The Fund is a member of the AVDR (pronounced “avoider”) family of ETFs. The Fund uses a passive investment strategy designed to track the total return performance (before fees and expenses) of the ESG Index. The ESG Index is a proprietary index that was created by the Advisor to seek to provide long-term risk adjusted outperformance of the S&P 500® ESG Index. The S&P 500® ESG Index is a broad based, market-cap-weighted index that is designed to measure the performance of securities meeting environmental, good corporate governance, and sustainability criteria, while maintaining similar overall industry group weights as the S&P 500® Index.

The ESG Index seeks to provide long-term risk adjusted outperformance of the S&P 500® ESG Index by investing in those stocks in the Refinitiv U.S. Total Return Index (the “Refinitiv Index”) that meet certain ESG score criteria (discussed further below) and that have better Human Factor Scores (a proprietary score created by the Advisor and discussed in greater detail below). Because the Refinitiv U.S. Total Return Index is not a publicly available, broad-based index against which the ESG Index can benchmark its performance, the ESG Index will compare its performance against the S&P 500® ESG Index.

The ESG Index and the Human Factor Score

The ESG Index is constructed through an automated, rules-based process and consists of the top 50 U.S. stocks in the Refinitiv Index as ranked by using the Human Factor Score and other rules-based criteria as defined by the ESG Index methodology. Stocks (and REITs) are automatically selected for inclusion in the Index by Refinitiv, the index calculation agent, by applying the Index methodology. The ESG Index methodology starts by assessing all of the securities in the Refinitiv Index. It excludes those securities that do not have a minimum of $10 million six-month average daily trading value and a minimum stock price of $3.00. It also excludes any stocks that do not receive an ESG score from Refinitiv above 75 (see additional details below). The Human Factor score is then automatically calculated assigned for the remaining securities and the top 50 remaining securities with the lowest Human Factor scores are selected for inclusion in this Index. The ESG Index is rebalanced quarterly after the last trading day of February, May, August, and November. The ESG Index constituents are weighted by free float market-cap and an individual weight cap of 15% is applied at the time of rebalance. For rebalances in February, May, and August, the index components with Human Factor Scores less than the median and ESG score greater than 75 would continue to stay in the ESG Index. This rule does not apply to rebalances in November.

The ESG Index is the property of the Advisor. The ESG Index is calculated by Refinitiv, which is not affiliated with the Fund, the Advisor, or the Sub-Advisor. Refinitiv, in its role as the calculation agent, uses the ESG Index methodology, determines the composition of the ESG Index and the weightings of the securities in the ESG Index, and publishes information regarding the market value of the ESG Index daily.

The ESG Index universe is comprised of 600 stocks with the largest free-float market-capitalization with a minimum of $10 million six-month average daily trading value and a minimum stock price of $3.00 in the Refinitiv Index (the “ESG Selection Universe”). Stocks from the ESG Selection Universe are eligible for inclusion in the ESG Index if they have received an ESG score from Refinitiv above 75 (grade A- and above), which according to Refinitiv indicates that the company has an excellent relative ESG performance and high degree of transparency in reporting material ESG data publicly. Refinitiv reviews numerous publicly available information sources for observable data inputs, including annual reports, company websites, NGO websites, stock exchange filings, corporate social responsibility reports, and news sources. In establishing an ESG score, Refinitiv considers more than 450 different ESG metrics, including a company’s resource usage, carbon dioxide emissions, total waste generated, water and energy usage, environmental product innovation, workforce, training hours, human rights issues, community involvement, product responsibility, quality monitoring, responsible marketing, management, shareholders, data privacy, and corporate social responsibility strategy, among other things. See the “Refinitiv” Section below for a description of how Refinitiv assigns ESG scores for each stock.

The ESG Index methodology uses the Advisor’s proprietary Human Factor algorithm to calculate and assign a Human Factor Score to all of the components of the ESG Selection Universe. The methodology assigns each of the stocks (and REITs) in the ESG Selection Universe a ranking based on their Human Factor Score. The stock with the lowest Human Factor Score receives a ranking of 1. The methodology also assigns all stocks in the ESG Selection Universe with an ESG score from Refinitiv above 75 with a ranking based on their ESG Score. The stock with the highest ESG score receives a ranking of 1. The methodology then calculates the average ranking of the Human Factor Score and ESG score for each stock (and REIT). The 50 Stocks (and REITs) with the smallest average ranking that pass the ESG Index methodology’s other rules-based criteria are then selected for inclusion in the ESG Index by Refinitiv or an affiliate (as index calculation agent).

The ESG Index is constructed by attempting to avoid the “losers” in the Refinitiv Index. The “avoid the losers” philosophy is not just part of the applicable methodology of the Index, but is fundamental to the underlying actuarial-like approach of the Advisor with respect to asset management. Specifically, a loser is a stock that, according to the Advisor’s proprietary Human Factor algorithm, has a higher probability of not delivering growth to support the stock price, causing a drag on performance and loss of investment. Stock prices are based on information that is both known and information that is vague or subject to interpretation. Market participants generally interpret known information, such as a company’s audited financials, in a consistent, and therefore, predictable manner. However, market participants also interpret how certain ambiguous information, such as, news stories, interest rate changes, pandemics, and natural disasters, will impact a company’s stock even though there is no clear correlation between the event and the price of a company’s stock. In these situations, investors buy or sell securities based on their opinion of how the ambiguous information will impact the price of the stock in the short-term. In a truly efficient market, a stock’s price will reflect all available information about that company. However, there are human biases, hunches, and opinions that get incorporated into stock prices that are based on assumptions and are unverifiable. Investors, analysts, and other market participants impound vague and ambiguous information into stock prices based on their opinion of how these vague and ambiguous pieces of information will impact the company’s stock (i.e., if they believe the stock will appreciate, they will buy the stock thereby increasing the demand for the stock and placing upward pressure on the price of the stock). These investor expectations, biases, and hunches, can increase a company’s stock price, placing a burden on a company to deliver unattainable earnings to support that stock price. A company’s failure to deliver earnings may result in price declines and a loss of investment. The Human Factor (the risk that stock prices are affected by human biases) is a risk that comes from investors interpreting vague or ambiguous information about a company’s stock in a systematically incorrect way. These human biases cause stocks to be mispriced and fail to deliver earnings. This creates a risk that investors are not compensated for taking, a risk the Advisor calls the Human Factor.

The Advisor has developed its proprietary Human Factor algorithm to seek to measure which stocks are more likely to have been impacted by human biases and to avoid investing in those stocks. Using a probability-based approach, the algorithm compares a stock’s implied revenue growth to a distribution of historical growth rates to determine the probability that growth implied by the current stock price will be delivered. Specifically, the algorithm compares a company’s implied revenue growth rate, which is calculated by using the company’s stock price, current and historical financial statements, market data, the company’s revenue, and other publicly available financial information against the company’s historical revenue growth rates to determine how likely the company is to deliver the growth in revenue implied by its stock price. For example, a situation where many investors rapidly purchase large amounts of a stock because they have a “hunch” that the stock might appreciate or because they received a tip on a financial talk show, causing the stock price to rise even though a company’s financial situation may not support the higher stock price, is an example of human biases effecting the price of a stock. The Fund’s aim is to avoid investing in precisely those types of stocks where the Human Factor Algorithm indicates that human biases may have the greatest impact on a company’s stock price and instead invest in those stocks where human biases have the lowest impact on a company’s stock price.

The Human Factor algorithm utilizes the publicly available information about a company to generate a Human Factor Score for that company. Under the algorithm methodology, a high Human Factor Score means that a stock is relatively overpriced and has a higher probability of not delivering growth to support the stock price (i.e., according to the methodology, the stock has been impacted by human biases to a greater degree than other stocks and is, therefore, a “loser”). Conversely, a low Human Factor Score means that, according to the methodology, a stock is relatively underpriced and has a lower probability of not delivering growth to support the stock price (i.e., according to the methodology, the stock has been impacted by human biases to a lesser degree than other stocks). The Advisor does not utilize the Human Factor algorithm to engage in active stock selection for the Fund. The Human Factor algorithm is simply utilized as one rules-based factor in the ESG Index methodology that is automatically applied to determine which stocks out of all the stocks in the Refinitiv Index will be included in the ESG Index.

Refinitiv

Refinitiv® covers over 70% of global market cap, across more than 450 different ESG metrics, with history going back to 2002. ESG scores from Refinitiv are designed to transparently and objectively measure a company’s relative ESG performance, commitment and effectiveness across 10 main themes (resource use, emissions, environmental product innovation, workforce, human rights, community, product responsibility, management, shareholders, corporate social responsibility (“CSR”) strategy) based on publicly-reported data. Refinitiv’s ratings are available on close to 9,000 companies globally. The scores are available in both percentages and letter grades ranging from D- to A+ and are benchmarked against Thomson Reuters Business Classifications (TRBC – Industry Group) for all environmental and social categories as well as the controversies score – and against the country of incorporation for all governance categories. The scores are based on relative performance of ESG factors with the company’s sector (for environmental and social criteria) and country of incorporation (for governance criteria).

A description of Refinitiv’s scoring methodology is included below.

Source: ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) SCORES FROM REFINITIV - November 30, 2021,

https://www.refinitiv.com/content/dam/marketing/en_us/documents/methodology/refinitiv-esg-scores-methodology.pdf

Source: ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) SCORES FROM REFINITIV - November 30, 2021, https://www.refinitiv.com/content/dam/marketing/en_us/documents/methodology/refinitiv-esg-scores-methodology.pdf

Under normal market conditions, the Fund will generally invest substantially all, but at least 80% of its net assets (plus the amount of any borrowings for investment purposes, but exclusive of collateral held from securities lending) in component securities of the ESG Index (the “80% Policy”). The Fund must provide shareholders with 60 days’ prior written notice if it changes its 80% Policy. In addition, the Fund may invest in cash and cash equivalents, including shares of money market mutual funds or ETFs, short-term funds, commercial paper, certificates of deposit, bankers’ acceptances, U.S. Government securities and repurchase agreements. To the extent that the Fund invests in money market mutual funds or ETFs or short-term funds for cash positions, there will be some duplication of expenses because the Fund pays its pro-rata portion of such funds’ advisory fees and operational fees.

In seeking to track the ESG Index, the Fund will generally invest in all of the securities comprising the ESG Index in proportion to the weightings in the ESG Index. If it is not possible or practicable (that is, in instances when a security in the ESG Index becomes temporarily illiquid, unavailable or less liquid, or due to legal restrictions) to purchase all of the securities in the ESG Index or amounts of such securities in proportion to their weighting in the ESG Index, the Fund will generally invest the proceeds that would have been invested in the unavailable security in the next highest-rated security in the ESG Selection Universe (according to the Human Factor score and other rules-based criteria). For example, if one of the top 50 securities in the ESG Index is no longer available for purchase, the Sub-Advisor will be required to invest the proceeds that would have been invested in the unavailable security in the next highest rated security on the ESG Selection Universe as ranked by using the ESG Index methodology (in this case the 51st ranked stock). In instances where it is not responsibly practicable to simply invest in the next highest rated security in the ESG Selection Universe, as ranked by the ESG Index methodology, the Advisor may utilize a sampling methodology. Sampling means that quantitative analysis is used to select securities that represent a sample of the securities in the ESG Index with a similar investment profile as the ESG Index in terms of key risk factors, performance attributes and other characteristics. In addition, the ESG Index is reviewed on an ongoing basis to account for corporate actions such as mergers or de-listings. The Advisor or Sub-Advisor may sell securities that are represented in the ESG Index, or purchase securities that are not yet represented in the ESG Index, in anticipation of their removal from or addition to the ESG Index.

The Fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or sector to approximately the same extent that the ESG Index is so concentrated.

The Fund is a “non-diversified fund,” which means that it may invest more of its assets in the securities of a single issuer or a small number of issuers than a diversified fund.

Due to its investment strategies, the turnover rate of the Fund should generally be similar to the turnover rate of the ESG Index.