For a Share Outstanding Throughout the Period
|
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|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
Net Asset
Value,
Beginning of
Period ($)
|
|
|
Net
Investment
Income ($)*
|
|
|
Net Realized
and Unrealized
Gain on
Investments ($)
|
|
|
Total from
Operations ($)
|
|
|
Distributions
from Net
Investment
Income ($)
|
|
|
Distributions
from Net
Realized Capital
Gains ($)
|
|
|
Return of
Capital ($)
|
|
|
Total
Distributions ($)
|
|
|
Net Asset
Value, End of
Period ($)
|
|
|
Market Price,
End of Period ($)
|
|
|
Total
Return(%)(1)
|
|
|
Net Assets
End of
Period ($)
(000)
|
|
|
Ratio of
Expenses to
Average Net
Assets (%)(2)
|
|
|
Ratio of Net
Investment
Income
to
Average Net
Assets (%)(2)
|
|
|
Portfolio
Turnover
(%)(3)
|
|
|
Impact Shares YWCA Women’s Empowerment ETF
|
|
|
2019**
|
|
|
20.63
|
|
|
|
0.15
|
|
|
|
2.41
|
|
|
|
2.56
|
|
|
|
(0.14
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.14
|
)
|
|
|
23.05
|
|
|
|
23.07
|
|
|
|
12.44
|
|
|
|
6,915
|
|
|
|
0.75
|
|
|
|
1.41
|
|
|
|
—
|
|
|
2019(4)
|
|
|
20.00
|
|
|
|
0.27
|
|
|
|
0.63
|
|
|
|
0.90
|
|
|
|
(0.25
|
)
|
|
|
(0.02)
|
|
|
|
—^
|
|
|
|
(0.27
|
)
|
|
|
20.63
|
|
|
|
20.62
|
|
|
|
4.71
|
|
|
|
4,126
|
|
|
|
0.76
|
(7)
|
|
|
1.60
|
|
|
|
7
|
|
|
|
|
Impact Shares NAACP Minority Empowerment ETF
|
|
|
2019**
|
|
|
21.16
|
|
|
|
0.14
|
|
|
|
2.11
|
|
|
|
2.25
|
|
|
|
(0.13
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.13
|
)
|
|
|
23.28
|
|
|
|
23.30
|
|
|
|
10.67
|
|
|
|
2,910
|
|
|
|
0.75
|
|
|
|
1.29
|
|
|
|
—
|
|
|
2019(5)
|
|
|
20.00
|
|
|
|
0.28
|
|
|
|
1.17
|
|
|
|
1.45
|
|
|
|
(0.28
|
)
|
|
|
(0.01)
|
|
|
|
—
|
|
|
|
(0.29
|
)
|
|
|
21.16
|
|
|
|
21.11
|
|
|
|
7.37
|
|
|
|
2,222
|
|
|
|
0.75
|
(8)
|
|
|
1.46
|
|
|
|
19
|
|
|
|
|
Impact Shares Sustainable Development Goals Global Equity ETF
|
|
|
2019**
|
|
|
20.54
|
|
|
|
0.15
|
|
|
|
1.52
|
|
|
|
1.67
|
|
|
|
(0.14
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.14
|
)
|
|
|
22.07
|
|
|
|
22.26
|
|
|
|
8.15
|
|
|
|
2,207
|
|
|
|
0.75
|
|
|
|
1.39
|
|
|
|
—
|
|
|
2019(6)
|
|
|
20.00
|
|
|
|
0.32
|
|
|
|
0.60
|
|
|
|
0.92
|
|
|
|
(0.38
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.38
|
)
|
|
|
20.54
|
|
|
|
20.66
|
|
|
|
4.67
|
|
|
|
1,027
|
|
|
|
0.75
|
(9)
|
|
|
2.08
|
|
|
|
25
|
|
Amounts designated as “-“are either $0 or have been rounded to $0.
|
|
|
|
|
*
|
|
Per share data calculated using average shares method.
|
|
**
|
|
For the six months ended December 31, 2019.
|
|
^
|
|
Amount is less than 0.005.
|
|
(1)
|
|
Total return is based on the change in net asset value of a share during the year or period and assumes reinvestment of dividends and distributions at net asset value. Total return is for the period indicated and periods of less
than one year have not been annualized. The return shown does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
|
|
(2)
|
|
Annualized.
|
|
(3)
|
|
Portfolio turnover rate is for the period indicated and has not been annualized. Excludes effect of in-kind transfers.
|
|
(4)
|
|
Commenced operations on August 24, 2018.
|
|
(5)
|
|
Commenced operations on July 18, 2018.
|
|
(6)
|
|
Commenced operations on September 20, 2018.
|
|
(7)
|
|
The ratio of Expenses to Average Net Assets includes the voluntary expense reimbursements (See Note 3). If these reimbursements were excluded, the ratio would have been 2.24% for the period ended June 30, 2019.
|
|
(8)
|
|
The ratio of Expenses to Average Net Assets includes the voluntary expense reimbursements (See Note 3). If these reimbursements were excluded, the ratio would have been 1.66% for the period ended June 30, 2019.
|
|
(9)
|
|
The ratio of Expenses to Average Net Assets includes the voluntary expense reimbursements (See Note 3). If these reimbursements were excluded, the ratio would have been 1.38% for the period ended June 30, 2019.
|
The accompanying notes are an integral
part of the financial statements.
15
Impact Shares Trust I
Notes to Financial Statements
December 31, 2019 (Unaudited)
1. ORGANIZATION
Impact Shares Trust I (the “Trust”), an open-end management investment company organized as a
Delaware statutory trust pursuant to a Declaration of Trust dated May 19, 2016. The Trust is registered with the Securities and Exchange Commission (the “Commission”) under the Investment Company Act of 1940 (the “1940
Act”), as amended, as an open-end management investment company with three separate exchange-traded funds or series. The financial statements herein and the related notes are those of Impact Shares YWCA
Women’s Empowerment ETF (the “Women’s ETF”), Impact Shares NAACP Minority Empowerment ETF (the “Minority ETF”) and Impact Shares Sustainable Development Goals Global Equity ETF (the “Sustainable Development
ETF”) (each a “Fund” and collectively, the “Funds”). The Funds seek to provide investment results that, before fees and expenses, track the total return performance of the Morningstar® Women’s Empowerment Index, the Morningstar® Minority Empowerment Index and the Morningstar® Societal Development Index (the “Underlying Indices” or “Index”), respectively. The Funds are classified as “non-diversified”
funds under the 1940 Act. Impact Shares, Corp. (the “Adviser”) serves as the investment adviser for the Funds and is subject to the supervision of the Board of Trustees (the “Board”). The Adviser is responsible for managing the
investment activities of the Funds, the Funds’ business affairs and other administrative matters. The Adviser is a nonprofit corporation organized under the laws of Texas and is tax exempt under Section 501(c)(3) of the Internal Revenue
Code.
The Women’s ETF commenced operations on August 24, 2018.
The NAACP Minority ETF commenced operations on July 18, 2018.
The Sustainable Development ETF commenced operations on September 20, 2018.
Shares of the Funds (“Shares”) are listed and traded on NYSE Arca, Inc. Market prices for the Shares may be different from their net
asset value (“NAV”). The Funds will issue and redeem Shares on a continuous basis at NAV only in large blocks of Shares, each of which comprises 50,000 Shares, called “Creation Units”. Creation Units will be issued and redeemed
principally in-kind for securities included in the Funds’ Underlying Indices. Once created, Shares will trade in a secondary market at market prices that change throughout the day in amounts less than a
Creation Unit.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by the Funds:
Use of Estimates — The Funds are registered investment companies under Accounting Standard Codification in Topic 946 by the U.S.
Financial Accounting Standards Board. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual
results could materially differ from those estimates.
Security Valuation — Securities listed on a securities exchange, market
or automated quotation system for which quotations are readily available (except for securities traded on the NASDAQ Stock Market (the “NASDAQ”)), including securities traded over the counter, are valued at the last quoted sale price on
the primary exchange or market (foreign or domestic) on which they are traded (or at approximately 4:00 pm Eastern Time if a security’s primary exchange is normally open at that time), or, if there is no such reported sale, at the most recent
quoted bid. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. The prices for foreign securities are reported in local currency and converted to U.S. dollars using spot currency exchange rates. If available, debt
securities are priced based upon valuations provided by independent, third-party pricing agents. Such values generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value debt
securities at an evaluated bid price by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the fair value for such securities. Debt obligations with remaining
maturities of sixty days or less may be valued at their amortized cost, if the Funds’ Fair Value Committee concludes it approximates market value after taking into account factors such as credit, liquidity and interest rate conditions as well
as issuer specific factors. Foreign securities listed on foreign exchanges are valued based on quotations from the primary market in which they are traded and are translated from the local currency into U.S. dollars using current exchange rates.
Foreign securities may trade on weekends or other days
16
Impact Shares Trust I
Notes to Financial Statements
December 31, 2019 (Unaudited)
when the Fund does not calculate NAV. As a result, the market value of
these investments may change on days when you cannot buy or redeem shares of the Fund. Prices for most securities held in the Funds are provided daily by recognized independent pricing agents. If a security price cannot be obtained from an
independent, third-party pricing agent, the Funds seek to obtain a bid price from at least one independent broker. Securities for which market prices are not “readily available” are valued in accordance with fair value procedures
established and implemented by the Board. Some of the more common reasons that may necessitate that a security be valued using Fair Value Procedures include: the security’s trading has been halted or suspended; the security has been de-listed from a national exchange; the security’s primary trading market is temporarily closed at a time when under normal conditions it would be open; the security has not been traded for an extended period
of time; the security’s primary pricing source is not able or willing to provide a price; or trading of the security is subject to local government-imposed restrictions. In addition, the Funds may fair value their securities if an event that
may materially affect the value of the Funds’ securities that traded outside of the United States (a “Significant Event”) has occurred between the time of the security’s last close and the time that the Funds calculate their net
asset value. A Significant Event may relate to a single issuer or to an entire market sector. Events that may be Significant Events include: government actions, natural disasters, armed conflict, acts of terrorism and significant market
fluctuations. If the Adviser becomes aware of a Significant Event that has occurred with respect to a security or group of securities after the closing of the exchange or market on which the security or securities principally trade, but before the
time at which the Funds calculate their net asset value, it may request that a Committee meeting be called. When a security is valued in accordance with the fair value procedures, the Committee will determine the value after taking into
consideration relevant information reasonably available to the Committee .In accordance with the authoritative guidance on fair value measurements and disclosure under U.S. GAAP, the Funds disclose fair value of their investments in a hierarchy that
prioritizes the inputs to valuation techniques used to measure the fair value. The objective of a fair value measurement is to determine the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (an exit price). Accordingly, the fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
|
|
•
|
|
Level 1 – Unadjusted quoted prices in active markets for identical, unrestricted assets or
liabilities that the Funds have the ability to access at the measurement date;
|
|
|
•
|
|
Level 2 – Quoted prices which are not active, or inputs that are observable (either directly or
indirectly) for substantially the full term of the asset or liability; and
|
|
|
•
|
|
Level 3 – Prices, inputs or exotic modeling techniques which are both significant to the fair value
measurement and unobservable (supported by little or no market activity).
|
The valuation techniques used by the Funds to
measure fair value during the period ended December 31, 2019 maximized the use of observable inputs and minimized the use of unobservable inputs.
For the period ended December 31, 2019, there have been no significant changes to the Funds’ fair valuation methodologies.
Federal Income Taxes — It is the Funds’ intention to qualify as a regulated investment company for Federal income tax purposes
by complying with the appropriate provisions of Subchapter M of the Internal Revenue Code of 1986 (the “Code”), as amended. Accordingly, no provisions for federal income taxes have been made in the financial statements.
The Funds evaluate tax positions taken or expected to be taken in the course of preparing the Funds’ tax returns to determine whether it
is “more-likely-than not” (i.e., greater than 50-percent) that each tax position will be sustained upon examination by a taxing authority based on the technical merits of the position. Tax positions
not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current period. The Funds did not record any tax provision in the current period. However,
management’s conclusions regarding tax positions taken may be subject to review and adjustment at a later date based on factors including, but not limited to, examination by tax authorities (i.e., the last 3 year ends, as applicable), on-going analysis of and changes to tax laws, regulations and interpretations thereof. As of and during the period ended December 31, 2019, the Funds did not have a liability for any unrecognized tax benefits.
The Funds recognize interest
17
Impact Shares Trust I
Notes to Financial Statements
December 31, 2019 (Unaudited)
and penalties, if any, related to unrecognized tax benefits as income
tax expense in the Statement of Operations. For the period ended December 31, 2019, the Funds did not recognize any interest or penalties.
Security Transactions and Investment Income — Security transactions are accounted for on trade date. Costs used in determining
realized gains and losses on the sale of investment securities are based on specific identification. Dividend income is recorded on the ex-dividend date. Interest income is recognized on the accrual basis.
Withholding taxes and reclaims on foreign dividends have been provided for in accordance with the Funds’ understanding of the applicable country’s tax rules and rates.
Dividends and Distributions to Shareholders — The Funds intend to declare and pay dividends of net investment income quarterly and
to pay any capital gain distributions on an annual basis. All distributions are recorded on ex-dividend date.
Cash and Cash Equivalents — Idle cash may be swept into various time deposits and is classified as cash and cash equivalents on the
Statement of Assets and Liabilities. The Funds maintain cash in bank deposit accounts which, at times, may exceed United States federally insured limits. Amounts swept overnight are available on the next business day.
Cash Overdraft Charges — Per the terms of an agreement with the Bank of New York Mellon, if a Fund has a cash overdraft on a given
day, it will be assessed an overdraft charge. Cash overdraft charges are included in other fees on the Statement of Operations.
Creation Units — The Funds issue and redeem shares (“Shares”) at Net Asset Value (“NAV”) and only in large
blocks of 50,000 Shares (each block of Shares for the Funds are called a “Creation Unit” or multiples thereof). Purchasers of Creation Units at NAV must pay a standard creation transaction fee of $500 per transaction. The fee is a single
charge and will be the same regardless of the number of Creation Units purchased by an investor on the same day. An Authorized Participant who holds Creation Units (“Authorized Participants”) and wishes to redeem at NAV would also pay a
standard redemption transaction fee of $500 per transaction to the custodian on the date of such redemption, regardless of the number of Creation Units redeemed that day. Creations and redemptions are also subject to an additional variable charge of
up to 1% of the net asset value per Creation Unit, inclusive of the standard transaction fee, for (i) in-kind creations or redemptions effected outside the normal Clearing Process, (ii) in whole or
partial cash creations, (iii) in whole or partial cash redemptions or (iv) non-standard orders. The variable component is primarily designed to cover
non-standard charges, e.g., brokerage, taxes, foreign exchange, execution, market impact and other costs and expenses related to the execution of trades resulting from such transaction. In all cases, the
Transaction Fee will be limited in accordance with the requirements of the SEC applicable to management investment companies offering redeemable securities. The Fund may determine not to charge the variable portion of a Transaction Fee on certain
orders when Impact Shares has determined that doing so is in the best interests of Fund shareholders, e.g., for redemption orders that facilitate the rebalance of the Fund’s portfolio in a more tax efficient manner than could be achieved
without such order. The variable portion of a Transaction Fee may be higher or lower than the trading expenses incurred by a Fund with respect to the transaction.
Except when aggregated in Creation Units, Shares are not redeemable securities of the Funds. Shares of the Funds may only be purchased or
redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National
Securities Clearing Corporation or (ii) a Depository Trust Company (“DTC”) participant and, in each case, must have executed an Authorized Participant Agreement with the Funds’ distributor. Most retail investors will not qualify
as Authorized Participants or have the resources to buy and sell whole Creation Units. Therefore, they will be unable to purchase or redeem the Shares directly from the Funds. Rather, most retail investors will purchase Shares in the secondary
market with the assistance of a broker and will be subject to customary brokerage commissions or fees.
18
Impact Shares Trust I
Notes to Financial Statements
December 31, 2019 (Unaudited)
If a Creation Unit is purchased or redeemed in cash, a higher
transaction fee will be charged. The following table discloses the Creation Unit breakdown based on the NAV as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Creation Unit
Shares
|
|
Creation
Transaction Fee
|
|
Value
|
|
Redemption
Transaction
Fee
|
|
Impact Shares YWCA Women’s Empowerment ETF
|
|
50,000
|
|
$ 500
|
|
$ 1,152,500
|
|
$ 500
|
|
Impact Shares NAACP Minority Empowerment ETF
|
|
50,000
|
|
500
|
|
1,164,000
|
|
500
|
|
Impact Shares Sustainable Development Goals Global Equity ETF
|
|
50,000
|
|
500
|
|
1,103,500
|
|
500
|
Foreign Currency Translation — The books and records of the Funds are maintained in U.S. dollars.
Investment securities and other asset and liabilities denominated in a foreign currency are translated into U.S. dollars on the date of valuation. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at
the relevant rates of exchange prevailing on the respective dates of such transactions. The Funds do not isolate that portion of realized or unrealized gains and losses resulting from changes in the foreign exchange rate from fluctuations arising
from changes in the market prices of the securities. These gains and losses are included in net realized and unrealized gains and losses on investments on the Statement of Operations. Net realized and unrealized gains and losses on foreign currency
transactions represent net foreign exchange gains or losses from foreign currency exchange contracts, disposition of foreign currencies, currency gains or losses realized between trade and settle dates on securities transactions and the difference
between the amount of the investment income and foreign withholding taxes recorded on the Funds’ books and the U.S. dollar equivalent amounts actually received or paid.
Indemnifications — In the normal course of business, the Funds enter into contracts that provide general indemnifications. The
Funds’ maximum exposure under these arrangements is dependent on future claims that may be made against the Funds and, therefore, cannot be established; however, based on experience, the risk of loss from such claims is considered remote.
3. AGREEMENTS
Investment Advisory Agreement
The Adviser serves as investment adviser to the Funds, pursuant to an investment advisory agreement (“Advisory Agreement”). The
Adviser arranges for transfer agency, custody, fund administration and accounting, and other non-distribution related services necessary for the Funds to operate. The Adviser administers the Funds’
business affairs, provides office facilities and equipment and certain clerical, bookkeeping and administrative services, and provides its officers and employees to serve as officers or Trustees of the Trust.
For the services it provides to the Funds, the Adviser receives a fee, which is calculated daily and paid monthly, at an annual rate of 0.75%
of average daily net assets of the Funds. Under the Advisory Agreement, the Adviser is responsible for substantially all expenses of the Fund, including the cost of transfer agency, custody, fund administration, legal, audit and other services
except for distribution and service fees payable pursuant to a Rule 12b-1 plan, if any; salaries and other compensation or expenses, including travel expenses, of any of the Funds’ executive officers and
employees, if any, who are not officers, directors, shareholders, members, partners or employees of the Adviser or its subsidiaries or affiliates; taxes and governmental fees, if any, levied against the Funds; brokerage fees and commissions, and
other portfolio transaction expenses incurred by or for the Funds; expenses of the Funds’ securities lending (if any), including any securities lending agent fees, as governed by a separate securities lending agreement; costs, including
interest expenses, of borrowing money or engaging in other types of leverage financing; fees and expenses of any underlying funds or other pooled vehicles in which the Funds invest; dividend and interest expenses on short positions taken by the
Funds; fees and expenses, including travel expenses, and fees and expenses of legal counsel retained for their benefit, of Trustees who are not officers, employees, partners, shareholders or members of the Adviser or its subsidiaries or affiliates;
extraordinary expenses, including extraordinary legal expenses, as may arise, including, without limitation, expenses incurred in connection with litigation, proceedings, other claims, contractual arrangements with Partner Nonprofits and the legal
obligations of the Funds to indemnify its Trustees, officers, employees, shareholders, distributors, and agents with respect thereto; fees and expenses, including legal, printing and mailing, solicitation and other fees and expenses associated with
and incident to shareholder meetings and proxy
19
Impact Shares Trust I
Notes to Financial Statements
December 31, 2019 (Unaudited)
solicitations involving shareholder proposals or other non-routine matters that are not initiated or proposed by the Funds’ management; organizational and offering expenses of the Funds, including registration (including Share registration fees), legal, marketing,
printing, accounting and other expenses, associated with organizing the Funds in its state of jurisdiction and in connection with the initial registration of the Funds under the 1940 Act and the initial registration of its shares under the
Securities Act (i.e., through the effectiveness of the Funds’ initial registration statement on Form N-1A); fees and expenses associated with seeking, applying for and obtaining formal exemptive, no-action and/or other relief from the SEC; and expenses of the Funds which are capitalized in accordance with generally accepted accounting principles (the “Excluded Expenses”).
Certain officers or interested trustees of the Trust are also officers or employees of the Advisor or its affiliates. They receive no fees for
serving as officers of the Trust.
The expense limitation is set at an annual rate of 0.75%. The Advisor has contractually agreed to
reimburse the Funds for any expenses in excess of the limit. This expense limitation will continue through at least October 28, 2020, and may not be terminated prior to this date without the action or consent of the Board.
Distribution Agreement
SEI Investments
Distribution Co. (the “Distributor”) serves as the Funds’ underwriter and distributor of Shares pursuant to a Distribution Agreement. Under the Distribution Agreement, the Distributor, as agent, receives orders to purchase shares in
Creation Units and transmits such orders to the Funds’ custodian and transfer agent. The Distributor has no obligation to sell any specific quantity of Fund shares. The Distributor bears the following costs and expenses relating to the
distribution of shares: (i) the expenses of maintaining its registration or qualification as a dealer or broker under federal or state laws; (ii) filing fees; and (iii) all other expenses incurred in connection with the distribution
services, that are not reimbursed by the Adviser, as contemplated in the Distribution Agreement. The Distributor does not maintain any secondary market in Fund Shares.
The Funds have adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule 12b-1
under the 1940 Act. In accordance with the Plan, the Funds are authorized to pay an amount up to 0.25% of their average net assets each year for certain distribution-related activities. For the period ended December 31, 2019, no fees were
charged by the Distributor under the Plan. No payments have yet been authorized by the Board, nor are any such expected to be made by a Fund under the Plan during the current fiscal year.
For the period ended December 31, 2019, the Funds incurred Trustee fees of $18,782, $7,181, and $4,037 for the Women’s ETF, Minority
ETF, and Sustainable Development ETF, respectively, for which the Adviser voluntarily agreed to reimburse the Funds. Of these amounts, $18,782, $7,181, and $4,037 remain payable to the Trustees and are shown as a receivable from the Adviser on the
Statements of Assets and Liabilities for the Women’s ETF, Minority ETF, and Sustainable Development ETF, respectively, as of December 31, 2019. Trustee fees are shown gross within expenses with a corresponding expense reimbursement on the
Statement of Operations as such fees were voluntarily paid by the Adviser on behalf of the Funds. The Adviser does not have the ability to recoup these voluntary expense reimbursements in the future.
Administrator, Custodian and Transfer Agent
SEI Investments Global Funds Services (the “Administrator”) serves as the Funds’ Administrator pursuant to an Administration
Agreement. The Bank of New York Mellon (the “Custodian” and “Transfer Agent”) serves as the Funds’ Custodian and Transfer Agent pursuant to a Custodian Agreement and Transfer Agency Services Agreement. The Adviser of the
Funds pays these fees.
Certain officers of the Trust may also be officers of the Administrator or its affiliates. They receive no fees for
serving as officers of the Trust.
20
Impact Shares Trust I
Notes to Financial Statements
December 31, 2019 (Unaudited)
4. INVESTMENT TRANSACTIONS
For the period ended December 31, 2019, the purchases and sales of investments in securities, excluding
in-kind transactions, long-term U.S. Government and short-term securities were:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
Sales
|
|
Impact Shares YWCA Women’s Empowerment ETF
|
|
$
|
14,682
|
|
|
$
|
27,437
|
|
|
Impact Shares NAACP Minority Empowerment ETF
|
|
|
489
|
|
|
|
2,719
|
|
|
Impact Shares Sustainable Development Goals Global Equity ETF
|
|
|
126
|
|
|
|
-
|
|
There were no purchases or sales of long-term U.S. Government securities by the Funds.
For the period ended December 31, 2019, in-kind transactions associated with creations and
redemptions were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
Sales
|
|
Realized
Gain/(Loss)
|
|
Impact Shares YWCA Women’s Empowerment ETF
|
|
$
|
2,027,476
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Impact Shares NAACP Minority Empowerment ETF
|
|
|
572,766
|
|
|
|
-
|
|
|
|
-
|
|
|
Impact Shares Sustainable Development Goals Global Equity ETF
|
|
|
993,812
|
|
|
|
-
|
|
|
|
-
|
|
For the period ended June 30, 2019, in-kind transactions
associated with creations and redemptions were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
Sales
|
|
Realized
Gain/(Loss)
|
|
Impact Shares YWCA Women’s Empowerment ETF
|
|
$
|
4,211,993
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Impact Shares NAACP Minority Empowerment ETF
|
|
|
3,132,519
|
|
|
|
1,004,168
|
|
|
|
55,919
|
|
|
Impact Shares Sustainable Development Goals Global Equity ETF
|
|
|
-
|
|
|
|
818,854
|
|
|
|
43,423
|
|
5. TAX INFORMATION
The amount and character of income and capital gain distributions to be paid, if any, are determined in accordance with Federal income tax
regulations, which may differ from U.S. GAAP. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. These book/tax
differences may be temporary or permanent. To the extent these differences are permanent in nature, they are charged or credited to distributable earnings or paid-in capital, as appropriate, in the period that
the differences arise.
The tax character of dividends and distributions paid during the period ended June 30, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
Income
|
|
Long-Term
Capital Gain
|
|
Return of
Capital
|
|
Total
|
|
Impact Shares YWCA Women’s Empowerment ETF 2019
|
|
|
$38,993
|
|
|
|
$—
|
|
|
|
$ —
|
|
|
|
$38,993
|
|
|
Impact Shares NAACP Minority Empowerment ETF 2019
|
|
|
29,967
|
|
|
|
—
|
|
|
|
37
|
|
|
|
30,004
|
|
|
Impact Shares Sustainable Development Goals Global Equity ETF 2019
|
|
|
26,447
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,447
|
|
As of June 30, 2019, the components of distributable earnings (accumulated losses) on a tax basis were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed
Ordinary
Income
|
|
Post
October
Losses
|
|
Unrealized
Appreciation
|
|
Total
Distributable
Earnings
|
|
Impact Shares YWCA Women’s Empowerment ETF
|
|
|
$ —
|
|
|
|
$ (16,855)
|
|
|
|
$ 177,289
|
|
|
|
$ 160,434
|
|
|
Impact Shares NAACP Minority Empowerment ETF
|
|
|
—
|
|
|
|
(21,641)
|
|
|
|
79,349
|
|
|
|
57,708
|
|
|
Impact Shares Sustainable Development Goals Global Equity ETF
|
|
|
1,359
|
|
|
|
(9,149)
|
|
|
|
13,678
|
|
|
|
5,888
|
|
Post-October capital losses represent losses realized on investment transactions from inception date through
June 30, 2019 that, in accordance with Federal income tax regulations, the Funds may elect to defer and treat as having arisen in the following fiscal year.
21
Impact Shares Trust I
Notes to Financial Statements
December 31, 2019 (Unaudited)
The Federal tax cost and aggregate gross unrealized appreciation and
depreciation on investments and foreign currency transactions held by the Funds at December 31, 2019, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Tax
Cost
|
|
Aggregate
Gross
Unrealized
Appreciation
|
|
Aggregate
Gross
Unrealized
Depreciation
|
|
Net
Unrealized
Appreciation
|
|
Impact Shares YWCA Women’s Empowerment ETF
|
|
|
$5,976,280
|
|
|
|
$ 997,667
|
|
|
|
$ (59,741)
|
|
|
|
$ 937,926
|
|
|
Impact Shares NAACP Minority Empowerment ETF
|
|
|
2,630,882
|
|
|
|
349,398
|
|
|
|
(48,622)
|
|
|
|
300,776
|
|
|
Impact Shares Sustainable Development Goals Global Equity ETF
|
|
|
2,086,250
|
|
|
|
164,816
|
|
|
|
(46,046)
|
|
|
|
118,770
|
|
6. RISKS OF INVESTING IN THE FUNDS
As with all exchange traded funds (“ETFs”), a shareholder of the Funds are subject to the risk that his or her investment could lose
money. The Funds are subject to the principal risks noted below, any of which may adversely affect the Fund’s NAV, trading price, yield, total return and ability to meet its investment objective. A more complete description of principal risks
is included in the prospectus under the heading “Principal Risks”.
Under normal circumstances, the Funds will invest at least
80% of their total assets in securities of the Index, which reflects the performance of an investable universe of publicly-traded companies that directly or indirectly provide services or support to ETFs, including but not limited to the management,
servicing, trading or sale of ETFs (“ETF Activities”).
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the FDIC or any other government agency. As with any investment company, there is no guarantee that the Fund will achieve its goal.
Asset Class Risk (All Funds) - The securities in an Underlying Index or in a Fund’s portfolio may underperform the returns of other
securities or indices that track other countries, regions, industries, groups of industries, markets, asset classes or sectors. Various types of securities or indices tend to experience cycles of outperformance and underperformance in comparison to
general securities markets.
Brexit (Impact Shares Sustainable Development Goals Global Equity ETF only) - In June 2016, the United Kingdom
approved a referendum to leave the European Union (commonly known as “Brexit”). On March 29, 2017, the United Kingdom formally notified the European Council of its intention to leave the European Union, beginning the Brexit process.
The withdrawal was delayed by a deadlock in the British parliament. Following a general election, Parliament ratified the formal withdrawal agreement with the European Union and left the European Union on January 31, 2020. This began a transition
period that is currently set to end on December 31, 2020, during which the United Kingdom and the European Union will negotiate their future relationship. During the transition period, the United Kingdom will remain subject to European Union law
with privileges to provide services under the single market directives, but is no longer part of the European Union’s political bodies or institutions. There is a significant degree of uncertainty about how negotiations relating to the
UK’s new trade agreements with the European Union and other non-European Union countries will be conducted, as well as the potential consequences for Brexit. Given the size and importance of the United Kingdom’s economy, uncertainty about
its legal, political, and economic relationship with the remaining member states of the European Union may continue to be a source of instability. Moreover, other countries may seek to withdraw from the European Union and/or abandon the euro, the
common currency of the European Union. The ultimate effects of these events and other socio-political or geopolitical issues are not known but could profoundly affect global economies and markets. Whether or not a Fund invests in securities of
issuers located in Europe or with significant exposure to European issuers or countries, these events could negatively affect the value and liquidity of the Fund’s investments.
Cash Transaction Risk (All Funds) - The Funds can effect creations and redemptions principally for cash, rather than for in-kind securities. ETFs generally are able to make in-kind redemptions and avoid being taxed on gain on the distributed portfolio securities at the fund level. Because the
Funds currently can effect redemptions for cash, rather than for in-kind securities, they may be required to sell portfolio securities in order to obtain the cash needed to distribute redemption proceeds. The
Funds may recognize a capital gain on these sales that might not have been incurred if the Funds had made a redemption in-kind, and this may decrease the tax efficiency of the Funds compared to ETFs that
utilize an in-kind redemption process.
22
Impact Shares Trust I
Notes to Financial Statements
December 31, 2019 (Unaudited)
Commodities Risk (All Funds) - Commodities markets historically have
been extremely volatile, and the performance of securities and other instruments that provide exposure to those markets therefore also may be highly volatile. The commodities markets may fluctuate widely based on a variety of factors. These include
changes in overall market movements, domestic and foreign political and economic events and policies, war, acts of terrorism, changes in domestic or foreign interest rates and/or investor expectations concerning interest rates, domestic and foreign
inflation rates and/or investor expectations concerning inflation rates and investment and trading activities of mutual funds, hedge funds and commodities funds. Commodity-linked derivative instruments have a high degree of price variability and are
subject to rapid and substantial price changes. Commodity-linked derivative instruments may employ leverage, which creates the possibility for losses greater than the amount invested. A Fund’s investments in commodity-linked instruments may
bear on or be limited by each Fund’s intention to qualify as a regulated investment company.
Counterparty Risk (All Funds) - The
Funds may engage in transactions in securities and financial instruments that involve counterparties. Counterparty risk is the risk that a counterparty (the other party to a transaction or an agreement or the party with whom a Fund executes
transactions) to a transaction with a Fund may be unable or unwilling to make timely principal, interest, settlement or margin payments, or otherwise honor its obligations. If a counterparty becomes bankrupt or otherwise fails to perform its
obligations due to financial difficulties, the affected Fund’s income or the value of its assets may decrease. A Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding and a Fund may
obtain only limited recovery or may obtain no recovery in such circumstances. In an attempt to limit the counterparty risk associated with such transactions, the Funds conduct business only with financial institutions judged by the Adviser to
present acceptable credit risk.
Derivatives Risk (All Funds) - Derivatives Risk is a combination of several risks, including the risks
that: (1) an investment in a derivative instrument may not correlate well with the performance of the securities or asset class to which the Fund seeks exposure, (2) derivative contracts, including options, may expire worthless and the use
of derivatives may result in losses to the Fund, (3) a derivative instrument entailing leverage may result in a loss greater than the principal amount invested, (4) derivatives not traded on an exchange may be subject to credit risk, for
example, if the counterparty does not meet its obligations (see also “Counterparty Risk”), and (5) derivatives not traded on an exchange may be subject to liquidity risk and the related risk that the instrument is difficult or impossible
to value accurately. As a general matter, when the Fund establishes certain derivative instrument positions, such as certain futures and options contract positions, it will segregate liquid assets (such as cash, U.S. Treasury bonds or commercial
paper) equivalent to the Fund’s outstanding obligations under the contract or in connection with the position. In addition, recent legislation has called for a new regulatory framework for the derivatives market. The impact of the new
regulations are still unknown, but has the potential to increase the costs of using derivatives, may limit the availability of some forms of derivatives or the Fund’s ability to use derivatives, and may adversely affect the performance of some
derivative instruments used by the Fund as well as the Fund’s ability to pursue its investment objective through the use of such instruments.
Emerging Markets Risk (Impact Shares Sustainable Development Goals Global Equity ETF only) - Investing in issuers located in or tied
economically to emerging markets is subject to the same risks as foreign market investments, generally to a greater extent. The Fund will be subject to these risks to an even greater extent, to the extent the Fund invests in issuers exposed to
countries defined as “low income” or “lower middle income” by the World Bank or as a “Least Developed Country” by the United Nations. These countries typically confront severe structural impediments to sustainable
development and are highly vulnerable to economic and environmental shocks and have low levels of human assets. Emerging markets may have additional risks including greater fluctuations in market values and currency exchange rates; increased risk of
default; greater social, economic, and political uncertainty and instability; increased risk of nationalization, expropriation, or other confiscation of assets of issuers to which the Fund may be exposed; increased risk of embargoes or economic
sanctions on a country, sector, or issuer; greater governmental involvement in the economy; less governmental supervision and regulation of the securities markets and participants in those markets; controls on
non-U.S. investment, capital controls and limitations on repatriation of invested capital, dividends, interest, and other income, and on the Fund’s ability to exchange local currencies for U.S. dollars;
lower levels of liquidity; inability to purchase and sell investments or otherwise settle security or derivative transactions; greater risk of issues with share registration and safe custody; unavailability of currency hedging techniques;
differences in, or lack of, auditing and financial reporting standards and resulting unavailability of material information about issuers; slower clearance and longer settlement; and difficulties in obtaining and/or enforcing legal judgments.
23
Impact Shares Trust I
Notes to Financial Statements
December 31, 2019 (Unaudited)
Exchange-Traded Funds Risk (All Funds) - The price movement of an
exchange-traded fund may not exactly track the underlying index and may result in a loss. In addition, shareholders bear both their proportionate share of the Fund’s expenses and similar expenses of the underlying investment company when the
Fund invests in shares of another investment company.
Equity Investing Risk (All Funds) - The market prices of equity securities owned by
a Fund may go up or down, sometimes rapidly or unpredictably. The value of a security may decline for a number of reasons that may directly relate to the issuer, such as management performance, financial leverage,
non-compliance with regulatory requirements, and reduced demand for the issuer’s goods or services. The values of equity securities also may decline due to general industry or market conditions that are
not specifically related to a particular company, 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. In
addition, equity markets tend to move in cycles, which may cause stock prices to fall over short or extended periods of time.
Ethnic
Diversity Risk (Impact Shares NAACP Minority Empowerment ETF only) - The returns on a portfolio of securities that excludes companies that are not ethnically diverse may trail the returns on a portfolio of securities that includes companies that are
not ethnically diverse. Investing only in a portfolio of securities that are ethnically diverse may affect the Fund’s exposure to certain types of investments and may adversely impact the Fund’s performance depending on whether such
investments are in or out of favor in the market.
Fee Risk (All Funds) - Because the fees paid by a Fund to Impact Shares are based on the
average daily value of the total assets of such Fund, less all accrued liabilities of such Fund (other than the amount of any outstanding borrowings constituting financial leverage), Impact Shares has a financial incentive to cause the Funds to
utilize leverage, which creates a conflict of interest between Impact Shares, on the one hand, and the shareholders of the Funds, on the other hand.
Foreign Securities Risk (Impact Shares Sustainable Development Goals Global Equity ETF only) - Investments in securities of non-U.S. issuers involve certain risks not involved in domestic investments (for example, fluctuations in foreign exchange rates (for non-U.S. securities not denominated in
U.S. dollars); future foreign economic, financial, political and social developments; nationalization; exploration or confiscatory taxation; smaller markets; different trading and settlement practices; less governmental supervision; and different
accounting, auditing and financial recordkeeping standards and requirements) that may result in the Fund experiencing more rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies. These risks are
magnified for investments in issuers tied economically to emerging markets, the economies of which tend to be more volatile than the economies of developed markets. In addition, investments by the Fund in
non-U.S. securities may be subject to withholding and other taxes imposed by foreign countries on dividends, interest, capital gains, or other income or proceeds. Those taxes will reduce the Fund’s yield
on any such securities.
Futures Contracts Risk (All Funds) - Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date and time specified when the contract is made. Funds, such as the Funds, that use futures contracts, which are a type of derivative, are subject to the risk of loss caused by
unanticipated market movements. In addition, there may at times be an imperfect correlation between the movement in the prices of futures contracts and the value of their underlying instruments or indexes and there may at times not be a liquid
secondary market for certain futures contracts.
Gender Diversity Risk (Impact Shares YWCA Women’s Empowerment ETF only) - The returns
on a portfolio of securities that excludes companies that are not gender diverse may trail the returns on a portfolio of securities that includes companies that are not gender diverse. Investing only in a portfolio of securities that are gender
diverse may affect the Fund’s exposure to certain types of investments and may adversely impact the Fund’s performance depending on whether such investments are in or out of favor in the market.
Geographic Risk (Impact Shares Sustainable Development Goals Global Equity ETF only) - To the extent the Fund’s investments in a single
country or a limited number of countries represent a large percentage of the Fund’s assets, the Fund will be subject to the risk that economic, political and social conditions in those countries will have a significant impact on its investment
performance and the Fund’s shares may be subject to increased price volatility.
Illiquid Securities Risk (All Funds) - Illiquid
investments may be difficult to resell at approximately the price they are valued in the ordinary course of business within seven days. When investments cannot be sold readily at the desired time or price, a Fund
24
Impact Shares Trust I
Notes to Financial Statements
December 31, 2019 (Unaudited)
may have to accept a much lower price, may not be able to sell the
investment at all or may be forced to forego other investment opportunities, all of which may adversely impact a Fund’s returns. Illiquid investments also may be subject to valuation risk.
Index Performance Risk (All Funds) - Each Fund is linked to an index maintained by a third party provider unaffiliated with the Funds or the
Adviser. There can be no guarantee or assurance that the methodology used by the third party provider to create the index will result in the Funds achieving high, or even positive, returns. Further, there can be no guarantee that the methodology
underlying the index or the daily calculation of the index will be free from error. It is also possible that the value of the index may be subject to intentional manipulation by third-party market participants. The particular indices used by the
Funds may underperform other asset classes and may underperform other similar indices. Each of these factors could have a negative impact on the performance of the Funds.
Industry Concentration Risk (All Funds) - Because each Fund may invest 25% or more of the value of its assets in an industry or group of
industries to the extent that the Underlying Index concentrates in an industry or group of industries, the Fund’s performance largely depends on the overall condition of such industry or group of industries and the Fund is susceptible to
economic, political and regulatory risks or other occurrences associated with that industry or group of industries.
Intellectual Property
Risk (All Funds) - The Funds rely on licenses that permit the Adviser to use the Underlying Indices and associated trade names, trademarks and service marks, as well as the Partner Nonprofits’ names and logos (the “Intellectual
Property”) in connection with the investment strategies of each respective Fund and/or in marketing and other materials for each Fund. Such licenses may be terminated, and, as a result, the relevant Fund may lose its ability to use the
Intellectual Property. In the event a license is terminated or the license provider does not have rights to license the Intellectual Property, the operations of such Fund may be adversely affected.
Limited Operating History Risk (All Funds) - The Funds are newly formed and have no operating history for investors to evaluate as of the date
of this Prospectus. The Funds may not attract sufficient assets to achieve or maximize investment and operational efficiencies and remain viable. If a Fund fails to achieve sufficient scale, it may be liquidated.
Management Risk (All Funds) - Management risk is the risk associated with the fact that the Fund relies on the Adviser’s ability to
achieve its investment objective. The Adviser may be incorrect in its assessment of the intrinsic value of companies whose securities the Fund holds, which may result in a decline in the value of Fund shares and failure to achieve its investment
objective. The Fund’s portfolio manager uses qualitative analyses and/or models. Any imperfections or limitations in such analyses and models could affect the ability of the portfolio manager to implement strategies. The Adviser has no
experience managing an ETF. The relative lack of experience of the Adviser may increase the Fund’s management risk.
Market Price
Variance Risk (All Funds) - Fund shares are listed for trading on NYSE (the “Exchange”) and can be bought and sold in the secondary market at prevailing market prices. The market prices of shares will fluctuate in response to changes in
the NAV and supply and demand for shares. As a result, the trading prices of Shares may deviate significantly from NAV during periods of market volatility. The Adviser cannot predict whether shares will trade above, below or at their NAV. Given the
fact that shares can be created and redeemed in Creation Units, the Adviser believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. In addition, the securities held by the Fund may be traded in
markets that close at a different time than NYSE. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when NYSE is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the Shares’ NAV may widen. Further, secondary markets may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement
periods, which could cause a material decline in the Fund’s NAV. In times of market stress, market makers and authorized participants may step away from their respective roles in making a market in Fund shares or in executing purchase and
redemption orders, which could lead to variances between the market price of Fund shares and the underlying value of those shares. Also, in stressed market conditions, the market for Fund shares may become less liquid in response to deteriorating
liquidity of the Fund’s portfolio holdings, which could lead to differences between the market price of the Fund’s shares and the underlying value of those shares. During periods of high market volatility, a Fund share may trade at a
significant discount to its NAV, and in these circumstances certain types of brokerage orders may expose an investor to an increased risk of loss. A “stop order,” sometimes called a “stop-loss order,” may cause a Fund share to be
sold at the next prevailing market price once the “stop” level is reached, which during a period of high volatility can be at a price that is substantially below NAV. By including a “limit” criteria with your brokerage order, you
may be able to limit the size of the loss resulting from the execution of an ill-timed stop order. The Fund’s shares may be listed or traded on U.S. and non-U.S.
stock exchanges other than the U.S. stock
25
Impact Shares Trust I
Notes to Financial Statements
December 31, 2019 (Unaudited)
exchange where the Fund’s primary listing is maintained, and may
otherwise be made available to non-U.S. investors through funds or structured investment vehicles similar to depositary receipts. There can be no assurance that the Fund’s shares will continue to trade on
any such stock exchange or in any market or that the Fund’s shares will continue to meet the requirements for listing or trading on any exchange or in any market. The Fund’s shares may be less actively traded in certain markets than in
others, and investors are subject to the execution and settlement risks and market standards of the market where they or their broker direct their trades for execution. Certain information available to investors who trade Fund shares on a U.S. stock
exchange during regular U.S. market hours may not be available to investors who trade in other markets, which may result in secondary market prices in such markets being less efficient.
The Fund’s investment results are measured based upon the daily NAV of the Fund. Investors purchasing and selling shares in the secondary
market may not experience investment results consistent with those experienced by those purchasing and redeeming directly with the Fund.
Mid-Cap Company Risk (All Funds) - Investing in securities of mid-cap companies may entail greater risks than investments in larger, more established companies. Mid-cap companies tend to have more narrow product lines, more limited financial resources and a more limited trading market for their stocks, as compared with larger companies. As a result, their stock prices may
decline significantly as market conditions change.
Non-Diversification Risk (All Funds) - Due to
the nature of the Funds’ investment strategies and their non-diversified status (for purposes of the 1940 Act), the Funds may invest a greater percentage of their respective assets in the securities of
fewer issuers than a “diversified” fund, and accordingly may be more vulnerable to changes in the value of those issuers’ securities. Since the Funds invest in the securities of a limited number of issuers, the Funds are particularly
exposed to adverse developments affecting those issuers, and a decline in the market value of a particular security held by a Fund is likely to affect such Fund’s performance more than if such Fund invested in the securities of a larger number
of issuers. Although the Funds will be “non-diversified” for purposes of the 1940 Act, the Funds intend to comply with the diversification requirements under Subchapter M of the Code in order to be
eligible to qualify as a regulated investment company.
Operational and Technology Risk (All Funds) - Cyber-attacks, disruptions, or
failures that affect the Fund’s service providers, index providers, Authorized Participants (as defined below), market makers, counterparties, market participants, or issuers of securities held by the Fund may adversely affect the Fund and its
shareholders, including by causing losses for the Fund or impairing Fund operations.
Options Risk (All Funds) - Options, such as covered
calls and covered puts, are subject to the risk that significant differences between the securities and options markets that could result in an imperfect correlation between these markets.
Passive Investment Risk (All Funds) - The Funds are not actively managed and may be affected by a general decline in market segments included
in the applicable Underlying Indices. The Funds invest in securities included in, or representative of, each Fund’s respective Underlying Index regardless of such security’s investment merits. The Adviser does not attempt to take defensive
positions under any market conditions, including during declining markets.
Securities Market Risk (All Funds) - The value of securities
owned by the Fund may go up or down, sometimes rapidly or unpredictably, due to factors affecting particular companies or the securities markets generally. A general downturn in the securities market may cause multiple asset classes to decline in
value simultaneously. Many factors can affect this value and you may lose money by investing in the Fund.
Small-Cap Company Risk (All Funds) - Investing in the securities of
small-cap companies either directly or indirectly through investments in ETFs, closed-end funds or mutual funds may pose greater market and liquidity risks than larger,
more established companies, because of limited product lines and/or operating history, limited financial resources, limited trading markets, and the potential lack of management depth. In addition, the securities of such companies are typically more
volatile than securities of larger capitalization companies.
Swaps Risk (All Funds) - Investments in swaps involve both the risks
associated with an investment in the underlying investments or instruments (including equity investments) and counterparty risk. In a standard over-the-counter
(“OTC”) swap
26
Impact Shares Trust I
Notes to Financial Statements
December 31, 2019 (Unaudited)
transaction, two parties agree to exchange the returns, differentials in
rates of return or some other amount calculated based on the “notional amount” of predetermined investments or instruments, which may be adjusted for an interest factor. Swaps can involve greater risks than direct investments in
securities, because swaps may be leveraged and OTC swaps are subject to counterparty risk (e.g., the risk of a counterparty’s defaulting on the obligation or bankruptcy), credit risk and pricing risk (i.e., swaps may be difficult to value).
Swaps may also be considered illiquid. Certain swap transactions, including interest rate swaps and index credit default swaps, may be subject to mandatory clearing and exchange trading, although the swaps in which the Fund will invest are not
currently subject to mandatory clearing and exchange trading. The use of swaps is a highly specialized activity which involves investment techniques, risk analyses and tax planning different from those associated with ordinary portfolio securities
transactions. The value of swaps, like many other derivatives, may move in unexpected ways and may result in losses for the Fund.
Tracking
Error Risk (All Funds) - The performance of the Fund may diverge from that of the Underlying Index. Because the Fund employs a representative sampling strategy, the Fund may experience tracking error to a greater extent than a fund that seeks to
replicate an index. The Adviser may not be able to cause the Fund’s performance to correlate to that of the Fund’s benchmark, either on a daily or aggregate basis. Because the Underlying Index rebalances monthly but the Fund is not
obligated to do the same, the risk of tracking error may increase following the rebalancing of the Underlying Index.
7. OTHER
At December 31, 2019, the records of the Trust reflected that 100% of the Funds’ total Shares outstanding were held by two Authorized
Participants, in the form of Creation Units. However, the individual shares comprising such Creation Units are listed and traded on the NYSE Arca, Inc. and have been purchased and sold by persons other than Authorized Participants.
8. REGULATORY MATTERS
On August 17,
2018, the SEC adopted amendments to Regulation S-X. These changes are effective for periods after November 5, 2018. The updates to Registered Investment Companies were mainly focused on simplifying the
presentation of distributable earnings by eliminating the need to present the components of distributable earnings on a book basis in the Statement of Assets and Liabilities. The update also impacted the presentation of undistributed net investment
income and distribution to shareholders on the Statement of Changes in Net Assets. The amounts presented in the current Statements of Changes in Net Assets represent the aggregated total distributions of net investment income and realized capital
gains, except for distributions classified as return of capital which are still presented separately.
9. SUBSEQUENT EVENTS
The Funds have evaluated the need for additional disclosures and/or adjustments resulting from subsequent events through the date the financial
statements were issued. Based on this evaluation, no disclosure and/or adjustments were required to the financial statements.
27
Impact Shares Trust I
Disclosure of Fund Expenses
December 31, 2019 (Unaudited)
All ETFs have operating expenses. As a shareholder of the Fund you incur
an Advisory fee. In addition to the Advisory fee, a shareholder may pay brokerage expenses, taxes, interest, litigation expenses and other extraordinary expenses (including acquired fund fees and expenses), if any. It is important for you to
understand the impact of these ongoing costs of your investment returns. Shareholders may incur brokerage commissions on their purchases and sales of Fund shares, which are not reflected in these examples.
The following examples use the annualized expense ratio and are intended to help you understand the ongoing costs (in dollars) of investing in
each Fund and to compare these costs with those of other funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period (July 1, 2019 to December 31, 2019) (unless otherwise
noted below).
The table below illustrates each Fund’s cost in two ways:
Actual Fund Return. This section helps you to estimate the actual expenses after fee waivers that your Fund incurred over the period.
The “Expenses Paid During Period” column shows the actual dollar expense cost incurred by a $1,000 investment in the Fund, and the “Ending Account Value” number is derived from deducting that expense cost from the Fund’s
gross investment return.
You can use this information, together with the actual amount you invested in the Fund, to estimate the expenses
you paid over that period. Simply divide your actual account value by $1,000 to arrive at a ratio (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply that ratio by the number shown for your Fund under “Expenses Paid
During Period.”
Hypothetical 5% Return. This section helps you compare your Fund’s costs with those of other funds. It
assumes that the Fund had an annual 5% return before expenses during the year, but that the expense ratio (Column 3) for the period is unchanged. This example is useful in making comparisons because the Commission requires all funds to make this 5%
calculation. You can assess your Fund’s comparative cost by comparing the hypothetical result for your Fund in the “Expenses Paid During Period” column with those that appear in the same charts in the shareholder reports for other
funds.
NOTE: Because the return is set at 5% for comparison purposes — NOT your Fund’s actual return — the account
values shown may not apply to your specific investment.
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Beginning
Account
Value
7/1/19
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Ending
Account
Value
12/31/19
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Annualized
Expense
Ratios
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Expenses
Paid
During
Period(1)
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Impact Shares YWCA Women’s Empowerment ETF
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Actual Fund Return
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$
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1,000.00
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$
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1,124.40
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0.75
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%
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$
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4.01
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Hypothetical 5% Return
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1,000.00
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1,021.37
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0.75
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3.81
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Impact Shares NAACP Minority Empowerment ETF
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Actual Fund Return
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$
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1,000.00
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$
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1,106.70
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0.75
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%
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$
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3.97
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Hypothetical 5% Return
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1,000.00
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1,021.37
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0.75
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3.81
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Impact Shares Sustainable Development Goals Global Equity ETF
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Actual Fund Return
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$
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1,000.00
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$
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1,081.50
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0.75
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%
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$
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3.92
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Hypothetical 5% Return
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1,000.00
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1,021.37
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0.75
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3.81
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(1)
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Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over
the period, multiplied 184/366 (to reflect the commencement of operations period shown).
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28
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2189 Broken Bend
Frisco, Texas 75034
844-448-3383
www.impactetfs.org
Investment Adviser:
Impact
Shares, Corp.
2189 Broken Bend
Frisco, Texas 75034
Distributor:
SEI
Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456
Administrator:
SEI Investments
Global
Funds Services
One Freedom Valley Drive
Oaks, PA 19456
Transfer Agent:
Bank of New York Mellon
225 Liberty Street
New York, NY
10286
Custodian:
Bank
of New York Mellon
225 Liberty Street
New York, NY 10286
Legal
Counsel:
Ropes & Gray LLP
Prudential Tower, 800 Boylston Street
Boston, MA 02199-3600
This
information must be preceded or accompanied by a current prospectus for the Funds.
IMP-SA-002-0100
