Registration Statement.
(g) The Distributor shall work with the Index Receipt Agent to review and approve orders placed by Authorized Participants and transmitted to the Index Receipt Agent.
(h) The Distributor agrees to maintain, and preserve for the periods prescribed by Rule 31a-2 under the 1940 Act, such records as are required to be maintained by Rule 31a-1(d) under the 1940 Act. The Distributor agrees that all records which it maintains pursuant to the 1940 Act for the Trust shall at all times remain the property of the Trust, shall be readily accessible during normal business hours, and shall be promptly surrendered upon the termination of the Agreement or otherwise on written request; provided, however, that Distributor may retain all such records required to be maintained by Distributor pursuant to applicable FINRA or SEC rules and regulations.
(j) The Distributor agrees to maintain compliance policies and procedures (a “Compliance Program”) that are reasonably designed to prevent violations of the Federal Securities Laws (as defined in Rule 38a-1 of the 1940 Act) with respect to the Distributor’s services under this Agreement, and to provide any and all information with respect to the Compliance Program, including without limitation, information and certifications with respect to material violations of the Compliance Program and any material deficiencies or changes therein, as may be reasonably requested by the Trust’s Chief Compliance Officer or Board of Trustees.
4. Duties of the Trust.
(a) The Trust agrees to create, issue, and redeem Creation Units of each Fund in accordance with the procedures described in the Prospectus. Upon reasonable notice to the Distributor and in accordance with the procedures described in the Prospectus, the Trust reserves the right to reject any order for Creation Units or to stop all receipts of such orders at any time.
(b) The Trust agrees that it will take all actions necessary to register an indefinite number of Shares under the 1933 Act.
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(c) The Trust will make available to the Distributor such number of copies as Distributor may reasonably request of (i) its then currently effective Prospectus and Statement of Additional Information and product description, (ii) copies of semi-annual reports and annual audited reports of the Trust’s books and accounts made by independent public accountants regularly retained by the Trust, and (iii) such other publicly available information for use in connection with the distribution of Creation Units.
(d) The Trust shall inform Distributor of any such jurisdictions in which the Trust has filed notice filings for Shares for sale under the securities laws thereof and shall promptly notify the Distributor of any change in this information. The Distributor shall not be liable for damages resulting from the sale of Shares in authorized jurisdictions where the Distributor had no information from the Trust that such sale or sales were unauthorized at the time of such sale or sales.
The Distributor acknowledges and agrees that the Trust reserves the right to suspend sales and Distributor’s authority to review and approve orders for Creation Units on behalf of the Trust. Upon due notice to the Distributor, the Trust shall suspend the Distributor’s authority to review and approve Creation Units if, in the judgment of the Trust, it is in the best interests of the Trust to do so. Suspension will continue for such period as may be determined by the Trust.
(e) The Trust shall arrange to provide the Listing Exchanges with copies of Prospectuses, Statements of Additional Information, and product descriptions to be provided to purchasers in the secondary market.
(f) The Trust will make it known that Prospectuses and Statements of Additional Information and product descriptions are available by making sure such disclosures are in all marketing and advertising materials prepared by the Trust.
5. Fees and Expenses.
(a) The Distributor shall be entitled to no compensation or reimbursement of expenses from the Trust for the services provided by the Distributor pursuant to this Agreement. The Distributor may receive compensation from the Investment Adviser related to its services hereunder or for additional services as may be agreed to between the Investment Adviser and Distributor.
(b) The Trust shall bear the cost and expenses of: (i) the registration of the Shares for sale under the 1933 Act; and (ii) the registration or qualification of the Shares for sale under the securities laws of the various States.
(c) The Distributor shall pay (i) all expenses relating to Distributor’s broker-dealer qualification and registration under the 1934 Act; and (ii) the expenses incurred by the Distributor in connection with routine FINRA filing fees.
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(d) Notwithstanding anything in this Agreement to the contrary, the Distributor and its affiliates may receive compensation or reimbursement from the Trust’s Investment Adviser with respect to any services performed under this Agreement, as may be agreed upon by the parties from time to time.
The Trust shall bear any costs associated with printing Prospectuses, Statements of Additional Information and all other such materials.
6. Indemnification.
(a) The Trust agrees to indemnify and hold harmless the Distributor, its affiliates and each of their respective directors, officers and employees and agents and any person who controls the Distributor within the meaning of Section 15 of the 1933 Act (any of the Distributor, its officers, employees, agents and directors or such control persons, for purposes of this paragraph, a “Distributor Indemnitee”) against any loss, liability, claim, damages or expense (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damages or expense and reasonable counsel fees incurred in connection therewith) (“Losses”) that a Distributor Indemnitee may incur arising out of or based upon: (i) Distributor serving as distributor for the Trust pursuant to this Agreement; (ii) the allegation of any wrongful act of the Trust or any of its directors, officers, employees or affiliates in connection with its duties and responsibilities in this Agreement; (iii) any claim that the Registration Statement, Prospectus, Statement of Additional Information, product description, shareholder reports, Marketing Materials and advertisements specifically approved by the Trust and Investment Adviser or other information filed or made public by the Trust (as from time to time amended) included an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein (and in the case of the Prospectus, Statement of Additional Information and product description, in light of the circumstances under which they were made) not misleading under the 1933 Act, or any other statute or the common law; (iv) the breach by the Trust of any obligation, representation or warranty contained in this Agreement; or (v) the Trust’s failure to comply in any material respect with applicable securities laws.
(b) The Distributor agrees to indemnify and hold harmless the Trust and each of its Trustees and officers and any person who controls the Trust within the meaning of Section 15 of the 1933 Act (for purposes of this paragraph, the Trust and each of its Trustees and officers and its controlling persons are collectively referred to as the “Trust Indemnitees”) against any Losses arising out of or based upon (i) the allegation of any wrongful act of the Distributor or any of its directors, officers, employees or affiliates in connection with its activities as Distributor pursuant to this Agreement; (ii) the breach of any obligation, representation or warranty contained in this Agreement by the Distributor; (iii) the Distributor’s failure to comply in any material respect with applicable securities laws, including applicable FINRA regulations; or (iv) any allegation that the Registration Statement, Prospectus, Statement of Additional Information, product description, shareholder reports, any information or materials relating to the Funds (as described in section 3(g)) or other information filed or made public by the Trust (as from time to time amended) included an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements not misleading, insofar as such statement or omission was made in reliance upon, and in conformity with information furnished to the Trust, in writing, by the Distributor.
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In no case (i) is the indemnification provided by an indemnifying party to be deemed to protect against any liability the indemnified party would otherwise be subject to by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement, or (ii) is the indemnifying party to be liable under this Section with respect to any claim made against any indemnified party unless the indemnified party notifies the indemnifying party in writing of the claim within a reasonable time after the summons or other first written notification giving information of the nature of the claim shall have been served upon the indemnified party (or after the indemnified party shall have received notice of service on any designated agent).
Failure to notify the indemnifying party of any claim shall not relieve the indemnifying party from any liability that it may have to the indemnified party against whom such action is brought, on account of this Section, unless failure or delay to so notify the indemnifying party prejudices the indemnifying party’s ability to defend against such claim. The indemnifying party shall be entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce the claim, but if the indemnifying party elects to assume the defense, the defense shall be conducted by counsel chosen by it and satisfactory to the indemnified party. In the event that indemnifying party elects to assume the defense of any suit and retain counsel, the indemnified party shall bear the fees and expenses of any additional counsel retained by them. If the indemnifying party does not elect to assume the defense of any suit, it will reimburse the indemnified party for the reasonable fees and expenses of any counsel retained by them. The indemnifying party agrees to notify the indemnified party promptly of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the purchase or redemption of any of the Creation Units or the Shares.
(c) No indemnified party shall settle any claim against it for which it intends to seek indemnification from the indemnifying party, under the terms of section 6(a) or 6(b) above, without prior written notice to and consent from the indemnifying party, which consent shall not be unreasonably withheld. No indemnified or indemnifying party shall settle any claim unless the settlement contains a full release of liability with respect to the other party in respect of such action. This section 6 shall survive the termination of this Agreement.
(d) The Trust acknowledges and agrees that as part of its duties, Distributor will enter into agreements with certain authorized participants (each an “AP”) for the purchase and redemption of Creation Units (each such agreement an “AP Agreement”). The APs may insert and require that Distributor agree to certain provisions in the AP Agreements that contain certain representations, undertakings and indemnification that are not included in the form-of AP Agreement (each such modified AP Agreement a “Non-Standard AP Agreement”).
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To the extent that Distributor is requested or required to make any such representations mentioned above, the Trust shall indemnify, defend and hold the Distributor Indemnitees free and harmless from and against any and all Losses that any Distributor Indemnitee may incur arising out of or relating to (a) the Distributor’s actions or failures to act pursuant to any Non-Standard AP Agreement; (b) any representations made by the Distributor in any Non-Standard AP Agreement to the extent that the Distributor is not required to make such representations in the form-of AP Agreement; or (c) any indemnification provided by the Distributor under a Non-Standard AP Agreement. In no event shall anything contained herein be so construed as to protect the Distributor Indemnitees against any liability to the Trust or its shareholders to which the Distributor Indemnitees would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of Distributor’s obligations or duties under the Non-Standard AP Agreement or by reason of Distributor’s reckless disregard of its obligations or duties under the Non-Standard AP Agreement.
7. Representations.
(a) The Distributor represents and warrants that:
1. (i) it is duly organized as a Delaware limited liability company and is and at all times will remain duly authorized and licensed under applicable law to carry out its services as contemplated herein; (ii) the execution, delivery and performance of this Agreement are within its power and have been duly authorized by all necessary action; (iii) its entering into this Agreement or providing the services contemplated hereby does not conflict with or constitute a default or require a consent under or breach of any provision of any agreement or document to which the Distributor is a party or by which it is bound; (iv) it is registered as a broker-dealer under the 1934 Act and is a member of FINRA; and (v) it has in place compliance policies and procedures reasonably designed to prevent violations of the Federal Securities Laws as that term is defined in Rule 38a-1 under the 1940 Act.
2. All activities by the Distributor and its agents and employees in connection with the services provided in this Agreement shall comply with the Registration Statement and Prospectus, the instructions of the Trust, and all applicable laws, rules and regulations including, without limitation, all rules and regulations made or adopted pursuant to the 1940 Act by the SEC or any securities association registered under the 1934 Act, including FINRA and the Listing Exchanges.
(b) The Distributor and the Trust each individually represent that its anti-money laundering program (“AML Program”), at a minimum, (i) designates a compliance officer to administer and oversee the AML Program, (ii) provides ongoing employee training, (iii) includes an independent audit function to test the effectiveness of the AML Program, (iv) establishes internal policies, procedures, and controls that are tailored to its particular business, (v) provides for the filing of all necessary anti-money laundering reports including, but not limited to, currency transaction reports and suspicious activity reports, and (vi) allows for appropriate regulators to examine its anti-money laundering books and records. Notwithstanding the foregoing, the Trust acknowledges that the Authorized Participants are not “customers” for the purposes of 31 CFR 103.
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(c) The Distributor and the Trust each individually represent and warrant that: (i) it has procedures in place reasonably designed to protect the privacy of non-public personal consumer/customer financial information to the extent required by applicable law, rule and regulation; and (ii) it will comply with all of the applicable terms and provisions of the 1934 Act.
(d) The Trust represents and warrants that:
1. (i) it is duly organized as a Delaware business trust and is and at all times will remain duly authorized to carry out its obligations as contemplated herein; (ii) it is registered as an investment company under the 1940 Act; (iii) the execution, delivery and performance of this Agreement are within its power and have been duly authorized by all necessary action; (iv) its entering into this Agreement does not conflict with or constitute a default or require a consent under or breach of any provision of any agreement or document to which the Trust is a party or by which it is bound; (v) the Registration Statement and each Fund’s Prospectus have been prepared, and all Marketing Materials shall be prepared, in all materials respects, in conformity with the 1933 Act, the 1940 Act and the rules and regulations of the SEC (the “Rules and Regulations”); and (vi) the Registration Statement and each Fund’s Prospectus contain, and all Marketing Materials shall contain, all statements required to be stated therein in accordance with the 1933 Act, the 1940 Act and the Rules and Regulations; (vii) all statements of fact contained therein, or to be contained in all Marketing Materials, are or will be true and correct in all material respects at the time indicated or the effective date, as the case may be, and none of the Registration Statement, any Fund’s Prospectus, nor any Marketing Materials shall include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the case of each Fund’s Prospectus in light of the circumstances in which made, not misleading; and (viii) except as otherwise noted in the Registration Statement and Prospectus, the offering price for all Creation Units will be the aggregate net asset value of the Shares per Creation Unit of the relevant Fund, as determined in the manner described in the Registration Statement and Prospectus;
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2. it shall file such amendment or amendments to the Registration Statement and each Fund’s Prospectus as, in the light of future developments, shall, in the opinion of the Trust’s counsel, be necessary in order to have the Registration Statement and each Fund’s Prospectus at all times contain all material facts required to be stated therein or necessary to make the statements therein, in light of the circumstances in which made, not misleading. The Trust shall not file any amendment to the Registration Statement or each Fund’s Prospectus without giving the Distributor reasonable notice thereof in advance, provided that nothing in this Agreement shall in any way limit the Trust’s right to file at any time such amendments to the Registration Statement or any Fund’s Prospectus as the Trust may deem advisable. The Trust will also notify the Distributor in the event of any stop order suspending the effectiveness of the Registration Statement. Notwithstanding the foregoing, the Trust shall not be deemed to make any representation or warranty as to any information or statement provided by the Distributor for inclusion in the Registration Statement or any Fund’s Prospectus; and
3. upon delivery of Deposit or Fund Securities to an Authorized Participant in connection with a purchase or redemption of Creation Units, the Authorized Participant will acquire good and unencumbered title to such securities, free and clear of all liens, restrictions, charges and encumbrances, and not subject to any adverse claims and that such Fund and Deposit Securities will not be “restricted securities” as such term is used in Rule 144(a)(3)(i) under the 1933 Act.
8. Duration, Termination and Amendment.
(a) This Agreement shall be effective on the date set forth above, and unless terminated as provided herein, shall continue for two years from its effective date, and thereafter from year to year, provided such continuance is approved annually (i) by vote of a majority of the Trustees or by the vote of a majority of the outstanding voting securities of the Fund and (ii) by the vote of a majority of those Trustees who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval. This Agreement may be terminated at any time, without the payment of any penalty, as to each Fund (i) by vote of a majority of those Trustees who are not parties to this Agreement or interested persons of any such party or (ii) by vote of a majority of the outstanding voting securities of the Fund, or by the Distributor, on at least sixty (60) days prior written notice. This Agreement shall automatically terminate without the payment of any penalty in the event of its assignment. As used in this paragraph, the terms “vote of a majority of the outstanding voting securities,” “assignment,” “affiliated person” and “interested person” shall have the respective meanings specified in the 1940 Act.
(b) No provision of this Agreement may be changed, waived, discharged or terminated except by an instrument in writing signed by both parties.
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9. Notice. Any notice or other communication authorized or required by this Agreement to be given to either party shall be in writing and deemed to have been given when delivered in person or by confirmed facsimile, email, or posted by certified mail, return receipt requested, to the following address (or such other address as a party may specify by written notice to the other):
(i) To Foreside: | (ii) If to the Trust: |
Foreside Fund Services, LLC Attn: Legal Department Three Canal Plaza, Suite 100 Portland, ME 04101 Telephone: (207) 553-7110 Email: legal@foreside.com
With a copy to: etp-services@foreside.com |
Timothy Plan Attn: Legal Department 1055
Maitland Center Commons Telephone: 407-644-1986 Email: legal@timothyplan.com |
10. Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of the state of Delaware, without giving effect to the choice of laws provisions thereof.
11. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
12. Severability. If any provisions of this Agreement shall be held or made invalid, in whole or in part, then the other provisions of this Agreement shall remain in force. Invalid provisions shall, in accordance with this Agreement’s intent and purpose, be amended, to the extent legally possible, in order to effectuate the intended results of such invalid provisions.
13. Insurance. The Distributor will maintain at its expense an errors and omissions insurance policy adequate to cover services provided by the Distributor hereunder.
14. Confidentiality. During the term of this Agreement, the Distributor and the Trust may have access to confidential information relating to such matters as either party’s business, trade secrets, systems, procedures, manuals, products, contracts, personnel, and clients. As used in this Agreement, “Confidential Information” means information belonging to one of the parties that is of value to such party and the disclosure of which could result in a competitive or other disadvantage to such party. Confidential Information includes, without limitation, financial information, proposal and presentations, reports, forecasts, inventions, improvements and other intellectual property; trade secrets; know-how; designs, processes or formulae; software; market or sales information or plans; customer lists; and business plans, prospects and opportunities (such as possible acquisitions or dispositions of businesses or facilities). Confidential Information includes information developed by either party in the course of engaging in the activities provided for in this Agreement, unless: (i) the information is or becomes publicly known through lawful means; (ii) the information is disclosed to the other party without a confidential restriction by a third party who rightfully possesses the information and did not obtain it, either directly or indirectly, from one of the parties, as the case may be, or any of their respective principals, employees, affiliated persons, or affiliated entities. The parties understand and agree that all Confidential Information shall be kept confidential by the other both during and after the term of this Agreement. Each party shall maintain commercially reasonable information security policies and procedures for protecting Confidential Information. The parties further agree that they will not, without the prior written approval by the other party, disclose such Confidential Information, or use such Confidential Information in any way, either during the term of this Agreement or at any time thereafter, except as required in the course of this Agreement and as provided by the other party or as required by law. Upon termination of this Agreement for any reason, or as otherwise requested by the Trust, all Confidential Information held by or on behalf of Trust shall be promptly returned to the Trust, or an authorized officer of the Distributor will certify to the Trust in writing that all such Confidential Information has been destroyed. This section 14 shall survive the termination of this Agreement. Notwithstanding the foregoing, a party may disclose the other’s Confidential Information if (i) required by law, regulation or legal process or if requested by the SEC or other governmental regulatory agency with jurisdiction over the parties hereto or (ii) requested to do so by the other party.
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15. Limitation of Liability. This Agreement is executed by or on behalf of the Trust with respect to each of the Trust Funds and the obligations hereunder are not binding upon any of the trustees, officers or shareholders of the Trust individually but are binding only upon the Fund to which such obligations pertain and the assets and property of such Fund. Separate and distinct records are maintained for each Fund and the assets associated with any such Fund are held and accounted for separately from the other assets of the Trust, or any other Fund of the Trust. The debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to a particular Fund of the Trust shall be enforceable against the assets of that Fund only, and not against the assets of the Trust generally or any other Fund, and none of the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to the Trust generally or any other Fund shall be enforceable against the assets of that Fund. The Trust’s Agreement and Declaration of Trust is on file with the Trust.
16. Use of Names; Publicity. The Trust shall not use the Distributor’s name in any offering material, shareholder report, advertisement or other material relating to the Trust, in a manner not approved by the Distributor in writing prior to such use, such approval not to be unreasonably withheld. The Distributor hereby consents to all uses of its name required by the SEC, any state securities commission, or any federal or state regulatory authority.
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The Distributor shall not use the name “Timothy Plan ETF” in any offering material, shareholder report, advertisement or other material relating to the Distributor, other than for the purpose of merely identifying the Trust as a client of Distributor hereunder, in a manner not approved by the Trust in writing prior to such use; provided, however, that the Trust shall consent to all uses of its name required by the SEC, any state securities commission, or any federal or state regulatory authority; and provided, further, that in no case shall such approval be unreasonably withheld.
The Distributor will not issue any press releases or make any public announcements regarding the existence of this Agreement without the express written consent of the Trust. Neither the Trust nor the Distributor will disclose any of the economic terms of this Agreement, except as may be required by law.
17. Exclusivity. Nothing herein contained shall prevent the Distributor from entering into similar distribution arrangements or from providing the services contemplated hereunder to other investment companies or investment vehicles.
18. Governing Language. This Agreement has been negotiated and executed by the parties in English. In the event any translation of this Agreement is prepared for convenience or any other purpose, the provisions of the English version shall prevail.
19. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior communications, understandings and agreements relating to the subject matter hereof, whether oral or written, including the ETF Distribution Agreement between the parties dated April 26, 2019.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first set forth above.
Foreside Fund Services, LLC | Timothy Plan |
By: | By: |
Teresa Cowan, President | Art Ally, President | ||
Date: | Date: |
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EXHIBIT A
Timothy Plan US Large/Mid Cap Core ETF |
Timothy Plan High Dividend Stock ETF |
Timothy Plan US Small Cap Core ETF |
Timothy Plan International ETF |
Timothy Plan US Large/Mid Cap Core Enhanced ETF |
Timothy Plan High Dividend Stock Enhanced ETF |
Timothy Plan Market Neutral ETF |
A-1
AMENDMENT NO.1
TO
GLOBAL CUSTODIAL AND AGENCY SERVICES AGREEMENT
This AMENDMENT No.1 (“Amendment”) is made as of July 28, 2021, by and between Timothy Plan (“Client”) and Citibank, N.A. (“Custodian”, together with the Client, the “Parties”), to that certain Global Custodial and Agency Services Agreement dated November 30, 2018, between the Client and Service Provider (“Agreement”). All capitalized terms used but not defined herein shall have the meanings given to them in the Agreement.
WHEREAS, pursuant to the Agreement, the Custodian performs certain custodial services for the Client;
WHEREAS, the Parties agree to amend Appendix A of the Agreement to reflect the addition of the Timothy Plan US Large/Mid Core Enhanced ETF and the Timothy Plan High Dividend Stock Enhanced ETF along with the corresponding authorized participant fees; and
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter contained and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Client and Custodian hereby agree as follows:
1. | Amendment to Appendix A of the Agreement – List of Funds. |
The List of Funds located in Appendix A of the Agreement is hereby deleted in its entirety and replaced with the List of Funds located in Appendix A attached to the end of this Amendment.
2. | Representations and Warranties. |
a. | The Client represents that it has full power and authority to enter into and perform this Amendment and that it has provided this Amendment to the Board. |
b. | The Custodian represents that it has full power and authority to enter into and perform this Amendment. |
3. | Miscellaneous. |
a. | This Amendment supplements and amends the Agreement. The provisions set forth in this Amendment supersede all prior negotiations, understandings and agreements bearing upon the subject matter covered herein, including any conflicting provisions of the Agreement or any provisions of the Agreement that directly cover or indirectly bear upon matters covered under this Amendment. |
b. | Each reference to the Agreement in the Agreement (as it existed prior to this Amendment) and in every other agreement, contract or instrument to which the parties are bound, shall hereafter be construed as a reference to the Agreement as amended by this Amendment. Except as provided in this Amendment, the provisions of the Agreement remain in full force and effect. No amendment or modification to this Amendment shall be valid unless made in writing and executed by both Parties hereto. |
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c. | Paragraph headings in this Amendment are included for convenience only and are not to be used to construe or interpret this Amendment. |
d. | This Amendment may be executed in counterparts, each of which shall be an original but all of which, taken together, shall constitute one and the same agreement. |
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be duly executed all as of the day and year first above written.
TIMOTHY PLAN | |||
By: | ![]() |
||
Name: | Arthur Ally | ||
Title: | President | ||
Date: | 6.21.2021 |
CITIBANK, N.A. | |||
By: | |||
Name: | |||
Title: | |||
Date: |
2
Appendix A
To the Global Custodial and Agency Services Agreement
List of Funds
Fund Name | Authorized Participant Fee Per Create/Redeem (USD) |
Timothy Plan US Large/Mid Cap Core ETF | 500 |
Timothy Plan High Dividend Stock ETF | 250 |
Timothy Plan US Small Cap Core ETF | 250 |
Timothy Plan International ETF | 4500 |
Timothy Plan US Large/Mid Cap Core Enhanced ETF | 500 |
Timothy Plan High Dividend Stock Enhanced ETF | 250 |
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Amendment NO.2
to
Global CUSTODIAL AND AGENCY services agreement
This AMENDMENT No. 2 (“Amendment”) is made as of October 27, 2022, by and between Timothy Plan (“Client”) and Citibank, N.A. (“Custodian”, together with the Client, the “Parties”), to that certain Global Custodial and Agency Services Agreement dated November 30, 2018, between the Client and Service Provider (“Agreement”). All capitalized terms used but not defined herein shall have the meanings given to them in the Agreement.
WHEREAS, pursuant to the Agreement, the Custodian performs certain custodial services for the Client;
WHEREAS, the Parties agree to amend Appendix A of the Agreement to reflect the addition of the Timothy Plan Market Neutral ETF along with the corresponding authorized participant fees; and
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter contained and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Client and Custodian hereby agree as follows:
1. | Amendment to Appendix A of the Agreement – List of Funds. |
The List of Funds located in Appendix A of the Agreement is hereby deleted in its entirety and replaced with the List of Funds located in Appendix A attached to the end of this Amendment.
2. | Representations and Warranties. |
a. | The Client represents that it has full power and authority to enter into and perform this Amendment and that it has provided this Amendment to the Board. |
b. | The Custodian represents that it has full power and authority to enter into and perform this Amendment. |
3. | Miscellaneous. |
a. | This Amendment supplements and amends the Agreement. The provisions set forth in this Amendment supersede all prior negotiations, understandings and agreements bearing upon the subject matter covered herein, including any conflicting provisions of the Agreement or any provisions of the Agreement that directly cover or indirectly bear upon matters covered under this Amendment. |
b. | Each reference to the Agreement in the Agreement (as it existed prior to this Amendment) and in every other agreement, contract or instrument to which the parties are bound, shall hereafter be construed as a reference to the Agreement as amended by this Amendment. Except as provided in this Amendment, the provisions of the Agreement remain in full force and effect. No amendment or modification to this Amendment shall be valid unless made in writing and executed by both Parties hereto. |
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c. | Paragraph headings in this Amendment are included for convenience only and are not to be used to construe or interpret this Amendment. |
d. | This Amendment may be executed in counterparts, each of which shall be an original but all of which, taken together, shall constitute one and the same agreement. |
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be duly executed all as of the day and year first above written.
TIMOTHY PLAN | |||
By: | /s/ Arthur Ally | ||
Name: | Arthur Ally | ||
Title: | President | ||
Date: | |||
CITIBANK, N.A. | |||
By: | /s/ | ||
Name: | |||
Title: | |||
Date: |
2
Appendix A
To the Global Custodial and Agency Services Agreement
List of Funds
Fund Name | Authorized Participant Fee Per Create/Redeem (USD) |
Timothy Plan US Large/Mid Cap Core ETF | 500 |
Timothy Plan High Dividend Stock ETF | 250 |
Timothy Plan US Small Cap Core ETF | 250 |
Timothy Plan International ETF | 4500 |
Timothy Plan US Large/Mid Core Enhanced ETF | 500 |
Timothy Plan High Dividend Stock Enhanced ETF | 250 |
Timothy Plan Market Neutral ETF* | $2,250 |
* | This fund is expected to launch on or about January 9, 2023. |
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Amendment NO.3
to
services agreement
This AMENDMENT No.3 (“Amendment”) is made as of October 27, 2022, by and among Timothy Plan (“Client”) and Citibank, N.A. (“Citibank”), and Citi Fund Services Ohio, Inc. (“CFSO”, together with Citibank, the “Service Provider” and, with the Client, the “Parties”), to that certain Services Agreement dated November 30, 2018, between the Client and Service Provider (“Agreement”). All capitalized terms used but not defined herein shall have the meanings given to them in the Agreement.
WHEREAS, pursuant to the Agreement, Service Provider performs certain fund administration, fund accounting, and transfer agency services for the Client; and
WHEREAS, the Parties agree to update the services and fee schedules to account for the addition of a derivatives risk service offering.
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter contained and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Client and Service Provider hereby agree as follows:
1. | Amendment to Schedule 2 – Services. |
Appendix C [Transfer Agency Services] to Schedule 2 of the Agreement is hereby deleted in its entirety and replaced with the Appendix C Schedule 2 attached to the end of the Amendment.
2. | Amendment to Annex to Schedule 2 – List of Funds. |
Annex to Schedule 2 of the Agreement is hereby deleted in its entirety and replaced with the following Annex to Schedule 2 attached to the end of the Amendment.
3. | Representations and Warranties. |
a. | The Client represents that it has full power and authority to enter into and perform this Amendment and that it has provided this Amendment to the Board. |
b. | The Service Provider represents that it has full power and authority to enter into and perform this Amendment. |
4. | Miscellaneous. |
a. | This Amendment supplements and amends the Agreement. The provisions set forth in this Amendment supersede all prior negotiations, understandings and agreements bearing upon the subject matter covered herein, including any conflicting provisions of the Agreement or any provisions of the Agreement that directly cover or indirectly bear upon matters covered under this Amendment. |
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b. | Each reference to the Agreement in the Agreement (as it existed prior to this Amendment) and in every other agreement, contract or instrument to which the parties are bound, shall hereafter be construed as a reference to the Agreement as amended by this Amendment. Except as provided in this Amendment, the provisions of the Agreement remain in full force and effect. No amendment or modification to this Amendment shall be valid unless made in writing and executed by both parties hereto. |
c. | Paragraph headings in this Amendment are included for convenience only and are not to be used to construe or interpret this Amendment. |
d. | This Amendment may be executed in counterparts, each of which shall be an original but all of which, taken together, shall constitute one and the same agreement. |
[Remainder of page intentionally left blank. Signatures follow on next page.]
2
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be duly executed all as of the day and year first above written.
TIMOTHY PLAN | |||
By: | |||
Name: | Arthur Ally | ||
Title: | President | ||
Date: | |||
CITIBANK, N.A. | |||
By: | |||
Name: | |||
Title: | |||
Date: | |||
CITI FUND SERVICES OHIO, INC. |
By: | |||
Name: | |||
Title: | |||
Date: |
3
Schedule 2 to Services Agreement -- Services
Appendix C -- Transfer Agency Services provided by Citibank, N.A.
I. | Services |
1. | Shareholder Transactions |
(a) | Perform and facilitate the performance of purchases and redemptions of Creation Units. |
(b) | Issue Shares of the applicable Fund in Creation Units for settlement with purchasers through DTC as the purchaser is authorized to receive. |
(c) | Prepare and transmit by means of DTC’s book entry system payments for dividends and distributions on or with respect to the Shares declared by the Client on behalf of the applicable Fund. |
(d) | Confirm to DTC the number of Shares issued to the Shareholder, as DTC may reasonably request. |
(e) | Record the issuance of Shares of the Fund and maintain a record of the total number of Shares of the Fund which are outstanding, and, based upon data provided to it by the Fund, the total number of authorized Shares. |
(f) | Prepare and transmit to the Client and the Client’s administrator and to any applicable securities exchange (as specified to Service Provider by the Client or its administrator) information with respect to purchases and redemptions of Shares. |
(g) | Calculate and transmit on each Business Day to the Client’s administrator the number of outstanding Shares for each Fund. |
(h) | Transmit on each Business Day to the Client, the Client’s administrator and DTC the amount of Shares purchased on such day. |
(i) | Prepare a monthly report of all purchases and redemptions of Shares during such month on a gross transaction basis, and identify on a daily basis the net number of Shares either redeemed or purchased on such Business Day and with respect to each Authorized Participant purchasing or redeeming Shares, the amount of Shares purchased or redeemed. |
2. | Compliance Reporting |
(a) | Provide reports to the Securities and Exchange Commission and FINRA. |
(b) | Prepare and distribute appropriate Internal Revenue Service forms for corresponding Fund. |
3. | Shareholder Account Maintenance |
(a) | Maintain the record of the name and address of DTC or its nominee as the sole shareholder of a Fund (the “Shareholder”) and the number of Shares issued by the Fund and held by the Shareholder. |
(b) | Prepare and deliver other reports, information and documents to DTC as DTC may reasonably request. |
(c) | Maintain account documentation files for Shareholder. |
4. | Anti-Money Laundering Services |
In each case consistent with and as required or permitted by the written anti-money laundering program of the Client (“AML Program”):
(a) | Perform monitoring and reporting as may be reasonably requested by the Client’s CCO. |
5. | Order Portal. Service Provider will process Authorized Participant trades via the Citi Order Portal or a successor system of similar quality. In the event of a systems issue, Service Provider will be responsible for providing an alternative process to ensure order acceptance. (This service will commence with the launch of the Timothy Plan Market Neutral ETF) |
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II. | Notes and Conditions Related to Transfer Agency Services |
1. | Service Provider may require any or all of the following in connection with the original issue of Shares: (a) Instructions requesting the issuance, (b) evidence that the Board has authorized the issuance, (c) any required funds for the payment of any original issue tax applicable to such Shares, and (d) an opinion of the counsel to the Client about the legality and validity of the issuance. |
2. | Service Provider shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issue or sale of such Shares, which functions shall be the sole responsibility of the Fund. |
3. | Pursuant to purchase orders received in good form and accepted by or on behalf of the Client by the Distributor, Service Provider will register the appropriate number of book entry only Shares in the name of DTC or its nominee as the sole shareholders for each Fund and deliver Shares of such Fund in Creation Units on the business day next following the trade date to the DTC Participant Account of the Custodian for settlement. |
4. | Pursuant to such redemption orders that the Client’s index receipt agent receives from the Distributor, the Client or its agent, Service Provider will redeem the appropriate number of Shares of the applicable Fund in Creation Units that are delivered to the designated DTC Participant Account of Custodian for redemption and debit such shares from the account of the Shareholder on the register of the applicable Fund. |
5. | Service Provider will issue Shares of the applicable Fund in Creation Units for settlement with purchasers through DTC as the purchaser is authorized to receive. Beneficial ownership of Shares shall be shown on the records of DTC and DTC Participants and not on any records maintained by Service Provider. In issuing Shares of the applicable Fund through DTC to a purchaser, Service Provider shall be entitled to rely upon the latest Instructions that are received from the Client or its agent by the Index Receipt Agent (as set forth in Section 3 of this Agreement) concerning the issuance and delivery of such shares for settlement. |
6. | Service Provider will not issue any Shares for a Fund where it has received an Instruction from the Client or written notification from any federal or state authority that the sale of the Shares of such Fund has been suspended or discontinued, and Service Provider shall be entitled to rely upon such Instructions or written notification. |
7. | The Client acknowledges and agrees that deviations requested by the Client from Service Provider’s written transfer agent compliance procedures (“Exceptions”) may involve operational and compliance risks, including a substantial risk of loss. Service Provider may in its sole discretion determine whether to permit an Exception. Exceptions must be requested in writing and shall be deemed to remain effective until the Client revokes the Exception request in writing. Notwithstanding any provision in this Agreement that expressly or by implication provides to the contrary, as long as Service Provider acts in good faith, Service Provider shall have no liability for any loss, liability, expenses or damages to the Client or any Shareholder resulting from such an Exception. |
8. | Service Provider is hereby granted such power and authority as may be necessary to establish one or more bank accounts for the Client with such bank or banks as are acceptable to the Client, as may be necessary or appropriate from time to time in connection with the transfer agency services to be performed hereunder. The Client shall be deemed to be the customer of such bank or banks for purposes of such accounts and shall execute all requisite account opening documents in connection with such accounts. To the extent that the performance of such services hereunder shall require Service Provider to disburse amounts from such accounts in payment of dividends, redemption proceeds or for other purposes hereunder, the Client shall provide such bank or banks with all instructions and authorizations necessary for Service Provider to effect such disbursements. |
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9. | Client represents and warrants that: |
(a) | (i) by virtue of its Charter, Shares that are redeemed by the Client may be resold by the Client and (ii) all Shares that are offered to the public are covered by an effective registration statement under the Securities Act of 1933, as amended and the 1940 Act. |
(b) | (i) The Client has adopted the AML Program, which has been provided to Service Provider and the Client’s AML Compliance Officer, (ii) the AML Program has been reasonably designed to facilitate Compliance by the Client with applicable anti-money laundering Laws and regulations (collectively, the “Applicable AML Laws”) in all relevant respects, (iii) the AML Program and the designation of the AML Compliance Officer have been approved by the Board, (iv) the delegation of certain services thereunder to Service Provider, as provided in Schedule 2 of this Agreement, has been approved by the Board, and (v) the Client will submit any material amendments to the AML Program to Service Provider for Service Provider’s review and consent prior to adoption. |
10. | The Client hereby represents that the sale of Shares are not subject to Blue sky laws and the Service Provider shall not be responsible for any registration, notification, tracking or other function related to the Blue Sky laws of any state. |
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Annex to Schedule 2 to Services Agreement
List of Funds
Fund Name | Authorized Participant Fee Per Create/Redeem (USD) |
Timothy Plan US Large/Mid Cap Core ETF | 500 |
Timothy Plan High Dividend Stock ETF | 250 |
Timothy Plan US Small Cap Core ETF | 250 |
Timothy Plan International ETF | 4500 |
Timothy Plan US Large/Mid Core Enhanced ETF | 500 |
Timothy Plan High Dividend Stock Enhanced ETF | 250 |
Timothy Plan Market Neutral ETF* | $2,250 |
* | This fund is expected to launch on or about January 9, 2023. |
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PRECIOUS METALS STORAGE AGREEMENT
THIS AGREEMENT effective as of May 22, 2015 (the “Agreement”) by and between Brink’s Global Services U.S.A., Inc. (referred to as “Brink’s”), and The Timothy Plan Family of Funds, with its principal place of business at 1055 Maitland Center Commons Maitland, FL 32751 (hereinafter referred to as “Customer”) sets forth the terms and conditions with respect to vaulting in the Brink’s facility locations as specified in Appendix A which is incorporated in this Agreement by reference (each location referred to as a “Brink’s Facility”).
Brink’s and Customer hereby agree as follows:
1. General. Brink’s has established in the name of Customer in each Brink’s Facility listed in Appendix A, an allocated gold account for the purpose of maintaining physical custody of gold (“Gold”) denominated in fine troy ounces or fine metric weight as appropriate, and/or an allocated silver account for the purpose of maintaining physical custody of silver (“Silver”) denominated in troy ounces as appropriate and/or an allocated platinum group metals account for the purpose of maintaining physical custody of platinum and/or palladium (“PGM”) denominated in troy ounces or metric weight as appropriate, (hereinafter each account individually referred to as an “Account” and, collectively, the “Accounts”). (Gold, Silver and PGM are herein also referred to, individually and collectively, as “Metal”). As requested by Customer, Brink’s may establish sub-Accounts of Metals in the Customer’s name, which may be collectively referred to with Accounts, as Accounts. In the Accounts, Gold will be accounted for in terms of fine troy ounces of Gold, to three decimal places, PGM will be accounted for in terms of troy ounces of Platinum or Palladium, as the case may be, to three decimal places, and Silver will be accounted for in terms of troy ounces of Silver to two decimal places. In no event will any Account be held in any name or list any party other than Customer and Customer hereby agrees that it will not provide any sub-Account information, other than quantities, to Brink’s.
2. Brink’s Liability. Brink’s agrees to assume the liability for loss, damage or destruction of the Metal stored in each Brink’s Facility up to the maximum liability amount applicable to the respective Brink’s Facility as set forth in Appendix A. Brink’s liability shall commence when possession of the Metal is taken at the Brink’s Facility, upon a Brink’s employee or agent signing a receipt for the Metal, following a physical count of the number of bars, coins or other form of Metal by the Brink’s Facility and Brink’s liability shall terminate when the Metal has been delivered from the Brink’s Facility to a carrier designated by Customer and the Brink’s Facility gets a receipt therefor. For the sake of clarity, where the carrier designated to transport the Metal is Brink’s or a Brink’s affiliate, such transportation shall be under a separate transport agreement between Brink’s or a Brink’s affiliate and Customer, and liability for loss, damage or destruction of the Metal during transport shall be governed by the terms and conditions of such transport agreement. It is understood and agreed that Brink’s maximum liability for any loss, damage or destruction of Metal is up to (but not exceeding) the applicable limit set forth in Appendix A for the respective Brink’s Facility, notwithstanding anything to the contrary contained in any invoice, receipt or other document delivered or received by the Brink’s Facility relating to the Metal handled by the Brink’s Facility under this Agreement. The parties hereto expressly understand and agree that Brink’s does not assume any liability as to the authenticity or assay characteristics of any Metal. It is further understood and agreed that the Brink’s Facility’s count of the Metal deposited in the Accounts shall be binding and conclusive.
3. Deposits. From time to time during the term of this Agreement, Customer may give written notice to the relevant Brink’s Facility of its intention to deposit Metal into an Account. Such written notice shall:
(i) | specify the amount of Metal (in the appropriate denomination) to be deposited into the Account; |
(ii) | specify the Business Day (as defined below) upon which Customer shall deliver the Metal to the relevant Brink’s Facility' (the “Delivery Date”); and |
(iii) | be accompanied by a bar list specifying, for each bar to be deposited, the bar number, the brand, the weight and the fineness and, in the case of a deposit of Gold the fine and gross troy ounce weight, and in the case of PGM and Silver the gross troy ounce weight. In the case of Metal to be deposited in other than bar form, such written notice shall specify the seal number, the brand, the fineness and the fine and/or gross weight, and in the case of coin, type and number of coins. |
Such written notice must be received by the relevant Brink’s Facility at least two (2) Business Days prior to the Delivery Date. On the Delivery Date, the Brink’s Facility shall take possession of the Metal received as specified in Customer’s notice, deliver to Customer a written receipt therefor, and, concurrently therewith, credit the applicable Account with such Metal.
4. Withdrawals. From time to time during the term of this Agreement, Customer may give written notice to the relevant Brink’s Facility of its intention to withdraw Metal from an Account. Such written notice shall:
(i) | specify the amount of Metal (in the appropriate denomination) to be withdrawn from the Account; |
(ii) | specify the Business Day on which Customer will take delivery of the Metal from the relevant Brink’s Facility (the “Withdrawal Date”); |
(iii) | be accompanied by a bar list specifying, for each bar to be withdrawn, the bar number, the brand, the weight and the fineness and, in the case of a withdrawal of Gold, the fine and gross troy ounce weight; and in the case of PGM or Silver the gross troy ounce weight. In the case of a withdrawal of Metal in other than bar form, such written notice shall specify the seal number, the brand, the fineness and the fine (as applicable) and/or gross weight, and in the case of coin, the type and number of coins, and |
(iv) | contain the name of Customer’s carrier or representative, vehicle model and registration number or other requested details of Customer’s carrier or representative authorized to take delivery of the Metal to be withdrawn from the Account. |
Such written notice must be given to the relevant Brink’s Facility at least two (2) Business Days prior to the Withdrawal Date. Upon the relevant Brink’s Facility’s receipt of such written notice, the Brink’s Facility shall confirm such written withdrawal instructions by contacting one of the authorized persons appearing on Customer’s authorized persons list (the “Authorized Persons”), as may be amended in writing from time to time. Customer shall be responsible to ensure that each Brink’s Facility is furnished with a list of Authorized Persons as of the effective date of this Agreement. On the Withdrawal Date, the relevant Brink’s Facility will release such Metal to Customer’s carrier or representative and receive a written receipt therefor.
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5. Ownership and Segregation, All Metal held in the Account(s) shall remain the property of Customer at all times and Brink’s shall cause such Metal to be specifically identified and physically segregated at all times from coin, bullion and metal in any form whatsoever, the title to which is vested in any other person or entity, including Brink’s. Customer hereby warrants that it is either the owner or the authorized agent of the owner of the Metal. Customer further warrants that it is authorized to accept and is accepting the terms of this Agreement not only for itself but also as agent for or on behalf of all other parties who have or may hereafter have any interest in the Metal.
6. Access to Vault for Inventory Purposes, Upon two (2) Business Days’ prior written notice by Customer to the relevant Brink’s Facility, and in accordance with that Brink’s Facility’s vault procedures, the Brink’s Facility shall allow Authorized Persons to have access to the Metal in the Accounts upon presentation of proper credentials and during normal business hours in order to inspect and take inventory of the same. The Brink’s Facility shall co-operate with Customer in connection with such inspection and inventory. Customer shall indemnify and hold harmless Brink’s from any liability, loss, damage, cost or expense, including reasonable attorney’s fees, arising out of any bodily injury or death to any Authorized Person, or loss or destruction of or damage to the property, including the Metal, as a result of being on the Brink’s Facility, or entering or leaving therefrom, except where Brink’s is shown to be negligent. In order to provide the indemnity specified above, at all times during the term of this Agreement, Customer shall maintain at its sole cost and expense, and shall provide evidence of such to Brink’s, insurance coverage of the types and in the amounts set forth herein with a company or companies satisfactory to Brink’s:
(a) Comprehensive General Liability Insurance - For bodily injury and property damage, including blanket contractual liability, professional service liability and products and completed operations, in the amount of $2,000,000 combined single limit per occurrence. Said policy will contain a full and complete breach of warranty endorsement to the effect that the insurance coverage will not be invalidated as regards the interest of Brink’s by any act, failure to act, omission, or neglect of Customer which is in violation of the terms and conditions of such insurance. This policy will cover, among other risks, the contractual liability assumed under the indemnification provisions set forth in this section.
(b) Worker’s Compensation Insurance as required by applicable workers’ compensation laws or other similar programs related to the jurisdiction involved.
(c) Employer’s Liability Insurance in unlimited amounts where required by law and in all other jurisdictions an amount of $1,000,000 each accident for bodily injury by accident, $1,000,000 policy limit for bodily injury by disease and $1,000,000 each employee for bodily injury by disease.
(d) Crime and Fidelity Insurance - All employees of Customer must be fully bonded, either by a 3D bond or Crime or Fidelity insurance policy in the amount of $1,000,000 per occurrence.
The foregoing insurance policy or policies shall be written by a reputable insurance company or companies authorized or licensed to transact business in the jurisdiction where this Agreement shall be performed. Customer shall notify Brink’s in writing of any material modification, alteration, non-renewal or cancellation of such policy or policies at least thirty (30) days prior thereto. Customer shall furnish Brink’s with a certificate or certificates of insurance prior to the commencement of this Agreement.
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7. Fees and Charges.
a. | For the services contemplated under this Agreement, Customer agrees to pay Brink’s for such service charges and fees as agreed to between the parties as set forth in Appendix B, which is incorporated in this Agreement by reference, plus all applicable taxes that Brink’s is required to collect in connection with the services. |
b. | An annual review of the service charges and fees set forth in Appendix B will take place on each one year anniversary of the effective date of this Agreement, however, at any time, upon written notice, Brink’s may increase service charges and fees in the event of a change in economic conditions beyond Brink’s control that increases operating costs incurred by a Brink’s Facility. |
c. | If Customer defaults in the full and timely payment of any monies due Brink’s pursuant to this Agreement and the terms stated in Brink’s invoice, or otherwise defaults in the performance of any of Customer’s other obligations to Brink’s, then Customer shall be responsible for, including, but without limitation, the repayment of any legal fees and other reasonable costs and expenses incurred by Brink’s in the collection of any said monies due Brink’s (which monies, obligations, fees, costs and expenses shall hereinafter be collectively referred to as the “Unpaid Obligations”), and Brink’s, in addition to any and all other rights and remedies provided for in this Agreement and under the Uniform Commercial Code of the State of Connecticut shall be permitted to retain as a credit and to offset against such Unpaid Obligations, on a dollar for dollar basis, any Precious Metals deposited or caused to have been deposited with or otherwise delivered to Brink’s for safekeeping, transportation or any other purpose on behalf of Customer. |
8. Account Statements. At the close of business of each Withdrawal Date or Delivery Date with respect to an Account, each Brink’s Facility will send to Customer a facsimile or electronic mail (e-mail) confirmation of the deposit or withdrawal of Metal to or from the Account on such date, together with a statement of the balance in such Account as of the close of business on such Business Day.
9. Insurance. Brink’s is not an insurer. Brink’s will, at its own expense, maintain insurance policies, which policies shall insure Brink’s against such risks assumed by Brink’s as described in Clause 1 hereof, subject always to the provisions and exclusions contained in this Agreement. Brink’s will furnish Customer with a certificate evidencing such insurance, upon request.
10. Notice of Claims. Customer shall give written notice to Brink’s within one (1) Business Day after Customer discovers any loss, damage or destruction of Metal in an Account, but in no event more than thirty (30) days after delivery by Brink’s to Customer of a statement of the balance in Customer’s Account in which a discrepancy first appears. Unless such notice is given as herein stated all claims shall be deemed waived. No action, suit or other proceeding to recover for any loss shall be brought against Brink’s unless notice shall have been given as stated herein and unless such action, suit or proceeding shall have been commenced within twelve (12) months from the time a claim is made pursuant to this paragraph.
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11. Loss Reimbursement. In the event of loss, damage or destruction of Customer’s Metal held in an Account at a Brink’s Facility, the parties shall promptly and diligently assist each other to establish the identity of the Metal lost, damaged or destroyed and shall take all such other reasonable steps as may be necessary to assure the maximum amount of salvage at a minimum cost. Affirmative written proof of the Metal lost, damaged or destroyed, subscribed and sworn to by Customer and substantiated by the books, records and accounts of Customer shall be furnished to Brink’s. Brink’s shall, after receipt from Customer of a proof of loss, and subject to the terms and conditions of this Agreement, make payment to Customer of the Market Value (as hereinafter defined) of the Metal in the Account which is the subject of such loss, damage or destruction, provided, however, that in the event Customer takes any salvage that is recovered, the value of such salvage shall be deducted from any payment that is required to be made by Brink’s under this section. If Customer does not take any salvage that is recovered, such salvage shall become the property of Brink’s and/or its insurers and the value thereof shall not be deducted from any payment required to be made by Brink’s. Market Value for this purpose shall be the Market Value, expressed in US Dollars, on the third Business Day following Customer’s notification to the Brink’s Facility of such loss, damage or destruction of Metal (the “Valuation Date”), times the declared number of fine troy ounces of Gold and troy ounces of PGM and Silver, as the case may be. The Market Value will be determined for Gold and Silver by reference to the spot price for gold and silver, as the case may be, as quoted by the London Bullion Market Association on the Valuation Date, and for PGM by reference to the spot price for platinum and palladium, as the case may be, as quoted by the London Platinum and Palladium Market Association on the Valuation Date. Upon payment of a claim by Brink’s, Customer hereby agrees to and does hereby assign to Brink’s all of its right, title and interest in the property rights of recovery against third parties that are the subject of a claim and to execute any documents necessary to perfect such assignment upon request by Brink’s or Brink’s insurers.
12. Limitation of Liability: Non-Hazardous Material: Force Majeure.
a. Brink’s shall not be liable for loss, damage or destruction of Metal or for non-performance or delays of service caused by or resulting from: (i) war, civil war, revolution, rebellion, insurrection, or civil strife therefrom, or any hostile act by or against a belligerent power; (ii) capture, seizure, arrest, restraint or detainment (piracy excepted), and the consequences thereof or any attempt thereat; (iii) derelict mines, torpedoes, bombs or other derelict weapons of war.
b. Notwithstanding anything in this Agreement to the contrary, in no case shall Brink’s be liable for loss, damage or destruction of Metal or for non-performance or delays of service, damage, liability, or expense directly or indirectly caused by or contributed to by or arising from: (i) any chemical, biological, or electromagnetic weapon; (ii). the use or operation, as a means for inflicting harm, of any computer, computer system, computer software, computer software programme, malicious code, computer virus or process or any other electronic system; (iii) ionising radiations from or contamination by radioactivity from any nuclear fuel or from any nuclear waste or from the combustion of nuclear fuel; (iv) the radioactive, toxic, explosive or other hazardous or contaminating properties of any nuclear installation, reactor or other nuclear assembly or nuclear component thereof; (v) any weapon or device employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter, or (vi) the radioactive, toxic, explosive or other hazardous or contaminating properties of any radioactive matter. The exclusion in this sub-clause (vi) does not extend to radioactive isotopes, other than nuclear fuel, when such isotopes are being prepared, carried, stored, or used for commercial, agricultural, medical, scientific or other similar peaceful purposes.
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c. Brink’s shall not be liable for loss, damage or destruction of Metal or for non -performance or delays of service, liability, cost or expense directly or indirectly caused by, resulting from or in connection with any act of terrorism or any action taken in controlling, preventing, suppressing or in any way relating to any act of terrorism. An act of terrorism means an act, including but not limited to the use of force or violence and/or the threat thereof, of any person or group(s) of persons, whether acting alone or on behalf of or in connection with any organization(s) or government(s), committed for political, religious, ideological or similar purposes including the intention to influence any government and/or to put the public, or any section of tire public, in fear.
d. Customer represents and warrants that no shipment or container tendered to the Brink’s Facility is or can be classified as hazardous material(s), substance(s) or waste(s) (hereinafter referred to as “hazardous materials”) as such terms are or may be defined, described or listed in any applicable laws, or pursuant to any applicable governmental agency, instrumentality or department regulations(s) or executive order(s) issued or enacted by any governmental entity in connection with environmental protection, health or safety. In the event the aforesaid representation and warranty is breached by Customer, knowingly or otherwise, Customer agrees to save, defend and hold Brink’s and the Brink’s Facility harmless and indemnify Brink’s and the Brink’s Facility from and against any claims, fines, penalties, damages, costs and attorneys’ fees which may be incurred by reason of this breach.
e. Brink’s shall not be liable for non-performance or delays of service caused by strikes, lockouts or other labour disturbances, riots, authority of law, acts of God or means beyond the control of Brink’s or the Brink’s Facility, but, subject to the conditions, limitations and exclusions set forth in this Agreement, Brink’s shall be liable for the loss, damage or destruction of any Metal received into its possession at any time not to exceed the maximum amount stated in this Agreement. Where the Brink’s Facility’s ability to perform its service obligations as detailed in this Agreement is compromised by labour disturbances, commercially reasonable efforts will be made by Brink’s to work with Customer to maintain the services.
f. The liability of Brink’s shall not, under any circumstances, include special, incidental, consequential, indirect or punitive losses or damages, or interest, whether or not caused by the fault or neglect of Brink’s and whether or not Brink’s had knowledge that such losses or damages might be incurred. Nothing in this Agreement limits or excludes Brink’s liability', if any, (1) for personal injury or death resulting from Brink’s negligence; (2) for any matter for which it would be illegal for Brink’s to exclude or attempt to exclude its liability; or (3) for fraud on the part of Brink’s.
13. Inability to Perform. In the event that (i) either Brink’s or Customer fails to perform any material obligation pursuant to the terms of this Agreement and does not cure such failure within thirty (30) days after the receipt of written notice thereof from the other party, (ii) either Brink’s or Customer shall be dissolved or adjudged bankrupt, or a trustee, receiver or conservator of such party or its property shall be appointed, or an application for any of the foregoing is filed, (iii) control of either Brink’s or Customer is taken over by any government or other public authority, or (iv) any government or governmental agency shall have taken any action which has materially adversely affected or will materially adversely affect a party’s ability to perform any of its obligations hereunder, and such action shall not have been rescinded or modified, and the adverse effects thereof shall not have been eliminated, within thirty (30) days after written notice of such action shall have been given to the other party, then this Agreement may be terminated at any time thereafter by Brink’s or Customer upon written notice to the other party. In such event, Brink’s shall promptly arrange for the delivery of all Metal held for Customer in accordance with Customer’s instructions at Customer’s expense.
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14. Notices. Unless otherwise specifically provided, all notices and other communications to a party hereunder shall be in writing (including facsimile, e-mail or similar writing) and shall be given by an authorized representative of the party giving such notice (as specified by such party to the other) if to Brink’s, to:
Telephone: | 718 949 2186 Ext. 4271 |
Facsimile: | 718 949 9100 |
Attention: |
Richard Lotti National Manager — Vault Services Brink’s Global Services USA Inc. Vault Services 184-45 147th Ave Springfield Gardens, New York 11413 |
and, if to Customer, to
Telephone: | 800-846-7526 |
Facsimile: | 407-644-4574 |
Attention: |
Arthur Ally President & Chairman The Timothy Plan Family of Funds 1055 Maitland Center Commons Maitland, FL 32751 |
15. Investment Advice. It is understood and agreed that, as part of the establishment of the Accounts, Brink’s has not undertaken a duty to supervise Customer’s investment in, or to make any recommendation to Customer with respect to, the purchase, sale or other disposition of, any Metal or the balances maintained in the Accounts.
16. Authority. Upon execution of this Agreement, Customer and Brink’s each represent to the other that they have full right, power and authority to execute, deliver and perform this Agreement, have taken all necessary corporate action to execute, deliver and perform this Agreement, and that this Agreement has been duly executed by their respective authorized officer, and that this Agreement constitutes its legal, valid and binding obligations.
17. Business Day. “Business Day” means any day on which Customer and the relevant Brink’s Facility are open for the conduct of transactions in bullion.
18. Waiver, The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions will not be considered a waiver or deprive the party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.
19. Entire Agreement/Amendments. This Agreement and the appendices that are incorporated herein by reference, each as may be amended from time to time, constitute the entire agreement between Customer and Brink’s with respect to the subject matter hereof and supersede and cancel any and all prior and/or contemporaneous offers, negotiations, promises, exceptions and understandings, whether oral or written, express or implied between the parties. This Agreement may not be waived, altered or amended except by an instrument in writing duly executed by Brink’s and Customer.
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20. Assignment. This Agreement shall be binding on Customer and Brink’s and their respective successors and assigns. Neither Customer nor Brink’s may assign or transfer its rights or obligations hereunder without the prior written consent of the other.
21. Term and Termination. This Agreement shall commence on the date first above written and shall continue until cancelled, by either party, on ninety (90) days’ written notice. Upon such termination, Brink’s shall deliver all Metal then credited to the Accounts to Customer’s designated carrier(s).
22. Governing Law. This Agreement and all transactions hereunder shall be governed by and construed in accordance with the laws of the State of New York.
23. Confidentiality. All information regarding the Accounts, including but not limited to, (i) kind, type, quantity, form and size of Metal in the Accounts at any time, (ii) customers of Customer to whom Metal is released, delivered or transferred, and (iii) shipments of Metal either into or out of the Accounts, is considered confidential. Customer and Brink’s shall keep such information confidential and not use such information, either for its own benefit or for the benefit of any third party or to disclose, either directly or indirectly, any such information, except (i) as required by law, (ii) as otherwise agreed in writing by Customer and Brink’s, and (iii) that Brink’s may use such information where subpoenaed by governmental authority or in litigation; provided, however, that Brink’s shall promptly notify Customer of the circumstances requiring such disclosure (unless such notice is prohibited by order, subpoena or by law), This Agreement is intended to be confidential and none of its terms shall be disclosed by Brink’s or Customer to any third party without the written consent of both parties, except as required by law.
24. Use of a Party’s Name. Neither party shall use the other party’s trade name, likeness, trademarks or logo, without the other party’s prior written consent, which includes but is not limited to any reference to the other party on websites or marketing materials.
This agreement supercedes and replaces all other agreements between the parties for storage of Metals.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by its duly authorized officers as of the date first written above.
For and on behalf of | For and on behalf of | |
Brink’s Global Services USA Inc. | The Timothy Plan Family of Funds | |
|
| |
Name: Ben Van Kerkwijk | Name: Arthur Ally | |
Title: Vice President - Commodities | Title: President & Chairman |
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Appendix A to the Precious Metals Storage Agreement effective as of May 22, 2015 by and between Brink’s Global Services U.S.A., Inc. and The Timothy Plan Family of Funds
Brink’s Facilities Performing Services Under the Agreement
Brink’s Facility Location | Maximum Liability Per Brink’s Facility On Any One Day |
Brinks Global Services U.S.A. Inc. 184-45 147th Ave Springfield Gardens, N.Y. 11413 |
USD 15,000,000.00 |
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Appendix B to the Precious Metals Storage Agreement effective as of May 21, 2015 by and between Brinks Global Services U.S.A., Inc. and The Timothy Plan Family of Funds
Fees and Charges Effective as of May 22 2015:
Valuation Charge of 0.15% per annum invoiced monthly
Monthly charge calculation (applied to each metal type:
(No, of Ounces x CME Closing price) x (Valuation Charge)
There will be a Minimum Monthly Valuation Charge of $700.00 per month per Facility Location if the aggregate Valuation Charges of all metal type in inventory falls below $700
Handling Charges
$35 per man hour (All handling performed under dual control for a total of $70 per hour total charge to be applied) or fraction thereof for all time required by Brink’s to (i) transfer Property in or out of inventory, (ii) prepare out going orders of Property released from inventory, (iii) verification of all Property received into inventory, (iv) handle Property received by or delivered to individuals or armored carriers and (v) research discrepancies or customer research requests.
Payment Terms — 30 days within receipt of Invoice.
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AMENDMENT NO.1
TO
SERVICES AGREEMENT
This AMENDMENT No.1 (“Amendment”) is made as of July 28, 2021, by and among Timothy Plan (“Client”) and Citibank, N.A. (“Citibank”), and Citi Fund Services Ohio, Inc. (“CFSO”, together with Citibank, the “Service Provider” and, with the Client, the “Parties”), to that certain Services Agreement dated November 30, 2018, between the Client and Service Provider (“Agreement”). All capitalized terms used but not defined herein shall have the meanings given to them in the Agreement.
WHEREAS, pursuant to the Agreement, Service Provider performs certain services for the Client;
WHEREAS, the Parties agree to amend the List of Funds to reflect the addition of the Timothy Plan US Large/Mid Core Enhanced ETF and the Timothy Plan High Dividend Stock Enhanced ETF along with the corresponding authorized participant fees; and
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter contained and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Client and Service Provider hereby agree as follows:
1. | Amendment to Annex to Schedule 2 – List of Funds. |
Annex to Schedule 2 of the Agreement is hereby deleted in its entirety and replaced with the following Annex to Schedule 2 attached to the end of the Amendment.
2. | Representations and Warranties. |
a. | The Client represents that it has full power and authority to enter into and perform this Amendment and that it has provided this Amendment to the Board. |
b. | The Service Provider represents that it has full power and authority to enter into and perform this Amendment. |
3. | Miscellaneous. |
a. | This Amendment supplements and amends the Agreement. The provisions set forth in this Amendment supersede all prior negotiations, understandings and agreements bearing upon the subject matter covered herein, including any conflicting provisions of the Agreement or any provisions of the Agreement that directly cover or indirectly bear upon matters covered under this Amendment. |
b. | Each reference to the Agreement in the Agreement (as it existed prior to this Amendment) and in every other agreement, contract or instrument to which the parties are bound, shall hereafter be construed as a reference to the Agreement as amended by this Amendment. Except as provided in this Amendment, the provisions of the Agreement remain in full force and effect. No amendment or modification to this Amendment shall be valid unless made in writing and executed by both parties hereto. |
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c. | Paragraph headings in this Amendment are included for convenience only and are not to be used to construe or interpret this Amendment. |
d. | This Amendment may be executed in counterparts, each of which shall be an original but all of which, taken together, shall constitute one and the same agreement. |
[Remainder of page intentionally left blank. Signatures follow on next page.]
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IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be duly executed all as of the day and year first above written.
TIMOTHY PLAN | |||
By: | ![]() |
||
Name: | Arthur Ally | ||
Title: | President | ||
Date: | 6.21.2021 | ||
CITIBANK, N.A. | |||
By: | |||
Name: | |||
Title: | |||
Date: | |||
CITI FUND SERVICES OHIO, INC. | |||
By: | |||
Name: | |||
Title: | |||
Date: |
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Annex to Schedule 2 to Services Agreement
List of Funds
Fund Name | Authorized Participant Fee Per Create/Redeem (USD) |
Timothy Plan US Large/Mid Cap Core ETF | 500 |
Timothy Plan High Dividend Stock ETF | 250 |
Timothy Plan US Small Cap Core ETF | 250 |
Timothy Plan International ETF | 4500 |
Timothy Plan US Large/Mid Cap Core Enhanced ETF | 500 |
Timothy Plan High Dividend Stock Enhanced ETF | 250 |
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AMENDMENT
NO.2
TO
SERVICES AGREEMENT
This AMENDMENT No.2 (“Amendment”) is made as of March 3, 2022, by and among Timothy Plan (“Client”) and Citibank, N.A. (“Citibank”), and Citi Fund Services Ohio, Inc. (“CFSO”, together with Citibank, the “Service Provider” and, with the Client, the “Parties”), to that certain Services Agreement dated November 30, 2018, between the Client and Service Provider (“Agreement”). All capitalized terms used but not defined herein shall have the meanings given to them in the Agreement.
WHEREAS, pursuant to the Agreement, Service Provider performs certain fund administration, fund accounting, and transfer agency services for the Client; and
WHEREAS, the Parties agree to update the services and fee schedules to account for the addition of a derivatives risk service offering.
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter contained and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Client and Service Provider hereby agree as follows:
1. | Amendment to Schedule 2 – Services. |
Schedule 2 of the Agreement is hereby deleted in its entirety and replaced with the Schedule 2 attached to the end of the Amendment.
2. | Amendment to Exhibit A – Fee Letter. |
Exhibit A – Fee Letter of the Agreement is hereby deleted in its entirety and replaced with the Exhibit A – Fee Letter attached to the end of this Amendment.
3. | Amendment to Attachment 1 to Fee Letter – Fee Schedule. |
Attachment 1 to Fee Letter – Fee Schedule is hereby deleted in its entirety and replaced with the Attachment 1 to Fee Letter – Fee Schedule attached to the end of this Amendment.
4. | Representations and Warranties. |
a. | The Client represents that it has full power and authority to enter into and perform this Amendment and that it has provided this Amendment to the Board. |
b. | The Service Provider represents that it has full power and authority to enter into and perform this Amendment. |
5. | Miscellaneous. |
a. | This Amendment supplements and amends the Agreement. The provisions set forth in this Amendment supersede all prior negotiations, understandings and agreements bearing upon the subject matter covered herein, including any conflicting provisions of the Agreement or any provisions of the Agreement that directly cover or indirectly bear upon matters covered under this Amendment. |
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b. | Each reference to the Agreement in the Agreement (as it existed prior to this Amendment) and in every other agreement, contract or instrument to which the parties are bound, shall hereafter be construed as a reference to the Agreement as amended by this Amendment. Except as provided in this Amendment, the provisions of the Agreement remain in full force and effect. No amendment or modification to this Amendment shall be valid unless made in writing and executed by both parties hereto. |
c. | Paragraph headings in this Amendment are included for convenience only and are not to be used to construe or interpret this Amendment. |
d. | This Amendment may be executed in counterparts, each of which shall be an original but all of which, taken together, shall constitute one and the same agreement. |
[Remainder of page intentionally left blank. Signatures follow on next page.]
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IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be duly executed all as of the day and year first above written.
TIMOTHY PLAN | |||
By: | ![]() |
||
Name: | Arthur Ally | ||
Title: | President | ||
Date: | Mar 23, 2022 | ||
CITIBANK, N.A. | |||
By: | |||
Name: | |||
Title: | |||
Date: | |||
CITI FUND SERVICES OHIO, INC. | |||
By: | |||
Name: | |||
Title: | |||
Date: |
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Schedule 2 to Services Agreement -- Services
Appendix A -- Fund Administration Services provided by CFSO
Service Provider shall provide the Services listed on this Schedule 2 to the Client and any series thereof listed on Schedule 4 (each, a “Fund”), subject to the terms and conditions of the Agreement (including the Schedules).
I. | Services |
1. | Financial Statements and other SEC Filings: |
(a) | For each Fund, prepare for review and approval of the Client drafts of (i) the annual report to Shareholders and (ii) the semi-annual report. Subject to review and approval by the Client, file the final versions thereof on Form N-CSR with the SEC. |
(b) | Prepare and file the Fund’s Form N-CEN annually |
(c) | Assist with the layout and printing of the Funds’ semi-annual and annual reports. |
(d) | Prepare and file holdings reports on Form N-Q with the SEC, as required at the end of the first and third fiscal quarters of each year, effective through the period ending April 30, 2020. |
(e) | Prepare and file holdings reports on Form N-PORT with the SEC, as required at the end of each month., effective for the period beginning March 1, 2020, |
(f) | Rule 18f-4 Support for Funds relying on “Limited Derivatives User Exemption” (Lite) |
(i) Daily monitoring and reporting on derivative exposure levels
(ii) Monthly exposure calculation reporting on Form N-PORT (Item B.9)
(g) | Rule 18f-4 Support for Non-Exempt Funds (Standard) |
(i) Daily value at risk (VaR) calculations and reporting
(ii) Monthly VaR reporting on Form N-PORT (Item B.10)
2. | Certain Operational Matters |
(a) | Calculate contractual Fund expenses and make disbursements for the Funds, including trustee and vendor fees and compensation and annual reporting of such on IRS Forms 1099-MISC and 1096, as applicable. Disbursements shall be subject to review and approval of an Authorized Person and shall be made only out of the assets of the applicable Fund. |
(b) | Prepare an annual projection of the Funds’ non-asset based expense accruals prior to the beginning of each fiscal year of each Fund and monitor actual and accrued expenses. |
(c) | Compute, as appropriate, each Funds’ dividend payables and dividend factors. |
(d) | Assist the Client’s transfer agent with respect to the payment of dividends and other distributions to Shareholders that have been approved by the Client. |
(e) | Calculate performance data of the Funds for dissemination to (i) the Client, including the Board, (ii) up to fifteen (15) information services covering the investment company industry and (iii) other parties, as requested by the Client and agreed to by Service Provider. |
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(f) | Assist the Client in developing appropriate portfolio compliance procedures for each Fund, and provide compliance monitoring services with respect to such procedures as reasonably requested by the Client, provided that such compliance must be determinable by reference to the Fund’s accounting records. |
(g) | Assist the Client with portfolio compliance monitoring in accordance with Rule 22e-4(b) including: |
(i) Daily liquidity classifications of portfolio securities held by the Fund;
(ii) Daily monitoring of compliance with the Fund’s established Highly Liquid Investment Minimum (HLIM);
(iii) Daily monitoring of compliance with the Fund’s 15% illiquid holdings maximum; and
(iv) Monthly liquidity classification of portfolio securities on Form N-PORT effective December 1, 2019
(h) | Monitor and advise the client and the Funds on their regulated investment company status under the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. |
(i) | Assist the Client and Fund Counsel in responding to routine regulatory examinations or investigations. |
(j) | Monitor wash sales annually. |
(k) | Prepare informational schedules for use by the Client’s auditors in connection with such auditor’s preparation of the Client’s tax returns |
(l) | Coordinate with independent auditors concerning the Client’s regular annual audit. |
(n) | Upon the Client’s request, the Service Provider will assist the Client with the following: (a) semi-annual reviews of financial reports, (b) revisions to policies, procedures and code of ethics, (c) preparation of responses for regulatory examinations and inquiries, and (d) layout of print of prospectuses and semi-annual and annual reports to Shareholders. |
(o) | Provide support for the Annual Prospectus Update, including, but not limited to, providing the required financial information for the filings. |
II. | Notes and Conditions Related to Fund Administration Services |
1. | With respect to any document to be filed with the SEC, the Client shall be responsible for all expenses associated with causing such document to be converted into an EDGAR format prior to filing, as well as all associated filing and other fees and expenses. |
2. | If requested by the Client with respect to a fiscal period during which Service Provider served as financial administrator, Service Provider will provide a sub-certification pertaining to Service Provider’s services consistent with the requirements of the Sarbanes-Oxley Act of 2002. |
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Schedule 2 to Services Agreement -- Services
Appendix B -- Fund Accounting Services provided by CFSO
I. | Services |
1. | Record Maintenance |
Maintain the following books and records of each Fund pursuant to Rule 31a-1 (the “Rule”) under the Investment Company Act of 1940, as amended (the “1940 Act”):
(a) | Journals containing an itemized daily record in detail of all purchases and sales of securities, all receipts and disbursements of cash and all other debits and credits, as required by subsection (b)(1) of the Rule. |
(b) | General and auxiliary ledgers reflecting all asset, liability, reserve, capital, income and expense accounts, including interest accrued and interest received, as required by subsection (b)(2)(i) of the Rule. |
(c) | Separate ledger accounts required by subsection (b)(2)(ii) and (iii) of the Rule. |
(d) | A monthly trial balance of all ledger accounts (except shareholder accounts) as required by subsection (b) (8) of the Rule. |
2. | Accounting Services |
Perform the following accounting services for each Fund:
(a) | Allocate income and expense and calculate the net asset value per share (“NAV”) of each class of shares offered by each Fund in accordance with the relevant provisions of the applicable Prospectus of each Fund and applicable regulations under the 1940 Act. |
(b) | Apply securities pricing information as required or authorized under the terms of the valuation policies and procedures of the Client (“Valuation Procedures”), including (A) pricing information from independent pricing services, with respect to securities for which market quotations are readily available, (B) if applicable to a particular Fund or Funds, fair value pricing information or adjustment factors from independent fair value pricing services or other vendors approved by the Client (collectively, “Fair Value Information Vendors”) with respect to securities for which market quotations are not readily available, for which a significant event has occurred following the close of the relevant market but prior to the Fund’s pricing time, or which are otherwise required to be made subject to a fair value determination under the Valuation Procedures, and (C) prices obtained from each Fund’s investment adviser or other designee, as approved by the Board. The Client instructs and authorizes Service Provider to provide information pertaining to the Funds’ investments to Fair Value Information Vendors in connection with the fair value determinations made under the Valuation Procedures and other legitimate purposes related to the services to be provided hereunder. |
Note: The Client acknowledges that while Service Provider’s services related to fair value pricing are intended to assist the Client and the Board in its obligations to price and monitor pricing of Fund investments, Service Provider does not assume responsibility for the accuracy or appropriateness of pricing information or methodologies, including any fair value pricing information or factors.
(c) | Coordinate the preparation of reports that are prepared or provided by Fair Value Information Vendors which help the Client to monitor and evaluate its use of fair value pricing information under its Valuation Procedures. |
(d) | Verify and reconcile with the Funds’ custodian all daily trade activity. |
(e) | Compute, as appropriate, each Fund’s net income and capital gains, dividend payables, dividend factors, 7-day yields, 7-day effective yields, 30-day yields, and weighted average portfolio maturity; (and other yields or standard or non-standard performance information as mutually agreed). |
(f) | Review daily the net asset value calculation and dividend factor (if any) for each Fund prior to release, check and confirm the net asset values and dividend factors for reasonableness and deviations, and distribute net asset values to National Securities Clearing Corporation via the portfolio composition file. |
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(g) | Determine and report unrealized appreciation and depreciation on securities held by the Funds. |
(h) | Amortize premiums and accrete discounts on fixed income securities purchased at a price other than face value, in accordance with the Generally Accepted Accounting Principles of the United States or any successor principles. |
(i) | Update fund accounting system to reflect rate changes, as received from a Fund’s investment adviser or a third party vendor, on variable interest rate instruments. |
(j) | Post Fund transactions to appropriate categories. |
(k) | Accrue expenses of each Fund according to instructions received from the Client’s Administrator, and submit changes to accruals and expense items to authorized officers of the Client (who are not Service Provider employees) for review and approval. |
(1) | Determine the outstanding receivables and payables for all (1) security trades, (2) Fund share transactions and (3) income and expense accounts. |
(m) | Provide accounting reports in connection with the Client’s regular annual audit, and other audits and examinations by regulatory agencies. |
(n) | Provide such periodic reports as the parties shall agree upon, as set forth in a separate schedule. |
(o) | Assist the Client in identifying instances where market prices are not readily available, or are unreliable, each as set forth within parameters included in the Client’s Valuation Procedures. |
3. | Financial Statements and Regulatory Filings |
Perform the following services related to the financial statements and related regulatory filing obligations for each Fund:
(a) | Provide monthly a hard copy of the unaudited financial statements described below, upon request of the Client. The unaudited financial statements will include the following items: |
(i) | Unaudited Statement of Assets and Liabilities, |
(ii) | Unaudited Statement of Operations, |
(iii) | Unaudited Statement of Changes in Net Assets, and |
(iv) | Unaudited Condensed Financial Information |
(b) | Provide accounting information for the following: (in compliance with Reg. S-X, as applicable): |
(i) | Federal and state income tax returns and federal excise tax returns |
(ii) | the Client’s annual reports with the SEC on Forms N-CEN and the N-CSR, |
(iii) | the Client’s quarterly schedules of investment for filing with the SEC on Form N-Q, effective through the period ending April 30, 2020; |
(iv) | the Client’s monthly schedules of investment for filing with the SEC on Form N-PORT, effective for the period beginning March 1, 2020; |
(v) | the Client’s annual and semi-annual shareholder reports and quarterly Board meetings; |
(vi) | registration statements on Form N-lA and other filings relating to the registration of shares; |
(vii) | reports related to Service Provider’s monitoring of each Fund’s status as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended; |
(viii) | annual audit by the Client’s auditors; and |
(ix) | examinations performed by the SEC. |
(c) | Calculate turnover and expense ratio. |
(d) | Calculate daily spread between NAV and market price of Shares. |
(e) | Prepare schedule of Capital Gains and Losses. |
(f) | Provide daily cash report. |
(g) | Maintain and report security positions and transactions in accounting system. |
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(h) | Prepare Broker Commission Report. |
(i) | Monitor expense limitations. |
(j) | Maintain list of failed trades. |
(k) | Provide unrealized gain/loss report. |
II. | Notes and Conditions Related to Fund Accounting Services |
1. | The Client acknowledges and agrees that although Service Provider’s services related to fair value pricing are intended to assist the Client and its Board in its obligations to price and monitor pricing of Fund investments, Service Provider is not responsible for the accuracy or appropriateness of pricing information or methodologies, including any fair value pricing information or adjustment factors other than as set forth in clause 2(E)(ii) of the Agreement. |
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Schedule 2 to Services Agreement -- Services
Appendix C -- Transfer Agency Services provided by Citibank, N.A.
I. | Services |
1. | Shareholder Transactions |
(a) | Perform and facilitate the performance of purchases and redemptions of Creation Units. |
(b) | Issue Shares of the applicable Fund in Creation Units for settlement with purchasers through DTC as the purchaser is authorized to receive. |
(c) | Prepare and transmit by means of DTC’s book entry system payments for dividends and distributions on or with respect to the Shares declared by the Client on behalf of the applicable Fund. |
(d) | Confirm to DTC the number of Shares issued to the Shareholder, as DTC may reasonably request. |
(e) | Record the issuance of Shares of the Fund and maintain a record of the total number of Shares of the Fund which are outstanding, and, based upon data provided to it by the Fund, the total number of authorized Shares. |
(f) | Prepare and transmit to the Client and the Client’s administrator and to any applicable securities exchange (as specified to Service Provider by the Client or its administrator) information with respect to purchases and redemptions of Shares. |
(g) | Calculate and transmit on each Business Day to the Client’s administrator the number of outstanding Shares for each Fund. |
(h) | Transmit on each Business Day to the Client, the Client’s administrator and DTC the amount of Shares purchased on such day. |
(i) | Prepare a monthly report of all purchases and redemptions of Shares during such month on a gross transaction basis, and identify on a daily basis the net number of Shares either redeemed or purchased on such Business Day and with respect to each Authorized Participant purchasing or redeeming Shares, the amount of Shares purchased or redeemed. |
2. | Compliance Reporting |
(a) | Provide reports to the Securities and Exchange Commission and FINRA. |
(b) | Prepare and distribute appropriate Internal Revenue Service forms for corresponding Fund. |
3. | Shareholder Account Maintenance |
(a) | Maintain the record of the name and address of DTC or its nominee as the sole shareholder of a Fund (the “Shareholder”) and the number of Shares issued by the Fund and held by the Shareholder. |
(b) | Prepare and deliver other reports, information and documents to DTC as DTC may reasonably request. |
(c) | Maintain account documentation files for Shareholder. |
4. | Anti-Money Laundering Services |
In each case consistent with and as required or permitted by the written anti-money laundering program of the Client (“AML Program”):
(a) | Perform monitoring and reporting as may be reasonably requested by the Client’s CCO. |
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II. | Notes and Conditions Related to Transfer Agency Services |
1. | Service Provider may require any or all of the following in connection with the original issue of Shares: (a) Instructions requesting the issuance, (b) evidence that the Board has authorized the issuance, (c) any required funds for the payment of any original issue tax applicable to such Shares, and (d) an opinion of the counsel to the Client about the legality and validity of the issuance. |
2. | Service Provider shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issue or sale of such Shares, which functions shall be the sole responsibility of the Fund. |
3. | Pursuant to purchase orders received in good form and accepted by or on behalf of the Client by the Distributor, Service Provider will register the appropriate number of book entry only Shares in the name of DTC or its nominee as the sole shareholders for each Fund and deliver Shares of such Fund in Creation Units on the business day next following the trade date to the DTC Participant Account of the Custodian for settlement. |
4. | Pursuant to such redemption orders that the Client’s index receipt agent receives from the Distributor, the Client or its agent, Service Provider will redeem the appropriate number of Shares of the applicable Fund in Creation Units that are delivered to the designated DTC Participant Account of Custodian for redemption and debit such shares from the account of the Shareholder on the register of the applicable Fund. |
5. | Service Provider will issue Shares of the applicable Fund in Creation Units for settlement with purchasers through DTC as the purchaser is authorized to receive. Beneficial ownership of Shares shall be shown on the records of DTC and DTC Participants and not on any records maintained by Service Provider. In issuing Shares of the applicable Fund through DTC to a purchaser, Service Provider shall be entitled to rely upon the latest Instructions that are received from the Client or its agent by the Index Receipt Agent (as set forth in Section 3 of this Agreement) concerning the issuance and delivery of such shares for settlement. |
6. | Service Provider will not issue any Shares for a Fund where it has received an Instruction from the Client or written notification from any federal or state authority that the sale of the Shares of such Fund has been suspended or discontinued, and Service Provider shall be entitled to rely upon such Instructions or written notification. |
7. | The Client acknowledges and agrees that deviations requested by the Client from Service Provider’s written transfer agent compliance procedures (“Exceptions”) may involve operational and compliance risks, including a substantial risk of loss. Service Provider may in its sole discretion determine whether to permit an Exception. Exceptions must be requested in writing and shall be deemed to remain effective until the Client revokes the Exception request in writing. Notwithstanding any provision in this Agreement that expressly or by implication provides to the contrary, as long as Service Provider acts in good faith, Service Provider shall have no liability for any loss, liability, expenses or damages to the Client or any Shareholder resulting from such an Exception. |
8. | Service Provider is hereby granted such power and authority as may be necessary to establish one or more bank accounts for the Client with such bank or banks as are acceptable to the Client, as may be necessary or appropriate from time to time in connection with the transfer agency services to be performed hereunder. The Client shall be deemed to be the customer of such bank or banks for purposes of such accounts and shall execute all requisite account opening documents in connection with such accounts. To the extent that the performance of such services hereunder shall require Service Provider to disburse amounts from such accounts in payment of dividends, redemption proceeds or for other purposes hereunder, the Client shall provide such bank or banks with all instructions and authorizations necessary for Service Provider to effect such disbursements. |
9. | Client represents and warrants that: |
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(a) | (i) by virtue of its Charter, Shares that are redeemed by the Client may be resold by the Client and (ii) all Shares that are offered to the public are covered by an effective registration statement under the Securities Act of 1933, as amended and the 1940 Act. |
(b) | (i) The Client has adopted the AML Program, which has been provided to Service Provider and the Client’s AML Compliance Officer, (ii) the AML Program has been reasonably designed to facilitate Compliance by the Client with applicable anti-money laundering Laws and regulations (collectively, the “Applicable AML Laws”) in all relevant respects, (iii) the AML Program and the designation of the AML Compliance Officer have been approved by the Board, (iv) the delegation of certain services thereunder to Service Provider, as provided in Schedule 2 of this Agreement, has been approved by the Board, and (v) the Client will submit any material amendments to the AML Program to Service Provider for Service Provider’s review and consent prior to adoption. |
10. | The Client hereby represents that the sale of Shares are not subject to Blue sky laws and the Service Provider shall not be responsible for any registration, notification, tracking or other function related to the Blue Sky laws of any state. |
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Exhibit A
Fee Letter
To: | Timothy Plan 1055 Maitland Center Cmns Maitland, FL 32751 |
Date: March 3, 2022
Dear Mr. Ally,
We are writing to confirm the following fees which relate to the Services to be provided under the Services Agreement dated September 27, 2018 between the Client and the Services Provider. Capitalized terms used but not defined herein shall have the meaning given to them in the Services Agreement.
The Client agrees to pay all fees, expenses, charges, and obligations incurred from time-to-time for any services pursuant to the Services Agreement as determined in accordance with the terms of the fee schedule attached hereto as Attachment 1 (the “Fee Schedule”), the Services Agreement, and as may otherwise be agreed in writing from time-to-time between the Parties.
This fee letter may be executed in several counterparts, each of which will be an original, but all of which together will constitute one and the same agreement.
By signing the acknowledgment below, you agree to this fee letter and the Fee Schedule. Please return a signed duplicate of this fee letter to Troy Huliba at troy.huliba@citi.com.
Sincerely,
Jon Gezotis | ||
Director | ||
ACKNOWLEDGED AND AGREED TO: | ||
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||
By: | Arthur Ally | |
Title: | President | |
Date: | Mar 23, 2022 | |
Timothy Plan |
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Attachment 1 to Fee Letter
Fee Schedule
1. | FEES |
The Client shall pay the following fees to Service Provider as compensation for the Services rendered hereunder.
All Fees shall be aggregated and paid monthly.
Asset Based Fees (applied to aggregate Trust assets):
First $500 Million in Assets | 5.00 bps |
Next $500 Million in Assets | 4.00 bps |
Assets greater than $1 Billion in Assets | 3.00 bps |
Per Fund Minimum Fee:
Each fund is subject to an annual minimum of $36,000. The greater of the Fund minimum or the individual Fund’s pro rata allocation of the asset based fees is to be applied to each month as the monthly fee.
Annual Per Unit Fees:
Index Receipt Agent | $3,000 per fund |
SOC-1 / SSAE 16 Charges | $125 per class |
Form N-PORT | $14,000 per fund |
Sleeve Fee | $1,000 per sleeve |
Liquidity Risk Management | $3,000 per fund |
Rule 18f-4 Support | |
Standard Service | $5,000 per fund |
Lite Service | $1,500 per fund |
Security Pricing Fees
Asset Type | Per Month Per Unique Security ($) |
Equities | 0.85 |
Asset Backed | 9.80 |
General Bonds | 4.90 |
Government Bonds | 6.05 |
Complex Debt | 20.90 |
Listed Derivatives | 0.85 |
Simple OTCs | 20.50 |
Mid Tier OTCs | 37.40 |
Complex OTCs | 78.00 |
Notes
1. | Monthly rates reflected are based upon current primary pricing vendor selections |
2. | Each “Asset Type” can typically be expected to include the following security types: |
a) | Equities: Domestic Equity, Foreign Equity, Warrants |
b) | Asset Backed: ABS, MBS, CMOs, CMBS |
c) | General Bonds: US Investment Grade Corporate Bonds, US High Yield Corporate Bonds, International Bonds |
d) | Government Bonds Agency Debt, US Government Bonds, Money Market, Municipal Bonds |
e) | Complex Debt: Bank Loans |
f) | Listed Derivatives: Futures, options |
g) | Simple OTC: Interest Rate Swap, OTC Options, Currency Forwards, Currency Swaps |
h) | Mid Tier OTC: Total Return Swap, Asset Swaps, Cross Currency Swaps, Credit Default Swaps |
i) | Complex OTC: Exotic Options, Volatility Swaps, CDOs, CLOs |
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3. | Security Pricing Valuation Services will not be subject to the annual fee increse |
2. | Out-of-Pocket Expenses and Miscellaneous Charges: |
In addition to the above fees, Service Provider shall be entitled to receive payment for the following out-of-pocket expenses and miscellaneous charges:
a) | Reimbursement of Expenses. The Client shall reimburse Service Provider for its out-of-pocket expenses reasonably incurred in providing Services, including, but not limited to: |
(i) | All freight and other delivery and bonding charges incurred by Service Provider in delivering materials to and from the Client and in delivering all materials to Shareholders; |
(ii) | The cost of obtaining security and issuer information; |
(iii) | The cost of CD-ROM, computer disks, microfilm, or microfiche, and storage of records or other materials and data; |
(iv) | Costs of postage, bank services, couriers, stock computer paper, statements, labels, envelopes, reports, notices, or other form of printed material (including the cost of preparing and printing all printed material) which shall be required by Service Provider for the performance of services to be provided hereunder, including print production charges incurred; |
(v) | All copy charges; |
(vi) | Any expenses Service provider shall incur at the written direction of the Client or a duly authorized officer of the Client; |
(vii) | The cost of tax data services; |
(viii) | Regulatory filing fees, industry data source fees, printing (including board book production expenses) and typesetting services, communications, delivery services, reproduction and record storage and retention expenses, and travel related expenses for board / client meetings; and |
(ix) | Any additional expenses reasonably incurred by Service Provider in the performance of its duties and obligations under this Agreement. |
b) | Miscellaneous Service Fees and Charges. In addition to the amounts set forth in paragraphs (1) and 2(A) above, Service Provider shall be entitled to receive the following amounts from the Client: |
(i) | System development fees, billed at the rate of $150 per hour, as requested and pre-approved by the Client, and all systems-related expenses, agreed in advance, associated with the provision of special reports and services pursuant to any of the Schedules hereto; |
(ii) | Fees for development of custom interfaces pre-approved by the Client, billed at the rate of $150 per hour; |
(iii) | Ad hoc reporting fees pre-approved by the Client, billed at the rate of $150 per hour; |
11
(iv) | Expenses associated with Service Provider’s anti-fraud procedures as it pertains to new account review; |
(v) | Check and payment processing fees; and |
(vi) | Costs of rating services. |
3. | Annual Fee Increase: |
Commencing on the one-year anniversary of the Effective Date and annually thereafter, with written notice to the Client at least 90 days prior to the annual contract anniversary, the Service Provider may annually increase the fixed fees and other fees expressed stated dollar amounts in this Agreement by up to an amount equal to the most recent annual percentage increase in consumer prices for services as measured by the United States Consumer Price Index entitled “All Services Less Rent of Shelter” or a similar index should such index no longer be published. Service Provider shall provide Client with 60 days written notice prior to an increase, with the understanding that such notice shall not include the increase as such amount will not be known.
12
AMENDMENT
NO.3
TO
SERVICES AGREEMENT
This AMENDMENT No.2 (“Amendment”) is made as of October 27, 2022, by and among Timothy Plan (“Client”) and Citibank, N.A. (“Citibank”), and Citi Fund Services Ohio, Inc. (“CFSO”, together with Citibank, the “Service Provider” and, with the Client, the “Parties”), to that certain Services Agreement dated November 30, 2018, between the Client and Service Provider (“Agreement”). All capitalized terms used but not defined herein shall have the meanings given to them in the Agreement.
WHEREAS, pursuant to the Agreement, Service Provider performs certain fund administration, fund accounting, and transfer agency services for the Client; and
WHEREAS, the Parties agree to update the services and fee schedules to account for the addition of a derivatives risk service offering.
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter contained and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Client and Service Provider hereby agree as follows:
1. | Amendment to Schedule 2 – Services. |
Appendix C [Transfer Agency Services] to Schedule 2 of the Agreement is hereby deleted in its entirety and replaced with the Appendix C Schedule 2 attached to the end of the Amendment.
2. | Amendment to Annex to Schedule 2 – List of Funds. |
Annex to Schedule 2 of the Agreement is hereby deleted in its entirety and replaced with the following Annex to Schedule 2 attached to the end of the Amendment.
3. | Representations and Warranties. |
a. | The Client represents that it has full power and authority to enter into and perform this Amendment and that it has provided this Amendment to the Board. |
b. | The Service Provider represents that it has full power and authority to enter into and perform this Amendment. |
4. | Miscellaneous. |
a. | This Amendment supplements and amends the Agreement. The provisions set forth in this Amendment supersede all prior negotiations, understandings and agreements bearing upon the subject matter covered herein, including any conflicting provisions of the Agreement or any provisions of the Agreement that directly cover or indirectly bear upon matters covered under this Amendment. |
1
b. | Each reference to the Agreement in the Agreement (as it existed prior to this Amendment) and in every other agreement, contract or instrument to which the parties are bound, shall hereafter be construed as a reference to the Agreement as amended by this Amendment. Except as provided in this Amendment, the provisions of the Agreement remain in full force and effect. No amendment or modification to this Amendment shall be valid unless made in writing and executed by both parties hereto. |
c. | Paragraph headings in this Amendment are included for convenience only and are not to be used to construe or interpret this Amendment. |
d. | This Amendment may be executed in counterparts, each of which shall be an original but all of which, taken together, shall constitute one and the same agreement. |
[Remainder of page intentionally left blank. Signatures follow on next page.]
2
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be duly executed all as of the day and year first above written.
TIMOTHY PLAN | |||
By: | ![]() |
||
Name: | Arthur Ally | ||
Title: | President | ||
Date: | 11/7/22 | ||
CITIBANK, N.A. | |||
By: | |||
Name: | |||
Title: | |||
Date: | |||
CITI FUND SERVICES OHIO, INC. | |||
By: | |||
Name: | |||
Title: | |||
Date: |
3
Schedule
2 to Services Agreement -- Services
Appendix C -- Transfer Agency Services provided by Citibank, N.A.
I. | Services |
1. | Shareholder Transactions |
(a) | Perform and facilitate the performance of purchases and redemptions of Creation Units. |
(b) | Issue Shares of the applicable Fund in Creation Units for settlement with purchasers through DTC as the purchaser is authorized to receive. |
(c) | Prepare and transmit by means of DTC’s book entry system payments for dividends and distributions on or with respect to the Shares declared by the Client on behalf of the applicable Fund. |
(d) | Confirm to DTC the number of Shares issued to the Shareholder, as DTC may reasonably request. |
(e) | Record the issuance of Shares of the Fund and maintain a record of the total number of Shares of the Fund which are outstanding, and, based upon data provided to it by the Fund, the total number of authorized Shares. |
(f) | Prepare and transmit to the Client and the Client’s administrator and to any applicable securities exchange (as specified to Service Provider by the Client or its administrator) information with respect to purchases and redemptions of Shares. |
(g) | Calculate and transmit on each Business Day to the Client’s administrator the number of outstanding Shares for each Fund. |
(h) | Transmit on each Business Day to the Client, the Client’s administrator and DTC the amount of Shares purchased on such day. |
(i) | Prepare a monthly report of all purchases and redemptions of Shares during such month on a gross transaction basis, and identify on a daily basis the net number of Shares either redeemed or purchased on such Business Day and with respect to each Authorized Participant purchasing or redeeming Shares, the amount of Shares purchased or redeemed. |
2. | Compliance Reporting |
(a) | Provide reports to the Securities and Exchange Commission and FINRA. |
(b) | Prepare and distribute appropriate Internal Revenue Service forms for corresponding Fund. |
3. | Shareholder Account Maintenance |
(a) | Maintain the record of the name and address of DTC or its nominee as the sole shareholder of a Fund (the “Shareholder”) and the number of Shares issued by the Fund and held by the Shareholder. |
(b) | Prepare and deliver other reports, information and documents to DTC as DTC may reasonably request. |
(c) | Maintain account documentation files for Shareholder. |
4. | Anti-Money Laundering Services |
In each case consistent with and as required or permitted by the written anti-money laundering program of the Client (“AML Program”):
(a) | Perform monitoring and reporting as may be reasonably requested by the Client’s CCO. |
5. | Order Portal. Service Provider will process Authorized Participant trades via the Citi Order Portal or a successor system of similar quality. In the event of a systems issue, Service Provider will be responsible for providing an alternative process to ensure order acceptance. (This service will commence with the launch of the Timothy Plan Market Neutral ETF) |
1
II. | Notes and Conditions Related to Transfer Agency Services |
1. | Service Provider may require any or all of the following in connection with the original issue of Shares: (a) Instructions requesting the issuance, (b) evidence that the Board has authorized the issuance, (c) any required funds for the payment of any original issue tax applicable to such Shares, and (d) an opinion of the counsel to the Client about the legality and validity of the issuance. |
2. | Service Provider shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issue or sale of such Shares, which functions shall be the sole responsibility of the Fund. |
3. | Pursuant to purchase orders received in good form and accepted by or on behalf of the Client by the Distributor, Service Provider will register the appropriate number of book entry only Shares in the name of DTC or its nominee as the sole shareholders for each Fund and deliver Shares of such Fund in Creation Units on the business day next following the trade date to the DTC Participant Account of the Custodian for settlement. |
4. | Pursuant to such redemption orders that the Client’s index receipt agent receives from the Distributor, the Client or its agent, Service Provider will redeem the appropriate number of Shares of the applicable Fund in Creation Units that are delivered to the designated DTC Participant Account of Custodian for redemption and debit such shares from the account of the Shareholder on the register of the applicable Fund. |
5. | Service Provider will issue Shares of the applicable Fund in Creation Units for settlement with purchasers through DTC as the purchaser is authorized to receive. Beneficial ownership of Shares shall be shown on the records of DTC and DTC Participants and not on any records maintained by Service Provider. In issuing Shares of the applicable Fund through DTC to a purchaser, Service Provider shall be entitled to rely upon the latest Instructions that are received from the Client or its agent by the Index Receipt Agent (as set forth in Section 3 of this Agreement) concerning the issuance and delivery of such shares for settlement. |
6. | Service Provider will not issue any Shares for a Fund where it has received an Instruction from the Client or written notification from any federal or state authority that the sale of the Shares of such Fund has been suspended or discontinued, and Service Provider shall be entitled to rely upon such Instructions or written notification. |
7. | The Client acknowledges and agrees that deviations requested by the Client from Service Provider’s written transfer agent compliance procedures (“Exceptions”) may involve operational and compliance risks, including a substantial risk of loss. Service Provider may in its sole discretion determine whether to permit an Exception. Exceptions must be requested in writing and shall be deemed to remain effective until the Client revokes the Exception request in writing. Notwithstanding any provision in this Agreement that expressly or by implication provides to the contrary, as long as Service Provider acts in good faith, Service Provider shall have no liability for any loss, liability, expenses or damages to the Client or any Shareholder resulting from such an Exception. |
8. | Service Provider is hereby granted such power and authority as may be necessary to establish one or more bank accounts for the Client with such bank or banks as are acceptable to the Client, as may be necessary or appropriate from time to time in connection with the transfer agency services to be performed hereunder. The Client shall be deemed to be the customer of such bank or banks for purposes of such accounts and shall execute all requisite account opening documents in connection with such accounts. To the extent that the performance of such services hereunder shall require Service Provider to disburse amounts from such accounts in payment of dividends, redemption proceeds or for other purposes hereunder, the Client shall provide such bank or banks with all instructions and authorizations necessary for Service Provider to effect such disbursements. |
2
9. | Client represents and warrants that: |
(a) | (i) by virtue of its Charter, Shares that are redeemed by the Client may be resold by the Client and (ii) all Shares that are offered to the public are covered by an effective registration statement under the Securities Act of 1933, as amended and the 1940 Act. |
(b) | (i) The Client has adopted the AML Program, which has been provided to Service Provider and the Client’s AML Compliance Officer, (ii) the AML Program has been reasonably designed to facilitate Compliance by the Client with applicable anti-money laundering Laws and regulations (collectively, the “Applicable AML Laws”) in all relevant respects, (iii) the AML Program and the designation of the AML Compliance Officer have been approved by the Board, (iv) the delegation of certain services thereunder to Service Provider, as provided in Schedule 2 of this Agreement, has been approved by the Board, and (v) the Client will submit any material amendments to the AML Program to Service Provider for Service Provider’s review and consent prior to adoption. |
10. | The Client hereby represents that the sale of Shares are not subject to Blue sky laws and the Service Provider shall not be responsible for any registration, notification, tracking or other function related to the Blue Sky laws of any state. |
3
Annex to Schedule 2 to Services Agreement
List of Funds
Fund Name | Authorized Participant Fee Per Create/Redeem (USD) |
Timothy Plan US Large/Mid Cap Core ETF | 500 |
Timothy Plan High Dividend Stock ETF | 250 |
Timothy Plan US Small Cap Core ETF | 250 |
Timothy Plan International ETF | 4500 |
Timothy Plan US Large/Mid Core Enhanced ETF | 500 |
Timothy Plan High Dividend Stock Enhanced ETF | 250 |
Timothy Plan Market Neutral ETF* | $2,250 |
* | This fund is expected to launch on or about January 9, 2023. |
4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE TIMOTHY PLAN, a business trust organized under the laws of the State of Delaware (hereinafter referred to as the “Trust”), periodically will file post-effective amendments to its Registration Statement on Form N-1A in regard of its various series with the Securities and Exchange Commission under the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Arthur D. Ally, Terry Covert, Cheryl Mumbert, Douglas Ally, and David James, and each of them, his/her attorneys for him/her and in his/her name, place and stead, and in their offices and capacities in the Trust, to execute and file any amendment(s) to the Trust’s Registration Statement, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of November 2022.
/s/ Arthur D. Ally | ||
Arthur D. Ally |
STATE OF FLORIDA | ) | |||
) | ||||
COUNTY OF ORANGE | ) |
Affirmed and subscribed before me by means of [X] physical presence or [N/A] online notarization, this 18th day of November 2022, by Arthur D. Ally.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
(NOTARIAL SEAL) |
/s/ Carolyn E. Ford | |
Notary Public My Commission Expires: 10/26/2026 |
Carolyn E. Ford
Florida Notary Public
Comm# HH326140
Expires 10/26/2026
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE TIMOTHY PLAN, a business trust organized under the laws of the State of Delaware (hereinafter referred to as the “Trust”), periodically will file post-effective amendments to its Registration Statement on Form N-1A in regard of its various series with the Securities and Exchange Commission under the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Arthur D. Ally, Terry Covert, Cheryl Mumbert, Douglas Ally, and David James, and each of them, his/her attorneys for him/her and in his/her name, place and stead, and in their offices and capacities in the Trust, to execute and file any amendment(s) to the Trust’s Registration Statement, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of November 2022.
/s/ Matthew D. Staver | ||
Matthew D. Staver |
|
STATE OF FLORIDA | ) | |||
) | ||||
COUNTY OF ORANGE | ) |
Affirmed and subscribed before me by means of [X] physical presence or [N/A] online notarization, this 18th day of November 2022, by Matthew D. Staver.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
(NOTARIAL SEAL) |
/s/ Carolyn E. Ford | |
Notary Public My Commission Expires: 10/26/2026 |
Carolyn E. Ford
Florida Notary Public
Comm# HH326140
Expires 10/26/2026
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE TIMOTHY PLAN, a business trust organized under the laws of the State of Delaware (hereinafter referred to as the “Trust”), periodically will file post-effective amendments to its Registration Statement on Form N-1A in regard of its various series with the Securities and Exchange Commission under the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Arthur D. Ally, Terry Covert, Cheryl Mumbert, Douglas Ally, and David James, and each of them, his/her attorneys for him/her and in his/her name, place and stead, and in their offices and capacities in the Trust, to execute and file any amendment(s) to the Trust’s Registration Statement, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of November 2022.
/s/ Patrice Tsague | ||
Patrice Tsague |
STATE OF FLORIDA | ) | |||
) | ||||
COUNTY OF ORANGE | ) |
Affirmed and subscribed before me by means of [X] physical presence or [N/A] online notarization, this 18th day of November 2022, by Patrice Tsague.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
(NOTARIAL SEAL) |
/s/ Carolyn E. Ford | |
Notary Public My Commission Expires: 10/26/2026 |
Carolyn E. Ford
Florida Notary Public
Comm# HH326140
Expires 10/26/2026
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE TIMOTHY PLAN, a business trust organized under the laws of the State of Delaware (hereinafter referred to as the “Trust”), periodically will file post-effective amendments to its Registration Statement on Form N-1A in regard of its various series with the Securities and Exchange Commission under the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Arthur D. Ally, Terry Covert, Cheryl Mumbert, Douglas Ally, and David James, and each of them, his/her attorneys for him/her and in his/her name, place and stead, and in their offices and capacities in the Trust, to execute and file any amendment(s) to the Trust’s Registration Statement, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of November 2022.
/s/ Dale Bissonette | ||
Dale Bissonette |
STATE OF FLORIDA | ) | |||
) | ||||
COUNTY OF ORANGE | ) |
Affirmed and subscribed before me by means of [X] physical presence or [N/A] online notarization, this 18th day of November 2022, by Dale Bissonette.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
(NOTARIAL SEAL) |
/s/ Carolyn E. Ford | |
Notary Public My Commission Expires: 10/26/2026 |
Carolyn E. Ford
Florida Notary Public
Comm# HH326140
Expires 10/26/2026
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE TIMOTHY PLAN, a business trust organized under the laws of the State of Delaware (hereinafter referred to as the “Trust”), periodically will file post-effective amendments to its Registration Statement on Form N-1A in regard of its various series with the Securities and Exchange Commission under the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Arthur D. Ally, Terry Covert, Cheryl Mumbert, Douglas Ally, and David James, and each of them, his/her attorneys for him/her and in his/her name, place and stead, and in their offices and capacities in the Trust, to execute and file any amendment(s) to the Trust’s Registration Statement, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of November 2022.
/s/ Richard W. Copeland | ||
Richard W. Copeland |
STATE OF FLORIDA | ) | |||
) | ||||
COUNTY OF ORANGE | ) |
Affirmed and subscribed before me by means of [X] physical presence or [N/A] online notarization, this 18th day of November 2022, by Richard W. Copeland.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
(NOTARIAL SEAL) |
/s/ Carolyn E. Ford | |
Notary Public My Commission Expires: 10/26/2026 |
Carolyn E. Ford
Florida Notary Public
Comm# HH326140
Expires 10/26/2026
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE TIMOTHY PLAN, a business trust organized under the laws of the State of Delaware (hereinafter referred to as the “Trust”), periodically will file post-effective amendments to its Registration Statement on Form N-1A in regard of its various series with the Securities and Exchange Commission under the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Arthur D. Ally, Terry Covert, Cheryl Mumbert, Douglas Ally, and David James, and each of them, his/her attorneys for him/her and in his/her name, place and stead, and in their offices and capacities in the Trust, to execute and file any amendment(s) to the Trust’s Registration Statement, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of November 2022.
/s/ Deborah Honeycutt | ||
Deborah Honeycutt |
STATE OF FLORIDA | ) | |||
) | ||||
COUNTY OF ORANGE | ) |
Affirmed and subscribed before me by means of [X] physical presence or [N/A] online notarization, this 18th day of November 2022, by Deborah Honeycutt.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
(NOTARIAL SEAL) |
/s/ Carolyn E. Ford | |
Notary Public My Commission Expires: 10/26/2026 |
Carolyn E. Ford
Florida Notary Public
Comm# HH326140
Expires 10/26/2026
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE TIMOTHY PLAN, a business trust organized under the laws of the State of Delaware (hereinafter referred to as the “Trust”), periodically will file post-effective amendments to its Registration Statement on Form N-1A in regard of its various series with the Securities and Exchange Commission under the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Arthur D. Ally, Terry Covert, Cheryl Mumbert, Douglas Ally, and David James, and each of them, his/her attorneys for him/her and in his/her name, place and stead, and in their offices and capacities in the Trust, to execute and file any amendment(s) to the Trust’s Registration Statement, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of November 2022.
/s/ William W. Johnson | ||
William W. Johnson |
STATE OF FLORIDA | ) | |||
) | ||||
COUNTY OF ORANGE | ) |
Affirmed and subscribed before me by means of [X] physical presence or [N/A] online notarization, this 18th day of November 2022, by William W. Johnson.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
(NOTARIAL SEAL) |
/s/ Carolyn E. Ford | |
Notary Public My Commission Expires: 10/26/2026 |
Carolyn E. Ford
Florida Notary Public
Comm# HH326140
Expires 10/26/2026
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE TIMOTHY PLAN, a business trust organized under the laws of the State of Delaware (hereinafter referred to as the “Trust”), periodically will file post-effective amendments to its Registration Statement on Form N-1A in regard of its various series with the Securities and Exchange Commission under the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Arthur D. Ally, Terry Covert, Cheryl Mumbert, Douglas Ally, and David James, and each of them, his/her attorneys for him/her and in his/her name, place and stead, and in their offices and capacities in the Trust, to execute and file any amendment(s) to the Trust’s Registration Statement, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of November 2022.
/s/ John C. Mulder | ||
John C. Mulder |
STATE OF FLORIDA | ) | |||
) | ||||
COUNTY OF ORANGE | ) |
Affirmed and subscribed before me by means of [X] physical presence or [N/A] online notarization, this 18th day of November 2022, by John C. Mulder.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
(NOTARIAL SEAL) |
/s/ Carolyn E. Ford | |
Notary Public My Commission Expires: 10/26/2026 |
Carolyn E. Ford
Florida Notary Public
Comm# HH326140
Expires 10/26/2026
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE TIMOTHY PLAN, a business trust organized under the laws of the State of Delaware (hereinafter referred to as the “Trust”), periodically will file post-effective amendments to its Registration Statement on Form N-1A in regard of its various series with the Securities and Exchange Commission under the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Arthur D. Ally, Terry Covert, Cheryl Mumbert, Douglas Ally, and David James, and each of them, his/her attorneys for him/her and in his/her name, place and stead, and in their offices and capacities in the Trust, to execute and file any amendment(s) to the Trust’s Registration Statement, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of November 2022.
/s/ Scott Preissler | ||
Scott Preissler |
STATE OF FLORIDA | ) | |||
) | ||||
COUNTY OF ORANGE | ) |
Affirmed and subscribed before me by means of [X] physical presence or [N/A] online notarization, this 18th day of November 2022, by Scott Preissler.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
(NOTARIAL SEAL) |
/s/ Carolyn E. Ford | |
Notary Public My Commission Expires: 10/26/2026 |
Carolyn E. Ford
Florida Notary Public
Comm# HH326140
Expires 10/26/2026
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE TIMOTHY PLAN, a business trust organized under the laws of the State of Delaware (hereinafter referred to as the “Trust”), periodically will file post-effective amendments to its Registration Statement on Form N-1A in regard of its various series with the Securities and Exchange Commission under the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Arthur D. Ally, Terry Covert, Cheryl Mumbert, Douglas Ally, and David James, and each of them, his/her attorneys for him/her and in his/her name, place and stead, and in their offices and capacities in the Trust, to execute and file any amendment(s) to the Trust’s Registration Statement, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th day of November 2022.
/s/ Abraham M. Rivera | ||
Abraham M. Rivera |
STATE OF FLORIDA | ) | |||
) | ||||
COUNTY OF ORANGE | ) |
Affirmed and subscribed before me by means of [X] physical presence or [N/A] online notarization, this 18th day of November 2022, by Abraham M. Rivera.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
(NOTARIAL SEAL) |
/s/ Carolyn E. Ford | |
Notary Public My Commission Expires: 10/26/2026 |
Carolyn E. Ford
Florida Notary Public
Comm# HH326140
Expires 10/26/2026
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE TIMOTHY PLAN, a business trust organized under the laws of the State of Delaware (hereinafter referred to as the “Trust”), periodically will file post-effective amendments to its Registration Statement on Form N-1A in regard of its various series with the Securities and Exchange Commission under the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Arthur D. Ally, Terry Covert, Cheryl Mumbert, Douglas Ally, and David James, and each of them, his/her attorneys for him/her and in his/her name, place and stead, and in their offices and capacities in the Trust, to execute and file any amendment(s) to the Trust’s Registration Statement, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th day of November 2022.
/s/ Alan M. Ross | ||
Alan M. Ross |
STATE OF GEORGA | ) | |||
) | ||||
COUNTY OF COBB | ) |
Affirmed and subscribed before me by means of [X] physical presence or [N/A] online notarization, this 18th day of November 2022, by Alan M. Ross.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
(NOTARIAL SEAL) |
/s/ Ashley Hardeman | |
Notary Public My Commission Expires: 8/04/2026 |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE TIMOTHY PLAN, a business trust organized under the laws of the State of Delaware (hereinafter referred to as the “Trust”), periodically will file post-effective amendments to its Registration Statement on Form N-1A in regard of its various series with the Securities and Exchange Commission under the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended; and
WHEREAS, the undersigned is a trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Arthur D. Ally, Terry Covert, Cheryl Mumbert, Douglas Ally, and David James, and each of them, his/her attorneys for him/her and in his/her name, place and stead, and in their offices and capacities in the Trust, to execute and file any amendment(s) to the Trust’s Registration Statement, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 20th day of December 2022.
/s/ Kenneth Blackwell | ||
Kenneth Blackwell |
STATE OF OHIO | ) | |||
) | ||||
COUNTY OF HAMILTON | ) |
Affirmed and subscribed before me by means of [X] physical presence or [N/A] online notarization, this 20th day of December 2022, by Kenneth Blackwell.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
(NOTARIAL SEAL) |
/s/ Joshua Dangel | |
Notary Public My Commission Expires: 9/6/2027 |
Multiple Class Expense Allocation Plan
Adopted Pursuant to Rule 18f-3
WHEREAS, the Timothy Plan, a statutory business trust organized under the laws of the State of Delaware (the "Trust"), engages in business as an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Trust is authorized to (i) issue shares of beneficial interest in separate series (each a “Fund”), with the shares of each such Fund representing the interests in a separate portfolio of securities and other assets, and (ii) divide the shares within each such Fund into two or more classes of shares (each a “Share Class”); and
WHEREAS, the Trust has established thirteen Funds with three Share Classes designated as Class A Shares, Class C Shares, and Class I Shares with respect each Fund; and
WHEREAS, the Board of Trustees as a whole and the Trustees who are not interested persons of the Trust (as defined in the Act) (the "Independent Trustees"), having determined in the exercise of their reasonable business judgment that this Plan is in the best interest of each Share Class of each Fund and of the Trust as a whole, have accordingly approved this Plan.
NOW, THEREFORE, the Trust hereby adopts this Plan in accordance with Rule 18f-3 under the Investment Company Act of 1940, as amended, on the following terms and conditions:
1. | CLASS DIFFERENCES. Each Share Class of a Fund shall represent interests in the same portfolio of investments of the Fund and shall be identical in all respects, except that each Share Class shall differ with respect to: |
(i) | distribution and related services and expenses as provided for in Sections 2 and 3 of this Plan; |
(ii) | such differences relating to purchase minimums, eligible investors and exchange privileges as may be set forth in the prospectuses and statements of additional information of the Fund as the same may be amended or supplemented from time to time (the "Prospectuses" and SAIs"); and |
(iii) | the designation of each class of shares. |
2. | DIFFERENCES IN DISTRIBUTION AND RELATED SERVICES. Class A, Class C and Class I Shares of each Fund shall differ in the manner in which such Shares are distributed and in the related services provided to shareholders of each such class as follows: |
(i) | Class I shares shall be distributed at the net asset value of the Fund; |
(ii) | Class A shares shall be subject to a front end sales load; and |
(iii) | Class C shares shall be subject to an ongoing trail commission paid to the broker of record; all as set forth from time to time in the Prospectus and SAI for each Fund and Share Class. |
3. ALLOCATION OF EXPENSES
(a) CLASS EXPENSES.
Expenses incurred in connection with any meeting of shareholders of a particular Share Class, and litigation expenses incurred with respect to matters affecting only a particular Share Class, shall be allocated to that Share Class.
(b) OTHER ALLOCATIONS.
All other expenses of a Fund shall be allocated to each Share Class on the basis of the net asset value of that Share Class in relation to the net asset of the Fund. Notwithstanding the foregoing, the Distributor or Advisor of a Fund may waive or reimburse the expenses of a specific Share Class or Classes to the extent permitted under Rule 18f-3 under the 1940 Act.
4. TERMS AND TERMINATION
(a) INITIAL SERIES.
This Plan shall become effective with respect to each Fund as of the later of (i) the date on which a Registration Statement becomes effective under the Securities Act of 1993, as amended, or (ii) the date on which such Share Class of the Fund commences offering its Shares to the public, and shall continue in effect with respect to such Share Class (subject to Section 4(c) hereof) until terminated in accordance with the provisions of Section 4(c).
(b) ADDITIONAL SERIES OR CLASSES.
This Plan shall become effective with respect to any Share Class of a Fund and with respect to each additional Fund or Share Class thereof established by the Trust after the date hereof and made subject to this Plan upon commencement of the initial public offering thereof, provided that the Plan has previously been approved with respect to such additional Fund or Share Class by votes of a majority of both (i) the Board of Trustees of the Trust and (ii) the Independent Trustees and shall continue in effect with respect to each such additional Fund or Share Class (subject to Section 4(c) hereof) until terminated in accordance with the provisions of Section 4(c) hereof. An addendum hereto setting forth such specific and different terms of such additional series of classes shall be attached to this Plan.
(c) TERMINATION.
This Plan may be terminated at any time with respect to the Trust or any Fund or Share Class thereof, as the case may be, by vote of a majority of both the Trustees of the Trust and the Independent Trustees, voting separately. This Plan shall remain in effect with respect to a Fund or Share Class thereof even if it has been terminated in accordance with the Section 4(c) with respect to another Fund or Share Class of the Trust.
5. AMENDMENTS. Any material amendment to this Plan shall require the affirmative vote of a majority of both the Trustees of the Trust and the Independent Trustees.
Dated: November 15, 2013
CODE OF ETHICS
January 1, 2021
CONFIDENTIAL
Chartwell Investment Partners, LLC
Code of Ethics
Table of Contents
A. | Chartwell Code of Ethics | 2 |
B. | Code of Conduct | 3 |
C. | Personal Securities Transactions | 3 |
D. | Initial Public Offerings (“IPO”) and Private Placements | 10 |
E. | Gifts and Entertainment | 10 |
F. | Political Contributions | 11 |
G. | Outside Business Activities | 12 |
H. | Insider Trading and Protection of Confidential Information | 13 |
I. | Administration of Code of Ethics, Reporting Violations and Sanctions | 15 |
Note: As of February 1, 2021, Chartwell Investment Partners, LLC will have migrated to an automated system for reporting and approval of employee personal trading, gifts and entertainment, political contributions, and periodic attestation activity. MyComplianceOffice (“MCO”) is the compliance system Chartwell has chosen to utilize for compliance activities and monitoring. MCO has been added to Code of Ethics and referenced throughout.
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A. | Chartwell Code of Ethics |
Chartwell Investment Partners (“Chartwell”), an SEC Registered Investment Adviser, is bound to uphold Rule 204A-1, the Code of Ethics rule. This Code is designed to comply with Rule 17j-l of the Investment Company Act of 1940 (“1940 Act”) and Rule 204A-1 of the Investment Advisers Act of 1940 (the “Advisers Act”). Rule 17j-1 and Rule 204A-1 apply because Chartwell serves as investment adviser to registered investment companies (collectively referred to as the “Fund(s)”), as well as other individual and institutional customers. This Code seeks to serve and safeguard Chartwell’s clients by setting forth provisions reasonably necessary to ensure compliance with applicable federal securities laws1.
All Chartwell Associates (“Associates”)2 must act in accordance with this Code of Ethics and Personal Trading Policy and are deemed to be Access Persons in accordance with Rule 204A-1. All Associates, including anyone who provides advice on the firms’ behalf and has access to client and/or proprietary (nonpublic) information are covered by this Code of Ethics and subject to the policies and procedures herein.3 The Code of Ethics is based on the principle that all Chartwell Associates owe a fiduciary duty to the Firm’s clients to conduct their affairs, including their personal securities transactions, at all times in accordance with federal securities laws and in such a manner as to avoid: (i) serving their own personal interests ahead of clients; (ii) taking advantage of their position; and (iii) any actual or potential conflicts of interest.
Please direct any questions about the Chartwell Code of Ethics or the policies or procedures herein to the Chief Compliance Officer (“CCO”) or Compliance Department (“Compliance”). All violations of the Code of Ethics must be reported immediately to Compliance. Pursuant to SEC Regulation 21F, the Securities Whistleblower Incentives and Protection, Chartwell will not retaliate against any Associate who in good faith, self-reports a violation or reports a violation observed in respect of another Associate.
With regard to Chartwell’s service as investment adviser to the Fund(s), Rule 17j-1 imposes additional duties. Under Rule 17j-1, it is unlawful for certain persons, including any officer, director or trustee of the Adviser, in connection with the purchase or sale by such person of a security “held or to be acquired” by the Fund:4
I. | To employ any device, scheme or artifice to defraud the Fund; |
1 | “Federal Securities Laws” means the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Investment Company Act of 1940, the Investment Advisers Act of 1940, Title V of the Gramm-Leach-Bliley Act, any rules adopted by the Commission under any of these statutes, the Bank Secrecy Act as it applies to funds and investment advisers, and any rules adopted thereunder by the Commission or the Department of the Treasury. |
2 | Includes all employees, partners, officers, temporary employees engaged by Chartwell for a period longer than 3 months, and other persons who provide advice on the firms’ behalf. |
3 | Members of the firm’s Board of Directors are not subject to personal trading policies unless such Directors are involved in making securities recommendations to clients or have access to such recommendations that are nonpublic or have access to nonpublic information regarding client transactions or the portfolio holdings of any reportable fund hereunder. |
4 | A security “held or to be acquired” is defined as (a) if within the most recent fifteen (15) days it (i) is or has been held by the Trust or any other Client, or (ii) is being or has been considered by the Trust for purchase by the Trust or any other client, and (b) any option to purchase or sell, and any security convertible into or exchangeable for such a security. |
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II. | To make any untrue statement of a material fact to the Fund or omit to state a material fact necessary in order to make the statements made to the Fund, in light of the circumstances under which they are made, not misleading; |
III. | To engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon the Fund; or |
IV. | To engage in any manipulative practice with respect to the Fund. |
B. | Code of Conduct |
I. | Associates must put the interests of Chartwell clients first before their self-interest and interests of Chartwell. |
II. | Associates must avoid any actual or potential conflicts of interest between themselves, Chartwell and Chartwell’s clients. |
III. | Associates must conduct personal trading activities in a manner consistent with this Code of Ethics. |
IV. | Associates must not use his or her position with Chartwell or any investment opportunities he or she learns of because of his or her position with Chartwell, to the detriment of Chartwell’s clients. |
V. | Associates must comply fully with all applicable federal securities laws and regulatory requirements. |
VI. | Associates should promptly report any situation or transaction that could be perceived to be an actual or potential conflict of interest or risk to the business or violation of this Code to Compliance. |
C. | Personal Securities Transactions |
Consistent with the principles outlined in the Chartwell Code of Conduct, Associates are not permitted to ‘front-run’ any securities transactions of a client, or to ‘scalp’ by making recommendations for clients with the intent of personally profiting from personal holdings or transactions in the same or related securities.
Even if not specifically prohibited in the definitions as defined here (see ‘Definitions’), certain personal trading activities may create or appear to create conflicts of interest. If an Associate has any doubt whether a personal trade raises a conflict of interest, the Associate should consult Compliance before trading. If the CCO determines that a certain personal trading activity is not permitted, the Associate must refrain from or terminate the activity immediately.
The personal trading requirements, restrictions and reporting obligations in this Code of Ethics apply to all Associates and their Immediate Family Members (see ‘Definitions’). All Associates and their Immediate Family Members may only effect personal securities transactions in Pre-clearance Securities (see ‘Definitions’) if pre-clearance has been approved by Compliance, subject to the guidelines herein.
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All personal securities transactions approved by Compliance must be executed by the end of the next calendar day following the date of the approval. If the transaction is not executed by the end of the calendar day following the date of approval, the securities transaction must be re-submitted for approval by Compliance prior to transacting. Associates cannot place any “limit” “good until cancelled” or “stop” that does not expire on the following day on which approval was granted.
I. | Definitions |
Approved Brokers – Associates are required to open broker accounts that hold or could hold Covered Securities with an Approved Broker. With the exception of grandfathered broker accounts (accounts opened by existing employees prior to January 1, 2021), all personal accounts must be held with brokers on the below list of Approved Brokers:
1) | Ameriprise |
2) | Bank of America Merrill Lynch |
3) | E*Trade |
4) | Fidelity |
5) | Interactive Brokers |
6) | LPL |
7) | Morgan Stanley |
8) | Schwab |
9) | TD Ameritrade |
10) | UBS |
11) | Vanguard |
12) | Wells Fargo |
Automatic Broker Feed – an electronic connection between your broker and MCO which automatically feeds transactions and holding information to Compliance for your Reportable Accounts. Associates who have Automatic Broker Feeds generally do not need to provide transactions or holdings reporting as required at quarter and year ends; however, any Reportable Accounts with Automatic Broker Feeds must always be registered in MCO. Associates must add a new Reportable Account to MCO as soon as it is established and no later than the subsequent quarter end as part of the quarterly Reportable Account attestation. Failure to do so will result in a violation of the Code of Ethics which requires that all holdings and transactions are reported within 30 days of quarter end.
Automatic Investment Plan – An Automatic Investment Plan is a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with predetermined schedules and allocations. An automatic investment plan includes 401(k) plans and dividend reinvestment plans. Transactions in Automatic Investment Plans are exempt from reporting and pre-clearance.
Beneficial Ownership – A person has beneficial ownership of a security if he or she, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares direct or indirect interest in the security. This definition has the same meaning as in Securities Exchange Act Rule 16a-1(a)(2).
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Blackout Period – All Pre-clearance Securities traded by client accounts have a blackout period of 3 calendar days before and 3 calendar days after the client account trade in which Associates are restricted from purchasing or selling the same security.
Covered Securities – includes all securities, derivatives, bank debt, trade claims and similar investments unless specifically excluded below. Covered Securities include, without limitation, the following:
1) | Debt and equity securities (inclusive of both public and private securities), including Initial Public Offerings (“IPO”) |
2) | Futures, warrants, options and swaps on any securities, currencies, interest rates or commodities |
3) | Direct obligations of state and municipal governments |
4) | Convertible bonds |
5) | Derivatives |
6) | Exchange-traded funds (“ETF”), Exchange-traded notes (“ETN”) or options thereon |
7) | Private Placements including transactions in limited offerings |
8) | Chartwell managed and sub-advised open-end and closed-end mutual funds (“Reportable Funds”)5 |
9) | Unit investment trusts |
10) | Closed-end mutual funds and open-end mutual funds not registered in the U.S. |
The term “Covered Securities” does not include the following:
1) | Direct obligations of the Government of the United States (such as treasury bills, notes, bonds and derivatives thereof) |
2) | Money market instruments - bankers’ acceptances, bank certificates of deposit, commercial paper, repurchase agreements and other high-quality short-term debt instruments |
3) | Shares issued by money market funds |
4) | Share issued by open-end mutual funds registered in the U.S., and are not Chartwell managed and sub-advised closed-end and open-end mutual funds (Reportable Funds) |
Immediate Family - Immediate Family includes an Associate’s spouse or domestic partner, children under the age of 18 (regardless of whether or not sharing the same household) and any of the following relationships sharing the same household: child over the age of 18, stepchild, grandchild, parent, stepparent, grandparent, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships.
Managed Account – Blind trusts (where there is no visibility over the selection of investments and no control over them), discretionary accounts (where a broker/wealth manager acts with complete discretion and you and your immediate family do not communicate with the broker/wealth manager in advance of trades) or other accounts over which you do not have any influence or control are Reportable Accounts but do not require pre-clearance of Covered Securities.
5 | “Reportable Fund” means (a) any fund for which Chartwell serves as the investment adviser as defined in section 2(a)(20) of the Investment Company Act of 1940; or (b) any fund whose investment adviser or principal underwriter controls Chartwell, is controlled by Chartwell, or is under common control with Chartwell. Currently, the Chartwell Income Fund, Chartwell Short Duration High Yield Fund, Chartwell SCV Fund, Chartwell SCG Fund, Chartwell MCV Fund, FFA, Timothy Plan and Pear Tree Quality Fund are considered to be Reportable Funds. |
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For any new Managed Accounts, you must complete a disclosure (through MCO) which includes information about the account, broker/wealth manager, and other pertinent information. Compliance requires that the broker/wealth manager provide certification that the broker/wealth manager has complete discretion over the account and provide other relevant information. Annually, Associates must complete the Managed Account Disclosure covering any Managed Accounts held during the year.
Manual Broker Feed Account– A Reportable Account that does not have an Automatic Broker Feed. Associates will be required to input trades and holdings into MCO for all Manual Broker Feed Accounts. Quarterly, Associates will need to provide trade confirmations for all trades of Covered Securities and broker account statements for all holdings. Trade confirms and account statements should be uploaded into MCO. Associates are not permitted to open new Manual Broker Feed Accounts. New Reportable Accounts must be opened with an Approved Broker (see Approved Brokers for list).
Pre-clearance Security – Any Covered Security below is considered a pre-clearance Security:
1) | Equities (from any country) |
2) | IPOs |
3) | Private placements |
4) | Equity-like securities (warrants, options, futures, swaps, etc. on individual equities) |
5) | Convertible bonds, corporate debt, and all other fixed income securities |
6) | Chartwell managed and sub-advised mutual funds (Reportable Funds) |
Pre-clearance Securities do not include the following:
1) | Municipal bonds |
2) | Mutual funds (excluding Chartwell Reportable Funds) |
3) | ETFs and ETNs |
4) | ETF and ETN options |
5) | Derivatives on indexes or commodities |
6) | Unit investment trusts |
Reportable Account – Any broker, dealer or bank account held for the direct or indirect benefit for you or your immediate family and which contain or could contain Covered Securities. The personal account trading and reporting rules apply to all Reportable Accounts in which you or your immediate family have direct or indirect control and include:
- | Accounts in the name of or registered to you |
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- | Accounts registered to your immediate family |
- | Accounts in which you or your immediate family is a beneficiary or you or they have a beneficial interest |
- | Accounts in which you or your immediate family directly or indirectly control (such as a trustee), participates in, or have the right to control or participate in, investment decisions |
- | Managed Accounts |
Associates do not need pre-approval from Compliance to open a new Reportable Account, but all new accounts opened must be with an Approved Broker, unless a request is submitted to the CCO for approval to open an account outside of the Approved Broker List above.
A Reportable Account does not need to hold Covered Securities, but only needs to be capable of holding them.
Restricted List – Securities included on the restricted list, for which no Covered Securities can be transacted (all pre-clearance requests will be denied), include the following:
1) | Any securities which are actively traded in client accounts (as defined by any/all trades in the OMS system - Bloomberg) are restricted for trading in personal accounts. |
2) | Any securities in which the investment teams anticipate transacting for client accounts are restricted for trading in personal accounts. |
3) | Any securities which Compliance identifies as restricted due to potential or confirmed receipt of material nonpublic information or for any other reason as identified by Compliance. |
II. | Pre-approval Requirements |
1) | All Associates must pre-clear transactions in Pre-clearance Securities (as defined in Section I) for yourself and your Immediate Family (as defined in Section I) in MCO. If approval is granted by Compliance the trade (if you chose to execute) must be placed within 2 calendar days. Approval is valid for the calendar day on which the approval was granted and the following calendar day. Once an approval has expired after 2 calendar days, you cannot trade in the approved security unless you re-submit a new pre-clearance request in MCO at that time. |
2) | If you do trade in a Pre-clearance Security than you will need to report the transaction in MCO which can be done either: |
i. | Through an Automatic Broker Feed, in which case you do not need to take any further action. |
ii. | For Manual Broker Feed Accounts, by manually updating the MCO system with a trade and then ensuring that your holdings are accurate. You will need to provide a trade confirmation directly from your broker for each transaction in Covered Securities when you complete your quarterly declaration. |
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3) | Personal trades of TriState Capital Holdings (“TSC”) securities require pre-approval by TriState’s General Counsel in addition to the equity trade pre-approval required by the Chartwell Code of Ethics. TSC pre-clearance requests are submitted to TSC’s General Counsel via an email with the completed TriState Pre-Clearance Notice and Request Form (see Attachment A for a sample form), which is reviewed and approved by TriState’s General Counsel. The pre-approval request must be made at least 2 business days prior to executing the transaction. TriState’s pre-approval is required before any transactions of TSC can be executed. All trades of TriState stock are subject to TriState’s policies and procedures and must comply with all of TriState’s regulatory requirements. All TSC trades are also subject to all Chartwell personal trade policies and procedures. For pre-approval by Chartwell Compliance, the request should be submitted in MCO in the same form used for all equity trade requests. TSC trades must be approved by both TriState and Chartwell; Any TSC pre-clearance that is denied by either TriState or Chartwell prohibits the trade of TSC stock. |
4) | Short sales are prohibited for all Covered Securities transactions |
5) | Pre-clearance is not required for: |
i. | Purchases or sales over which the Associate has no direct or indirect influence or control |
ii. | Transactions that are not Pre-clearance Securities |
iii. | Transactions effected in Managed Accounts |
iv. | Transactions effected within an Automatic Investment Plan |
v. | Gifts or Donations of securities |
III. | Holding Period and Trade Limits |
Holding Period
All Pre-clearance Securities bought or sold by Associates after obtaining approval by Compliance will be subject to the 60-day holding period which prohibits Associates from selling the security until held for 60 days or buying the security within 60 days of selling the same security. Purchases of stock options are only allowed for options with expiration dates greater than 60 days from the date of purchase in order to ensure there are no violations of the 60-day holding period.
Transactions of shares in Chartwell Reportable Funds require pre-approval; however, if the employee engages in short-term trading (as defined by fund prospectus) this is considered a violation of the personal trading policies and Code of Ethics herein.
Trade Limits
Associates are allowed to execute a maximum of 10 Pre-clearance Security trades in a single calendar month with an annual (calendar year) limit of 60 Pre-clearance Security trades. Trades that do not require pre-clearance are not subject to nor included in the trade limits.
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IV. | Reporting Requirements |
New Associate Reporting Requirements
New Associates must do the following within 10 calendar days of their date of hire or qualification as an Associate under the Code of Ethics:
a) | Enter all Reportable Accounts for yourself and Immediate Family into MCO. |
b) | Ensure that all of you and your Immediate Family’s Holdings in Covered Securities are entered into MCO. |
c) | Associates with an Automatic Broker Feed will need to ensure that holdings are updated accurately through the feed. Associates with a Manual Broker Feed Account will need to enter holdings into the system manually. |
d) | Provide holdings statements for each of you and your Immediate Family’s Reportable Accounts if you have a Manual Broker Feed Account. The holding statements must be dated no more than 45 days prior to the individuals date of hire. |
e) | Submit an Initial Compliance certification in MCO. |
Failure to complete these requirements for new Associates is logged as a breach of this Code of Ethics. New Associates are permitted to divest their entire holdings portfolio of Covered Securities in the first 10 calendar days of employment and do not need to seek pre-clearance for these sales; however, Compliance should be notified of this decision. If you choose not to divest your holdings than you may be declined permission to sell one or more of your Covered Securities during your employment. In addition, all new Associates will be required to utilize only brokers from the Approved Brokers list.
Periodic Reporting Requirements for all Associates
a) | Quarterly Certifications |
Each quarter, MCO will send a request to complete a certification of trades and holdings reported in MCO. All Covered Security trades made during the quarter and all holdings of Covered Securities as of the last day of the quarter, must be accurately reflected in MCO. Trades and holdings from an Automatic Broker Feed should be reviewed and manual entries of trades and holdings in Manual Broker Feed Accounts must be added to MCO. Associates who do not hold Covered Securities or Reportable Accounts must attest to that quarterly as part of the certification. Associates must report any new Reportable Accounts opened during the quarter as part of the certification. Failure to report a new Reportable Account within 30 days of the quarter end during which the account was opened is considered a violation of our personal transaction policies. Associates with Manual Broker Feed Accounts will be required to upload trade confirmations and broker account statements to MCO for all Covered Securities. Quarterly reporting must be completed within 30 days of the end of the calendar quarter.
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Exceptions from reporting requirements. You are not required to include or report on:
1) | Any securities held in accounts over which you personally had no direct or indirect influence or control |
b) | Annual Holdings Report |
No later than January 30 of each year, MCO will require you to review and report on the holdings included in MCO as of December 31st and attest to compliance with personal trading policies in an Annual Holdings Report. The Annual Holdings Report requires that you attest to your Reportable Accounts and Covered Securities as of December 31 of the prior year. In addition, the Annual Holdings Report also requires you to confirm that you have read and understand the Code of Ethics and have complied with its requirements, and that you understand that it applies to all Associates and their Immediate Family. Associates with a Manual Broker Feed Accounts will need to upload the December 31 Broker Statements into MCO.
Exceptions from reporting requirements. You are not required to include or report on:
1) | Transactions effected pursuant to an Automatic Investment Plan |
D. | Initial Public Offerings (“IPO”)6 and Private Placements |
Private placements and limited offerings7 must be pre-cleared through MCO and Associates must ensure the investment is recorded as a private investment in MCO. Pre-clearance approval is required to acquire, make additional investments in, and dispose of private investments. Private placements include any investments in private companies or limited partnerships. All private placements and limited offerings must be certified annually that such investments are still held and there are no changes to the list of private holdings reported in MCO.
Pre-clearance approval for an investment in an IPO should be submitted in MCO. This requirement also applies to IPOs for which an Associate has an existing investment in the private holding.
E. | Gifts and Entertainment |
No Chartwell funds or property may be used for any unlawful or unethical purpose, nor may any employee attempt to purchase privileges or special benefits through payment of bribes, kickbacks, or any other form of “payoff”. Customary and normal courtesies in conformance with the standards of the industry are allowable except where prohibited by applicable laws or rules. Particular care and good judgment is required when dealing with federal, state or local government officials to avoid inadvertent violations of government ethics rules. Accordingly, no entertainment, gifts or any other items of value should be provided to any official of a governmental body with which the Firm does or is seeking to do business or which has jurisdiction over the activities of the Firm, without the prior approval by Compliance, as described in the following Gifts and Entertainment policies:
6 | “Initial Public Offering” means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934. |
7 | “Limited Offering” is defined as an offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or section 4(6) or pursuant to Rules 504,505, or 506 of Regulation D. |
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I. | Gifts |
Associates are not permitted to accept or give anything valued above the de minimis amount of $100, either directly or indirectly, from/to any persons or entities doing business with Chartwell (including but not limited to broker-dealers, service providers, clients or prospective clients). In certain cases, Associates may accept or give gifts of greater than de minimis value ($100) only if pre-approved by Compliance.
In order to prevent any conflicts of interest on behalf of Chartwell client or prospective clients, Compliance will keep record of all greater than de minimis gifts accepted or given.
II. | Entertainment |
During the course of servicing existing client accounts, Associates may entertain clients over a meal, golf outing or other sporting event. Often times, Chartwell will also sponsor client hosted events either business related or charitable with cash contributions. These forms of entertainment may directly or indirectly benefit Chartwell in the retention of existing clients or acquisition of prospective clients. To that extent, it is Chartwell’s general policy that employees not provide or accept extravagant or excessive entertainment to or from a client, prospective client, or any person or entity that does or seeks to do business with or on behalf of Chartwell.
In order to prevent any conflicts of interest on behalf of our clients or prospective clients, Compliance will keep record of all greater than de minimis ($500 or more) entertainment accepted or given and will perform quarterly review of such activity.
The annual maximum value of all gifts and entertainment which can be received by an employee from all sources that do or seek to do business with or on behalf of Chartwell is $2,500, unless pre-approved by Compliance prior to exceeding such limit.
F. | Political Contributions |
Chartwell Associates and their spouses, may not make political contributions, either directly or indirectly, to any elected official, any candidate for office, any successful candidate, or any political party in any state in the United States or any political subdivision thereof, without prior approval from Compliance. Contributions include anything of value (i.e. donation of office space or resources) even if not a cash contribution.
11
Associates and their spouses may not solicit or coordinate campaign contributions from others for any elected official, any candidate for office, any successful candidate, or any political party in any state in the United States or any political subdivision thereof, without prior approval from Compliance. Solicitation and coordination activities include hosting or sponsoring fundraising events.
Associates and their spouses may not make contributions to a candidate’s political action committee (“PAC”) or Super PAC, without prior approval from Compliance. This prohibition does not apply to contributions to national committees or governing bodies of any recognized national political party or to other PACs not connected to any candidate or official or small group of candidates or officials; however, all PAC contributions must be reported to Compliance prior to making the contribution.
All pre-approval requests for any of the political contributions as outlined herein should be submitted to Compliance for review and approval prior to being made. If Compliance denies the request to make a political contribution, the activity requested should not be conducted in any circumstance. Pre-approval requests must be submitted through MCO. Contribution limits for state and local elections are typically $150 per election per candidate if the Associate is not eligible to vote in that election and $350 per election per candidate if the Associate is eligible to vote in the election of that candidate. Generally, all contributions to candidates for federal office are allowed after pre-approval with the exception of any candidate for federal office who is a current state or local government official, in which case all contributions greater than $150 are prohibited. Each political contribution pre-approval request is reviewed for the specific circumstances and there may be other factors or reasons for which a request is denied even if within these guideline contribution limits.
Any PAC contributions which are not prohibited by the rules described herein and do not require Compliance approval must still be reported to Compliance prior to making any such contribution, which should be done through MCO.
Immediately upon employment (with 10 days of start date), new Chartwell Associates must attest to and report all (i) contributions to any elected official, any candidate for office, any successful candidate or any political party in any state in the United States or any political subdivision thereof and (ii) payments to a political party or to a PAC, in each case, within the previous two years of date of employment.
G. | Outside Business Activities |
No employee shall be employed by, or accept any remuneration from, or perform any services for, any person or entity, including serving as a director of a, trustee or general partner of a partnership, public or private corporation, not-for-profit, or other entity, other than Chartwell or an Affiliate of Chartwell, without prior approval by the CCO. In no event should any employee have any outside employment that might cause embarrassment to or jeopardize the interests of the Firm, interfere with its operations, or adversely affect his or her productivity or that of other employees. CCO approval may require detailed information concerning any proposed outside activity, including the number of hours involved and the compensation to be received. If an employee receives approval to engage in an outside business activity and subsequently becomes aware of a material conflict of interest that was not disclosed when the approval was granted, the conflict must be promptly brought to Compliance. Outside Business Activity pre-approval requests should be submitted to Compliance using the Outside Business Activity pre-approval form in MCO.
12
All new Associates of Chartwell must report all outside business activities to Compliance upon hire, and annually all Associates of Chartwell must certify that the existing disclosure of all outside business activities is correct.
H. | Insider Trading and Protection of Confidential Information |
Chartwell Associates may have access to confidential information about clients, investment advice provided to clients, securities transactions being affected for clients’ accounts and other sensitive information. In addition, Associates may come into possession of information that is material and nonpublic. Associates are prohibited from using confidential or material nonpublic information (“MNPI”) for any manipulative, deceptive or fraudulent purposes. Associates have legal and ethical responsibilities to safeguard and prevent misuse of material nonpublic and confidential information.
I. | Insider Trading |
All Chartwell Associates are required to refrain from trading on the basis of inside information about Chartwell, its affiliates, clients or any securities. The term “insider trading” is generally used to refer to inappropriate or unauthorized dissemination of MNPI. It is important to note that unauthorized use of MNPI is not limited to trading on illegally obtained MNPI. To the extent MNPI is converter to unauthorized recipients (“tippees”), the crime of insider trading may be deemed to have occurred regardless of whether any benefit was conveyed to the tipper of the MNPI. The following three scenarios would trigger enforcement action for insider trading:
1) | Trading by an insider, while in possession of MNPI. |
2) | Trading by a non-insider (tippee or “outsider”) while in possession of MNPI, where the information was either disclosed to the non-insider in violation of an insider’s duty to keep it confidential or was misappropriated by the non-insider without the knowledge of the insider. |
3) | Communicating MNPI to non-authorized parties regardless of their intent to use the information. |
The section below provides information to assist Associates in determining if they are in possession of inside information.
Who is an insider?
Insiders of a company include its officers, directors, and employees or other Access persons, and may also include a controlling shareholder or other controlling person. A person who has access to information about the company because of some special trust or other confidential relationship with a company is considered a temporary insider of that company. Lawyers, auditors, financial institutions, and certain consultants and all their officers, directors or partners, and employees are all likely to be temporary insiders of their clients.
13
What is “Material” information?
Information is material when there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions. Generally, if disclosing certain information will have a substantial effect on the price of a company’s securities, or on the perceived value of the company, or of a controlling interest in the company, the information is material. However, information may be material even if it does not have any immediate direct effect on price or value.
What is “Nonpublic” information?
Information about a publicly traded security or issuer is “public” when it has been dissemination broadly to investors in the marketplace. Tangible evidence of such dissemination is the best indication that the information is public.
Examples of Material Nonpublic Information
The following are some examples of MNPI which advisers routinely collect:
1) | Social security numbers of investors or employees |
2) | Information contained in non-disclosure agreements (“NDAs”) that are issued or executed by the adviser |
3) | Terms and conditions of constituent documentation |
How to identify MNPI
Before executing any securities transaction for your personal account or for others, you must consider and determine whether you have access to MNPI. If you think you might have access to MNPI you should take the following steps:
1) | Report the information and proposed trade immediately to Compliance |
2) | Do not purchase or sell the securities on behalf of yourself or others |
3) | Do not communicate the information inside or outside Chartwell, other than to Compliance. |
II. | Protection of Confidential Information |
Information concerning (i) what securities are followed by investment managers; (ii) specific recommendations made to clients by investment managers; or (iii) prospective securities transactions by clients of Chartwell (including portfolio holdings) is strictly confidential. Under some circumstances, this confidential information may be material and nonpublic. Only business related third parties receive holdings information such as the client’s custodian bank and a third-party proxy voting agent.
Associates who access confidential information should ensure they take appropriate measures to protect it and should only disclose confidential information to anyone on a strict need-to-know basis.
14
I. | Administration of Code of Ethics, Reporting Violations and Sanctions |
I. | Compliance shall notify each person who becomes an Associate of their reporting requirements no later than 10 days subsequent to their first day of initial employment or date at which a person first qualifies for consideration as an Associate. Compliance will provide each Associate with a copy of this Code of Ethics and any amendments. Copies of this Code of Ethics and any amendments will be provided via MCO and will be available to Associates at all times through MCO. |
II. | All Associates must provide written acknowledgement of receipt, review and understanding of this Code of Ethics upon qualification as an Associate, on an annual basis thereafter and periodically as amended thereto. Written acknowledgement will be made through MCO where all electronic records will be retained for the applicable periods as required by Books and Records rules. Any non-electronic or paper records and forms will be retained and preserved in an accessible location. |
III. | Compliance will review all reports submitted pursuant to this Code of Ethics to determine that all Associate’s personal trades are compliant with the rules and restrictions set forth in this Code of Ethics, and do not otherwise indicate a violation of these policies or improper activities inconsistent with Chartwell’s business principles as defined in the Code of Conduct. |
IV. | When, upon Compliance review, reporting indicates a potential violation of these policies, Compliance will inquire and, in some instances, seek employee explanation or request evidence to determine that a violation has occurred. |
V. | Compliance will report (written using a standard template) all violations of this Code of Ethics and proposed disciplinary actions to the Compliance Committee, who will approve the disciplinary action for the violation, based on reporting and recommendation of the CCO. The CCO must be in attendance for all Compliance Committee discussions as it relates to Code of Ethics violations. Should a member of the Compliance Committee violate this Code of Ethics then determination will be made by Compliance Committee members without input or involvement from the member who committed the violation. |
VI. | Compliance will communicate to Associates in writing (typically delivered via email), notification of the violation and disciplinary actions upon determination by the Compliance Committee. This communication will also remind Associates of their obligations and potential consequences of further violations. Associates will be required to acknowledge the violation in writing (typically via email reply) that will be maintained for records. |
VII. | Records of all violations of the Code of Ethics and the disciplinary action taken as a result of the violation will be memorialized by Compliance in a log containing all historical violations from, at a minimum, the previous 5 years. The log will be maintained accessible electronically. |
VIII. | Material violations will be reported periodically, either upon request or at Management Committee discretion, to Chartwell clients, quarterly to the Fund Board of Trustees and annually to the Chartwell Board of Directors. Rule 17j-1 requires that the Adviser adopt a written Code of Ethics (a separate document), which must be approved by the Board of Trustees of the Fund(s). Prior to approval, the CCO must submit a certification to the Board of Trustees that Chartwell has adopted the procedures contained herein which are reasonably designed to prevent Associates from violating the Code of Ethics. |
15
IX. | Material changes to this Code of Ethics must be approved by the Board of Trustees within 6 months of the adoption of the change. |
X. | Disciplinary actions as prescribed by the Compliance Committee will reflect the consideration of known facts and circumstances of the violation. Such disciplinary actions will be specific to the violation that occurred but can include financial sanctions, suspension of trading privileges for up to 6 months or prohibit trading for remainder of employment at Chartwell. Violations can also result in termination of employment, as compliance with the policies in this Code of Ethics and behaving oneself in a manner consistent with the Chartwell Code of Conduct is a condition of employment at Chartwell. |
XI. | The Compliance Committee may except any person, security or transaction from any specific provision of this Code of Ethics. The Compliance Committee will prepare a report documenting the nature of any exception granted, the persons involved and the reasons for granting such exception. Any approval or exception granted by the Compliance Committee under this Code shall not be viewed as or deemed to be a Code of Ethics violation. Such reports will be retained in both electronic and paper form in a location that is easily accessible. |
XII. | The CCO is responsible for ensuring that procedures are reasonably designed to prevent and identify violations of the policies set forth in this Code of Ethics. The CCO will assess the adopted procedures for reasonability at least annually as part of their compliance review. |
XIII. | Compliance will ensure all books and records relating to this Code of Ethics are maintained properly as required by Rule 204-2 under the Advisers Act and Section 31a-1 of the Investment Company Act. |
1) | A copy of each report made pursuant to this policy by an Associate shall be preserved by the firm for at least five years after the end of the fiscal year in which the report is made or the information is provided, the first two years in an easily accessible place. |
2) | A copy of this policy and any other Code which is, or at any time within the past five years has been, in effect shall be preserved in an easily accessible place; |
3) | A list of all persons who are, or within the past five years have been, required to make reports pursuant to this policy, or who are or were responsible for reviewing these reports, shall be maintained in an easily accessible place; and |
4) | A record of any decision, and the reasons supporting the decision, to approve the acquisition of any limited offering or IPO by Associates for at least five years after the end of the fiscal year in which the approval is granted, the first two years in an easily accessible place. |
16
XIV. | A designated Compliance person (not the CCO) will review all of the CCO’s accounts, holdings, reports, and preclearance requests. No Compliance person will review their own accounts, holdings reports and preclearance requests, as self-review is not allowed. |
17
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Total | ||||||
---|---|---|---|---|---|---|
TIMOTHY PLAN MARKET NEUTRAL ETF | ||||||
Market Neutral ETF | ||||||
Investment Objective | ||||||
The Timothy Plan Market Neutral Fund's (the "Fund") investment objective is high current income and low correlation to stocks and bonds. Low correlation means limiting exposure to stock market risk. | ||||||
Fees and Expenses of the Fund | ||||||
This table describes the fees and expenses that you may pay if you buy and hold shares ("Shares") of the Fund. Investors may incur usual or customary brokerage commissions and other charges on their purchases and sales of Shares of the Fund in the secondary market, which are not reflected in the table or the example below. | ||||||
Shareholder Fees (fees paid directly from your investment) | ||||||
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | ||||||
| ||||||
Example: | ||||||
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based upon these assumptions, your costs would be: | ||||||
| ||||||
Portfolio Turnover | ||||||
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover will generally indicate higher transaction costs resulting in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the Example, affect the Fund's performance. Since this is a new Fund without an operating history, portfolio turnover information is not yet available. | ||||||
Principal Investment Strategies | ||||||
The Fund pursues its investment objective by implementing a proprietary, "market neutral" investment strategy designed to seek income from its investments while maintaining a low correlation to the foreign and domestic equity and bond markets. The fund will be actively managed, meaning that the Sub-Advisor may make changes to the Fund's portfolio at any time.
A Market Neutral strategy seeks to generate returns that are independent and uncorrelated to the market action of equity and fixed income markets. It accomplishes this by seeking to minimize or eliminate beta (the portfolio's volatility in relation to movements in the market). The Timothy Plan Market Neutral ETF seeks to neutralize the equity market exposure (beta) from its long positions in dividend paying stocks as closely/completely as practicable using offsetting long and short positions in broad equity index futures. The primary component of residual return (i.e., the return after attempting to neutralize stock performance) is designed to be the income derived from those dividend paying stocks.
The Fund seeks both high income and low correlation to stocks and bonds. Inherent in the low correlation to stocks, the fund seeks to minimize the volatility associated with investing in stocks.
The Fund uses a multi-strategy approach. First, it seeks income from long positions in foreign and domestic dividend producing equity securities of any market capitalization size that satisfy the eVALUEator proprietary Biblically Responsible Investing ("BRI") filtering criteria. The Advisor maintains the list of Excluded Securities identified by the eVALUEator system. Second, the Fund seeks to offset market risk by selling short high-correlating equity index futures contracts*, such as the S&P 500® Index, Russell 2000® or MSCI EAFE + Emerging Markets Indexes, or exchange-traded funds ("ETFs") that track such indexes.
The Fund may own foreign currency denominated equities which trade on foreign exchanges. The Fund may also own depository receipts (i.e., ADRs, GDRs). In order to facilitate and by way of investment in these securities, the Fund may own foreign currency as well.
The Board of Trustees of Timothy Plan believes they have a moral and ethical responsibility to invest in a biblically responsible manner. Accordingly, Timothy Plan ETFs do not invest in companies involved in the production or wholesale distribution of alcohol, tobacco, gambling equipment, gambling enterprises, companies directly or indirectly involved in abortion or pornography, or companies promoting anti-family entertainment or non-biblical lifestyles. Securities issued by companies engaged in these prohibited activities are excluded from the ETF portfolios. They are referred to as "Excluded Securities."
The Fund utilizes seven basic filters to identify Excluded Securities: abortion, pornography, family entertainment, biblical lifestyles, alcohol and tobacco production and gambling. Those filters are further comprised of numerous sub-filters. The database of companies that have been reviewed is now comprised of in excess forty-one thousand (41,000) names, and from that research the list of restricted companies (approximately five percent {5%} of domestic companies and four percent {4%} of foreign companies) is provided to the Sub-Advisor. Any company that is being considered as a candidate for the Fund may not be included if it violates any one or more of the filters or sub-filters and therefore appears on the filtered list. In addition, even though a company is not on the list, any company that is not a current holding and is added to a portfolio is again (or for the first time) reviewed to be certain the company is not in violation of any filter. Not investing in Excluded Securities is a fundamental policy of the Fund and may not be changed without the consent of the Fund's shareholders.
The Fund seeks to offset the remaining market risk by investing in long futures positions in the Nasdaq-100 Index and short futures positions in the S&P 500® Index, or use similar strategies the Sub-Advisor deems appropriate and necessary under current market conditions.
As an alternative to investing directly in equity securities, the Fund can invest in them indirectly by investing in one or more investment companies (including ETFs) advised by the Sub-Advisor that are designed to track the Victory High Dividend Volatility Weighted BRI Index. The Victory US High Dividend Volatility Weighted BRI Index (the "Index"), is an unmanaged, volatility weighted index created by the Sub-Advisor. A volatility weighted index assigns percentage values to each security in the Index based on the volatility of that security in the market. More volatile stocks have a lower weighting, and less volatile stocks are assigned a higher weighting.
The Index combines fundamental criteria with individual security risk control achieved through volatility weighting of individual securities, rather than traditional market-cap weighting. Such a methodology is sometimes referred to as "Smart Beta." The Index follows a proprietary rules-based methodology, developed by the Fund's Sub-Advisor, to construct its constituent securities.
The Fund will not invest in non-affiliated investment company shares.
| ||||||
Principal Risks of Investing in the Fund | ||||||
The Fund's investments are subject to the following principal risks:
Excluded Security Risk. Because the Fund may not invest in Excluded Securities, the Fund may be riskier than other funds that invest in a broader array of securities. BRI investing may not be successful.
BRI investing Risk. There is a risk that the Fund's use of BRI screening may result in lower returns than if the screening process were not employed, and BRI screening may not assist the Fund to achieve its investment objectives.
Price Risk. ETF market prices may deviate from the actual value of the Fund's portfolio value, particularly during times of market stress, with the result that investors may pay more or receive less than the underlying value of the ETF shares bought or sold.
Active Market Risk. An active trading market for the Fund's shares may not develop or be maintained. In times of market stress, market makers and/or Authorized Participants may step away from their roles, which may result in wider bid/ask spreads and variances between the market price of the Fund's shares and the underlying value of those shares.
Liquidity Risk. In stressed market conditions, the market for the Fund's shares may become less liquid.
Equity Risk. The value of the equity securities in which the Fund invests may decline in response to developments affecting individual companies and/or general economic conditions in the United States or abroad. A company's earnings or dividends may not increase as expected (or may decline) because of poor management, competitive pressures, reliance on particular suppliers or geographical regions, labor problems or shortages, corporate restructurings, fraudulent disclosures, man-made or natural disasters, military confrontations or wars, terrorism, public health crises, or other events, conditions and factors. Price changes may be temporary or last for extended periods.
Stock Market Risk. Overall stock market risks may affect the value of the Fund. Domestic and International factors such as political events, war, trade disputes, interest rate levels and other fiscal and monetary policy changes, pandemics and other public health crises and related geopolitical events, as well as environmental disasters such as earthquakes, fires and floods, may add to instability in world economies and markets generally. The impact of these and other factors may be short-term or may last for extended periods.
Investment Style Risk. Different types of investment styles, for example growth or value, tend to perform differently and shift into and out of favor with investors depending on changes in market and economic sentiment and conditions. As a result, the Fund's performance may at times be worse than the performance of other funds that invest more broadly or that have different investment styles.
Smaller-Capitalization Stock Risk. Small- and mid-capitalization companies are subject to a number of risks not associated with larger, more established companies, potentially making their stock prices more volatile and increasing the risk of loss. Smaller companies may have limited markets, product lines, or financial resources and lack management experience and may experience higher failure rates than larger companies.
Large-Capitalization Stock Risk. The securities of large-capitalization companies may underperform the securities of smaller-capitalization companies or the market as a whole. The growth rate of larger, more established companies may lag those of smaller companies, especially during periods of economic expansion.
Foreign Securities Risk. Foreign securities (including depositary receipts) are subject to political, regulatory, and economic risks not present in domestic investments. Foreign securities could be affected by factors not present in the U.S., including expropriation, confiscation of property, and difficulties in enforcing contracts. Compared to U.S. companies, there generally is less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign companies. Foreign securities generally experience more volatility than their domestic counterparts. Depositary receipts may have additional risks, including creditworthiness of the depositary bank and the risk of an illiquid market. In addition, to the extent investments are made in a limited number of countries, events in those countries will have a more significant impact on the Fund. Fluctuations in the exchange rates between the U.S. dollar and foreign currencies, currency exchange control regulations, and restrictions or prohibitions on the repatriation of foreign currencies may negatively affect an investment. Where all or a portion of the Fund's underlying securities trade on an exchange that is closed when the market in which the Fund's shares trade is open, there may be changes between the last quote from the closed foreign market and the value of such security during the Fund's trading day.
Derivatives Risk. Derivative instruments and strategies, including futures and selling securities short, may not perfectly replicate direct investment in the security. Derivatives also entail exposure to counterparty credit risk, the risk of mispricing or improper valuation, and the risk that small price movements can result in substantial gains or losses.
Futures Contracts Risk — The Fund's use of futures contracts exposes the Fund to leverage and tracking risks because a small investment in futures contracts may produce large losses and futures contracts may not be perfect substitutes for securities.
Hedging Risk — Hedging is a strategy in which the Fund uses a derivative to offset the risks associated with other Fund holdings. There can be no assurance that the Fund's hedging strategy will reduce risk or that hedging transactions will be either available or cost effective. The Fund is not required to use hedging and may choose not to do so.
Leverage Risk — Using futures contracts to increase the Fund's combined long and short exposure creates leverage, which can magnify the Fund's potential for gain or loss and, therefore, amplify the effects of market volatility on the Fund's share price.
Investment Company Risk. An investment company or similar vehicle (including an ETF) in which the Fund invests may not achieve its investment objective. Underlying investment vehicles are subject to investment advisory and other expenses, which will be indirectly paid by the Fund. A lack of liquidity in an ETF could result in an ETF being more volatile than the underlying portfolio of securities.
Management Risk. The portfolio manager may not execute the Fund's principal investment strategy effectively. Please see "The Sub-Advisor" section on pg. 15 of the prospectus for a discussion of the Sub-Advisor's experience in managing funds
You may lose money by investing in the Fund. There is no guarantee that the Fund will achieve its objective.
By itself, the Fund does not constitute a complete investment plan and should be considered a long-term investment for investors who can afford to weather changes in the value of their investment. | ||||||
Past performance | ||||||
No performance information is presented since the Fund has not yet had a full calendar year of performance. Performance data for the Fund may be available online at etf.timothyplan.com or by calling 1-800-846-7526. The Fund's past performance is not necessarily an indication of how the Fund will perform in the future. |
Label | Element | Value | |||
---|---|---|---|---|---|
Prospectus [Line Items] | rr_ProspectusLineItems | ||||
Document Type | dei_DocumentType | 485BPOS | |||
Document Period End Date | dei_DocumentPeriodEndDate | Jan. 24, 2023 | |||
Entity Registrant Name | dei_EntityRegistrantName | TIMOTHY PLAN | |||
Entity Central Index Key | dei_EntityCentralIndexKey | 0000916490 | |||
Entity Inv Company Type | dei_EntityInvCompanyType | N-1A | |||
Amendment Flag | dei_AmendmentFlag | false | |||
Document Creation Date | dei_DocumentCreationDate | Jan. 24, 2023 | |||
Document Effective Date | dei_DocumentEffectiveDate | Jan. 24, 2023 | |||
Prospectus Date | rr_ProspectusDate | Jan. 24, 2023 | |||
TIMOTHY PLAN MARKET NEUTRAL ETF | |||||
Prospectus [Line Items] | rr_ProspectusLineItems | ||||
Risk/Return [Heading] | rr_RiskReturnHeading | Market Neutral ETF | |||
Objective [Heading] | rr_ObjectiveHeading | Investment Objective | |||
Objective, Primary [Text Block] | rr_ObjectivePrimaryTextBlock | The Timothy Plan Market Neutral Fund's (the "Fund") investment objective is high current income and low correlation to stocks and bonds. Low correlation means limiting exposure to stock market risk. |
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Expense [Heading] | rr_ExpenseHeading | Fees and Expenses of the Fund | |||
Expense Narrative [Text Block] | rr_ExpenseNarrativeTextBlock | This table describes the fees and expenses that you may pay if you buy and hold shares ("Shares") of the Fund. Investors may incur usual or customary brokerage commissions and other charges on their purchases and sales of Shares of the Fund in the secondary market, which are not reflected in the table or the example below. |
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Shareholder Fees Caption [Text] | rr_ShareholderFeesCaption | Shareholder Fees (fees paid directly from your investment) | |||
Operating Expenses Caption [Text] | rr_OperatingExpensesCaption | Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | |||
Portfolio Turnover [Heading] | rr_PortfolioTurnoverHeading | Portfolio Turnover | |||
Portfolio Turnover [Text Block] | rr_PortfolioTurnoverTextBlock | The Fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover will generally indicate higher transaction costs resulting in higher taxes when Shares are held in a taxable account. These costs, which are not reflected in annual Fund operating expenses or in the Example, affect the Fund's performance. Since this is a new Fund without an operating history, portfolio turnover information is not yet available. |
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Expense Example [Heading] | rr_ExpenseExampleHeading | Example: | |||
Expense Example Narrative [Text Block] | rr_ExpenseExampleNarrativeTextBlock | This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based upon these assumptions, your costs would be: |
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Strategy [Heading] | rr_StrategyHeading | Principal Investment Strategies | |||
Strategy Narrative [Text Block] | rr_StrategyNarrativeTextBlock | The Fund pursues its investment objective by implementing a proprietary, "market neutral" investment strategy designed to seek income from its investments while maintaining a low correlation to the foreign and domestic equity and bond markets. The fund will be actively managed, meaning that the Sub-Advisor may make changes to the Fund's portfolio at any time.
A Market Neutral strategy seeks to generate returns that are independent and uncorrelated to the market action of equity and fixed income markets. It accomplishes this by seeking to minimize or eliminate beta (the portfolio's volatility in relation to movements in the market). The Timothy Plan Market Neutral ETF seeks to neutralize the equity market exposure (beta) from its long positions in dividend paying stocks as closely/completely as practicable using offsetting long and short positions in broad equity index futures. The primary component of residual return (i.e., the return after attempting to neutralize stock performance) is designed to be the income derived from those dividend paying stocks.
The Fund seeks both high income and low correlation to stocks and bonds. Inherent in the low correlation to stocks, the fund seeks to minimize the volatility associated with investing in stocks.
The Fund uses a multi-strategy approach. First, it seeks income from long positions in foreign and domestic dividend producing equity securities of any market capitalization size that satisfy the eVALUEator proprietary Biblically Responsible Investing ("BRI") filtering criteria. The Advisor maintains the list of Excluded Securities identified by the eVALUEator system. Second, the Fund seeks to offset market risk by selling short high-correlating equity index futures contracts*, such as the S&P 500® Index, Russell 2000® or MSCI EAFE + Emerging Markets Indexes, or exchange-traded funds ("ETFs") that track such indexes.
The Fund may own foreign currency denominated equities which trade on foreign exchanges. The Fund may also own depository receipts (i.e., ADRs, GDRs). In order to facilitate and by way of investment in these securities, the Fund may own foreign currency as well.
The Board of Trustees of Timothy Plan believes they have a moral and ethical responsibility to invest in a biblically responsible manner. Accordingly, Timothy Plan ETFs do not invest in companies involved in the production or wholesale distribution of alcohol, tobacco, gambling equipment, gambling enterprises, companies directly or indirectly involved in abortion or pornography, or companies promoting anti-family entertainment or non-biblical lifestyles. Securities issued by companies engaged in these prohibited activities are excluded from the ETF portfolios. They are referred to as "Excluded Securities."
The Fund utilizes seven basic filters to identify Excluded Securities: abortion, pornography, family entertainment, biblical lifestyles, alcohol and tobacco production and gambling. Those filters are further comprised of numerous sub-filters. The database of companies that have been reviewed is now comprised of in excess forty-one thousand (41,000) names, and from that research the list of restricted companies (approximately five percent {5%} of domestic companies and four percent {4%} of foreign companies) is provided to the Sub-Advisor. Any company that is being considered as a candidate for the Fund may not be included if it violates any one or more of the filters or sub-filters and therefore appears on the filtered list. In addition, even though a company is not on the list, any company that is not a current holding and is added to a portfolio is again (or for the first time) reviewed to be certain the company is not in violation of any filter. Not investing in Excluded Securities is a fundamental policy of the Fund and may not be changed without the consent of the Fund's shareholders.
The Fund seeks to offset the remaining market risk by investing in long futures positions in the Nasdaq-100 Index and short futures positions in the S&P 500® Index, or use similar strategies the Sub-Advisor deems appropriate and necessary under current market conditions.
As an alternative to investing directly in equity securities, the Fund can invest in them indirectly by investing in one or more investment companies (including ETFs) advised by the Sub-Advisor that are designed to track the Victory High Dividend Volatility Weighted BRI Index. The Victory US High Dividend Volatility Weighted BRI Index (the "Index"), is an unmanaged, volatility weighted index created by the Sub-Advisor. A volatility weighted index assigns percentage values to each security in the Index based on the volatility of that security in the market. More volatile stocks have a lower weighting, and less volatile stocks are assigned a higher weighting.
The Index combines fundamental criteria with individual security risk control achieved through volatility weighting of individual securities, rather than traditional market-cap weighting. Such a methodology is sometimes referred to as "Smart Beta." The Index follows a proprietary rules-based methodology, developed by the Fund's Sub-Advisor, to construct its constituent securities.
The Fund will not invest in non-affiliated investment company shares.
|
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Risk [Heading] | rr_RiskHeading | Principal Risks of Investing in the Fund | |||
Risk Narrative [Text Block] | rr_RiskNarrativeTextBlock | The Fund's investments are subject to the following principal risks:
Excluded Security Risk. Because the Fund may not invest in Excluded Securities, the Fund may be riskier than other funds that invest in a broader array of securities. BRI investing may not be successful.
BRI investing Risk. There is a risk that the Fund's use of BRI screening may result in lower returns than if the screening process were not employed, and BRI screening may not assist the Fund to achieve its investment objectives.
Price Risk. ETF market prices may deviate from the actual value of the Fund's portfolio value, particularly during times of market stress, with the result that investors may pay more or receive less than the underlying value of the ETF shares bought or sold.
Active Market Risk. An active trading market for the Fund's shares may not develop or be maintained. In times of market stress, market makers and/or Authorized Participants may step away from their roles, which may result in wider bid/ask spreads and variances between the market price of the Fund's shares and the underlying value of those shares.
Liquidity Risk. In stressed market conditions, the market for the Fund's shares may become less liquid.
Equity Risk. The value of the equity securities in which the Fund invests may decline in response to developments affecting individual companies and/or general economic conditions in the United States or abroad. A company's earnings or dividends may not increase as expected (or may decline) because of poor management, competitive pressures, reliance on particular suppliers or geographical regions, labor problems or shortages, corporate restructurings, fraudulent disclosures, man-made or natural disasters, military confrontations or wars, terrorism, public health crises, or other events, conditions and factors. Price changes may be temporary or last for extended periods.
Stock Market Risk. Overall stock market risks may affect the value of the Fund. Domestic and International factors such as political events, war, trade disputes, interest rate levels and other fiscal and monetary policy changes, pandemics and other public health crises and related geopolitical events, as well as environmental disasters such as earthquakes, fires and floods, may add to instability in world economies and markets generally. The impact of these and other factors may be short-term or may last for extended periods.
Investment Style Risk. Different types of investment styles, for example growth or value, tend to perform differently and shift into and out of favor with investors depending on changes in market and economic sentiment and conditions. As a result, the Fund's performance may at times be worse than the performance of other funds that invest more broadly or that have different investment styles.
Smaller-Capitalization Stock Risk. Small- and mid-capitalization companies are subject to a number of risks not associated with larger, more established companies, potentially making their stock prices more volatile and increasing the risk of loss. Smaller companies may have limited markets, product lines, or financial resources and lack management experience and may experience higher failure rates than larger companies.
Large-Capitalization Stock Risk. The securities of large-capitalization companies may underperform the securities of smaller-capitalization companies or the market as a whole. The growth rate of larger, more established companies may lag those of smaller companies, especially during periods of economic expansion.
Foreign Securities Risk. Foreign securities (including depositary receipts) are subject to political, regulatory, and economic risks not present in domestic investments. Foreign securities could be affected by factors not present in the U.S., including expropriation, confiscation of property, and difficulties in enforcing contracts. Compared to U.S. companies, there generally is less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign companies. Foreign securities generally experience more volatility than their domestic counterparts. Depositary receipts may have additional risks, including creditworthiness of the depositary bank and the risk of an illiquid market. In addition, to the extent investments are made in a limited number of countries, events in those countries will have a more significant impact on the Fund. Fluctuations in the exchange rates between the U.S. dollar and foreign currencies, currency exchange control regulations, and restrictions or prohibitions on the repatriation of foreign currencies may negatively affect an investment. Where all or a portion of the Fund's underlying securities trade on an exchange that is closed when the market in which the Fund's shares trade is open, there may be changes between the last quote from the closed foreign market and the value of such security during the Fund's trading day.
Derivatives Risk. Derivative instruments and strategies, including futures and selling securities short, may not perfectly replicate direct investment in the security. Derivatives also entail exposure to counterparty credit risk, the risk of mispricing or improper valuation, and the risk that small price movements can result in substantial gains or losses.
Futures Contracts Risk — The Fund's use of futures contracts exposes the Fund to leverage and tracking risks because a small investment in futures contracts may produce large losses and futures contracts may not be perfect substitutes for securities.
Hedging Risk — Hedging is a strategy in which the Fund uses a derivative to offset the risks associated with other Fund holdings. There can be no assurance that the Fund's hedging strategy will reduce risk or that hedging transactions will be either available or cost effective. The Fund is not required to use hedging and may choose not to do so.
Leverage Risk — Using futures contracts to increase the Fund's combined long and short exposure creates leverage, which can magnify the Fund's potential for gain or loss and, therefore, amplify the effects of market volatility on the Fund's share price.
Investment Company Risk. An investment company or similar vehicle (including an ETF) in which the Fund invests may not achieve its investment objective. Underlying investment vehicles are subject to investment advisory and other expenses, which will be indirectly paid by the Fund. A lack of liquidity in an ETF could result in an ETF being more volatile than the underlying portfolio of securities.
Management Risk. The portfolio manager may not execute the Fund's principal investment strategy effectively. Please see "The Sub-Advisor" section on pg. 15 of the prospectus for a discussion of the Sub-Advisor's experience in managing funds
You may lose money by investing in the Fund. There is no guarantee that the Fund will achieve its objective.
By itself, the Fund does not constitute a complete investment plan and should be considered a long-term investment for investors who can afford to weather changes in the value of their investment. |
|||
Risk Lose Money [Text] | rr_RiskLoseMoney | You may lose money by investing in the Fund. | |||
Bar Chart and Performance Table [Heading] | rr_BarChartAndPerformanceTableHeading | Past performance | |||
Performance Narrative [Text Block] | rr_PerformanceNarrativeTextBlock | No performance information is presented since the Fund has not yet had a full calendar year of performance. Performance data for the Fund may be available online at etf.timothyplan.com or by calling 1-800-846-7526. The Fund's past performance is not necessarily an indication of how the Fund will perform in the future. |
|||
Performance One Year or Less [Text] | rr_PerformanceOneYearOrLess | No performance information is presented since the Fund has not yet had a full calendar year of performance. | |||
Performance Availability Phone [Text] | rr_PerformanceAvailabilityPhone | 1-800-846-7526 | |||
Performance Availability Website Address [Text] | rr_PerformanceAvailabilityWebSiteAddress | etf.timothyplan.com | |||
Performance Past Does Not Indicate Future [Text] | rr_PerformancePastDoesNotIndicateFuture | The Fund's past performance is not necessarily an indication of how the Fund will perform in the future. | |||
TIMOTHY PLAN MARKET NEUTRAL ETF | TIMOTHY PLAN MARKET NEUTRAL ETF Shares | |||||
Prospectus [Line Items] | rr_ProspectusLineItems | ||||
Trading Symbol | dei_TradingSymbol | TPMN | |||
SHAREHOLDER FEES (fees paid directly from your investment) | rr_ShareholderFeeOther | none | |||
Management Fees (as a percentage of Assets) | rr_ManagementFeesOverAssets | 0.65% | |||
Expenses (as a percentage of Assets) | rr_ExpensesOverAssets | 0.65% | |||
Expense Example, with Redemption, 1 Year | rr_ExpenseExampleYear01 | $ 66 | |||
Expense Example, with Redemption, 3 Years | rr_ExpenseExampleYear03 | $ 208 |
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