September 3, 2021
Via E-mail
Ryan Charles, Esq.
U.S. Bank Global Fund Services
1201 South Alma School Road, Suite 3000
Mesa, AZ 85210
Eric Simanek, Esq.
Sullivan & Worcester LLP
1666 K Street, NW
Washington, DC 20006
Re: Kelly Strategic ETF Trust
Registration Statement on Form N-1A
File Nos. 333-258490, 811-23723
Dear Mr. Charles and Mr. Simanek:
On August 5, 2021, Kelly Strategic ETF Trust (the Trust ), on
behalf of the Strategic E-
Commerce & Logistics Sector ETF, Strategic Fintech & Digital Payments Sector
ETF, Strategic
Internet of Things Technology ETF, Strategic Hotel & Lodging Sector ETF,
Strategic
Residential & Apartment Real Estate ETF, Strategic Technology & E-Commerce Real
Estate
ETF, and Strategic CRISPR & Gene Editing Technology ETF (the Funds ),
filed a registration
statement on Form N-1A under the Securities Act of 1933 ( Securities Act )
and the Investment
Company Act of 1940 ( 1940 Act ). We have reviewed the registration
statement and have
provided our comments below. Where a comment is made in one location, it is
applicable to all
similar disclosure appearing elsewhere in the registration statement. All
capitalized terms not
otherwise defined herein have the meaning given to them in the registration
statement.
LEGAL COMMENTS
Declaration of Trust
Article VIII, Section 2 Derivative and Direct Actions
1. Please disclose in an appropriate location in the Prospectus a summary
of the Declaration
of Trust s requirements related to derivative and direct actions in
Article VIII, Section 2
(Derivative and Direct Actions).
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2. Please revise Article VIII, Section 2 (Derivative and Direct Actions)
of the Declaration of
Trust to state that Section 2 does not apply to claims arising under the
federal securities
laws. Please also disclose in an appropriate location in the Prospectus
the provision and
that the provision does not apply to claims arising under the federal
securities laws.
Article VIII, Section 7(c) Choice of Forum Provision
3. Please disclose in an appropriate location in the Prospectus the federal
forum provision
and the corresponding risks (e.g., that shareholders may have to bring
suit in an
inconvenient and less favorable forum).
Prospectus
4. Please provide full index methodologies for all funds.
All Funds Fee and Expense Table and Example
5. General Instruction C.3(b) of Form N-1A states, Other Information. A
Fund may
include, except in response to Items 2 through 8, information in the
prospectus or the SAI
that is not otherwise required. Please conform the paragraph
immediately following
Fees and Expenses of the Fund to the required language of Form
N-1A, or explain why
alternate language should be permitted.
6. Please provide fees and expenses sufficiently in advance of
effectiveness for review.
7. Please confirm that acquired fund fees and expenses, if any, will not
exceed one basis
point. If they will, please include acquired fund fees and expenses
within the operating
expenses per Item 3 of Form N-1A.
8. Please confirm that there are no fee reimbursement/recoupment
arrangements. If there
are, recoupment terms must be noted in a footnote and are subject to the
following
conditions: (1) amounts may be recouped only within 3 years from that
date when an
amount is waived/reimbursed, (2) the Fund must be able to make the
repayment to the
adviser without exceeding the net expense ratio in place at the time
such amounts were
waived, and (3) the Fund must be able to make the repayment to the
adviser without
exceeding its current net expense ratio.
9. Please provide the example sufficiently in advance of effectiveness for
review.
10. General Instruction C.3(b) of Form N-1A states, Other Information. A
Fund may
include, except in response to Items 2 through 8, information in the
prospectus or the SAI
that is not otherwise required. Please conform the language of the
Example to that of
Form N-1A Item 3 with the exception of the term mutual fund.
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All Funds Item 4 Principal Investment Strategies
11. Please define significant capital expenditures in the description
for each index.
12. With regard to significant capital expenditures and including a
company that has
publicly presented itself as a company whose primary business
activities are in one or
more of the activities described above, Rule 35d-1(a)(2) requires an
80% policy with
respect to investments in the particular industry or industries
suggested by a fund s name.
Please explain why these two selection categories are reasonable to
define the securities
that comprise an industry. In addition, please clarify whether publicly
presenting a
primary business activity means based on issuer s primary SIC or
other industry codes or
classifications.
13. Please disclose how weightings are redistributed when a constituent is
above the
maximum weighting.
14. The Funds state, It is expected that the Fund will concentrate its
investments in the
sectors described above. Please state the specific sectors. In
addition, please
supplementally confirm that the index is not in any particular industry
or group of
industries, or please revise the sentence. If the Fund will concentrate
in an industry or
group of industries, please add a concentration risk.
15. For all indexes with a maximum number of constituents, please explain
how the rules-
based methodology deals with a situation in which the number of
eligible constituents
according to the rules is greater than the maximum number of
constituents of the index
according to the rules.
Strategic Fintech & Digital Payments Sector ETF Item 4 Principal Investment
Strategies
16. The Fund states, Because the Fund will not invest directly in any
cryptocurrency, it will
not track price movements of any cryptocurrency. To avoid confusion,
please clarify in
this sentence that the Fund will also not invest in cryptocurrency
derivatives as noted in
the first sentence of the paragraph.
17. It appears that many of the companies the Fund may invest in will have
only an indirect
and perhaps not substantial involvement in the blockchain industry. If
true, please
prominently disclose such fact in both the principal strategy and risk
sections (e.g.,
blockchain activities represent a minor part of a company, so growth of
blockchain
activities may not have a material impact on the company s stock
price).
Strategic Internet of Things Technology ETF Item 4 Principal Investment
Strategies
18. Pursuant to Rule 421 of the Securities Act, please provide a plain
English explanation or
definition for software process extension.
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19. The Fund states, Investments in any one of the sectors described
above is limited to 35%
of net assets as of [ ]. Please explain to the staff what date is
contemplated in this
placeholder. For example, is it of a date certain? In addition, please
explain how a
sector-based 35% limit will function with respect to the index and the
Fund s portfolio
based on this date. We may have further comments based on response to
this comment.
Strategic Residential & Apartment Real Estate ETF Item 4 Principal
Investment
Strategies
20. The Fund states, As of [], 2021, companies listed in the following
countries were
eligible for inclusion in the index . . . . Earlier on the same
page, the Fund states, The
Index is a rules-based index that consists of U.S.- and Canada-listed
the [sic] companies .
. . . In addition to correcting the typo noted in the previous
sentence, please harmonize
the two sentences.
Strategic CRISPR & Gene Editing Technology ETF Item 4 Principal Investment
Strategies
21. The Fund states, The Index is a rules-based index that consists of
the stocks or
corresponding depositary receipts of companies (i) whose products or
services are either
predominately tied to DNA technology (including CRISPR & gene editing
technology,
gene editing development solutions, and gene editing sequencing
solutions) or (ii) have
stated their primary business to be in products or services focused on
one or more of the
sectors, as described below . . . . Although the Staff does not
currently take issue with
regard to the specific details of CRISPR and gene editing technology as
they relate to the
Fund s name, the term DNA technology appears overly broad with
reference to the
Fund s name in this sentence. Please explain why DNA technology
is not misleading
with reference to the fund s name or revise this sentence. This
comment also applies to
the latter portion of the term DNA modification systems, and
technologies in the
CRISPR & Gene Editing Technologies paragraph.
22. Pursuant to plain English principles under Rule 421 of the Securities
Act, and for greatest
clarity, please define and explain CRISPR and gene editing
technology
contemporaneously with their first uses in the principal investment
strategy.
All Funds Item 4 Principal Risks
23. On the basis of the Index Provider s operating history and experience
as an index
provider, please consider adding an index provider risk disclosing the
lack of experience
and any related risk factors.
24. Given the minimum market capitalization for each index of $300 million,
please consider
whether a microcap risk is appropriate for each fund.
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Strategic Fintech & Digital Payments Sector ETF Item 4 Principal Risks
25. Please consider whether the following risk is appropriate: Third party
product defects or
vulnerabilities (i.e., the risk that blockchain systems built using
third party products may
be subject to technical defects or vulnerabilities beyond a company s
control).
Strategic CRISPR & Gene Editing Technology ETF Item 4 Principal Risks
26. Please consider whether the order of risks (specifically, the DNA
Technology Company
Risk) prioritizes the risks that are most likely to adversely affect
the Fund s net asset
value, yield, and total return.
Item 9 Principal Investment Strategies/Principal Risks/Non-Principal Risks
27. Pursuant to Item 9(a), please state each Fund s investment
objective(s).
28. Pursuant to Item 9(b), please provide the following: Implementation
of Investment
Objectives. Describe how the Fund intends to achieve its investment
objectives. In the
discussion: (1) Describe the Fund s principal investment strategies,
including the
particular type or types of securities in which the Fund principally
invests or will invest.
29. Please review the principal risks chart on p. 50 to ensure the correct
risks are marked for
each fund. For example, Real Estate Companies Risk and REIT Investment
Risk are
marked for the Strategic CRISPR and Gene Editing Technology ETF but do
not appear in
Item 4 for the Fund.
30. If applicable, please disclose that purchases and redemptions of
creation units primarily
with cash, rather than through in-kind delivery of portfolio
securities, may cause the ETF
to incur certain costs. Please also disclose that these costs could
include brokerage costs
or taxable gains or losses that it might not have incurred if it had
made redemption in-
kind. In addition, please disclose that these costs could be imposed on
the ETF, and thus
decrease the ETF s net asset value, to the extent that the costs are
not offset by a
transaction fee payable by an authorized participant.
31. On p. 54, under the heading Foreign Securities Risk, the Trust
discusses investing in
securities issued by the U.S. government. Please provide an appropriate
separate heading
for this paragraph.
32. In Item 9 principal risks, several risks discuss a risk applicable to
the Fund without
being specific. For example, please see the Hotel and Lodging Companies
Investing
Risk. For the avoidance of confusion, please revise such risks where
appropriate to be
specific to an applicable fund.
33. Please consider the following from ADI 2019-08 - Improving Principal
Risks Disclosure:
The staff encourages funds to disclose non-principal risks (and
non-principal investment
strategies) in the fund s statement of additional information rather
than in the fund s
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prospectus. The staff believes that including this disclosure in the
prospectus may
overwhelm other important information.
Manager of Managers Structure
34. When does the Trust plan to file for the exemptive relief discussed on
p. 59? Please be
aware that the Staff will not accelerate an N-1A that does not provide
sub-advisory fee
information without an appropriate exemptive order.
Additional Information on Buying and Selling Fund Shares
35. Item 11(a)(1) of Form N-1A states, (a) Pricing of Fund Shares.
Describe the procedures
for pricing the Fund s shares, including: (1) An explanation that the
price of Fund shares
is based on the Fund s net asset value and the method used to value
Fund shares (market
price, fair value, or amortized cost); except that if the Fund is an
Exchange-Traded Fund,
an explanation that the price of Fund shares is based on a market
price. On p. 61, or
another appropriate location in the Prospectus, please discuss ETF
market pricing.
Investments by Registered Investment Companies
36. On p. 62, the Trust states, Registered investment companies are
permitted to invest in
each Fund beyond the limits set forth in section 12(d)(1) subject to
certain terms and
conditions set forth in an SEC exemptive order issued to the Trust,
including that such
investment companies enter into an agreement with the applicable
Fund(s). This
language appears to be boilerplate language prior to recent Rule
12d1-4. Please revise
the language, or explain why it should remain.
Statement of Additional Information
Item 16 Description of the Fund and Its Investments and Risks Unsponsored
Depositary Receipts
37. On p. 5, the Trust states, In addition, all Depositary Receipts
generally must be
sponsored; however, the Funds may invest in unsponsored Depositary
Receipts under
certain limited circumstances. Please disclose and describe the
limited circumstances
under which unsponsored Depositary Receipts will be utilized.
Portfolio Holdings Disclosure Policies and Procedures
38. On p. 15, the Trust states, As exchange-traded funds, information
about each Fund s
portfolio holdings is made available on a daily basis in accordance
with the provisions of
an Order of the SEC applicable to the Funds . . . . Please confirm
and explain why this
portion of the sentence is correct given the apparent applicability of
Rule 6c-11 of the
1940 Act.
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Item 17(a)(1) Management Information
39. On p. 19, the Trust indicates that Kevin Kelly oversees six portfolios
in the fund
complex. However, there are seven ETFs in the registration statement.
Please revise this
accordingly, or explain why it is correct.
Item 17(c) Board Compensation
40. Please confirm that there will be no retirement benefits program
reportable under Item
17(c) of Form N-1A.
Item 19 Investment Advisory and Other Services
41. Regarding the Sub-Advisory Agreement discussion on p. 22, Section
15(a)(3) of the 1940
Act states that the investment adviser is not to be given more than 60
days written notice
of termination. Please explain how the language of not less than 60
days written notice
to the Sub-Adviser is compliant with the 1940 Act, or revise the
sentence.
Part C
Item 28(h) Other Material Contracts
42. Registrants should include the index license or sublicense agreement to
which a fund is a
party as an exhibit to the registration statement, if applicable, as it
is considered an other
material contract pursuant to Item 28(h) of Form N-1A.
Item 28(m) Rule 12b-1 Plan
43. Given that it appears 12b-1 fees will be charged, please explain why
the 12b-1 Plan is not
applicable.
Item 35 Undertakings
44. Please explain why is there no Item 35 undertaking related to Section
14(a)(3) of the
1940 Act regarding seed capital, or provide an undertaking.
45. Is a party other than a fund s sponsor or one of its affiliates
providing each Fund s initial
(seed) capital? If yes, please supplementally identify the party
providing the seed capital,
and describe their relationship with the Funds.
ACCOUNTING COMMENTS
There are no accounting comments for this initial filing.
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Closing
We note that portions of the filing are incomplete. We may have
additional comments on
such portions when you complete them in a pre-effective amendment, on
disclosures made in
response to this letter, on information supplied in your response letter, or on
exhibits added in
any pre-effective amendments.
A response to this letter should be in the form of a pre-effective
amendment filed pursuant
to Rule 472 under the Securities Act. The pre-effective amendment filing should
be
accompanied by a supplemental letter that includes your responses to each of
these comments.
Where no change will be made in the filing in response to a comment, please
indicate this fact in
your supplemental letter and briefly state the basis for your position.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments,
action, or absence of
action by the staff.
Should you have any questions regarding this letter, please contact me
at (202) 551-6197.
Sincerely,
/s/ Ryan Sutcliffe
Staff Attorney
cc: John Lee, Branch Chief
Christian Sandoe, Assistant Director
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