ck0001683471-20220731
Grizzle Growth ETF
(GRZZ)
Principal
U.S. Listing Exchange:
NYSE
Arca, Inc.
a
series of Listed Funds Trust
PROSPECTUS
November 30,
2022
The
U.S. Securities and Exchange Commission (the “SEC”) has not approved or
disapproved of these securities or passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary is a criminal
offense.
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GRIZZLE
GROWTH ETF - FUND SUMMARY |
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Other
Investment Practices and Strategies |
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Investment
Sub-Adviser |
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Portfolio
Managers |
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Other
Service Providers |
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Grizzle
Growth ETF - Fund Summary
Investment Objective
The Grizzle Growth ETF (the
“Fund”) seeks capital appreciation.
Fees and Expenses of the
Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees (fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
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Management
Fee |
0.75% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.75% |
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Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year: |
$77 |
3
Years: |
$240 |
5
Years: |
$417 |
10
Years: |
$930 |
Portfolio Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in the Total Annual Fund Operating Expenses
or in the Example, affect the Fund’s performance. For the fiscal period December
16, 2021 (commencement of operations) through July 31, 2022, the Fund’s
portfolio turnover rate was 102% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund is an actively managed exchange-traded fund (“ETF”) that invests primarily
in equity securities of companies, with a focus on growth, innovation and
disruption. The Fund seeks to identify future leaders in the following
overarching key growth themes including, but not limited to: Digitization and
Cloud Computing, Future Media and Entertainment, Health and Wellness, and
Sustainability and Energy Transition. Within these preceding four themes the
Fund seeks to invest in the following subsectors including, but not limited to:
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Sub-Sectors |
Theme |
Description |
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Automobile
Manufacturers |
Electronic
Vehicles |
Companies
in the business of creating electrified vehicles (including hybrid
vehicles) and vehicles that run using other renewable sources of
energy
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Cannabis |
Cannabis |
Companies
that cultivate, distribute and sell cannabis products; Companies that
research medical uses for cannabis and create medical formulations of
cannabis
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Casinos
and Gaming |
Online
Gambling |
Companies
that provide online or brick and mortar platforms for placing wagers on
sporting events
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Communication
Services |
Media
and Streaming Services |
Companies
in the business of creating unique media content and/or devices to stream
content into homes
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Energy |
Energy
and Energy Transition |
Companies
engaged in drilling, producing, storing and transporting oil and/or
natural gas
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Sub-Sectors |
Theme |
Description |
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Financial
Services |
Future
of Finance |
Companies
creating novel lending and payment solutions and facilitating such
transactions; Companies creating diversified capital markets services and
access to emerging asset classes (e.g.,
cryptocurrency exchanges)
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Healthcare
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Biotechnology
and Novel Drug Research and Treatment (including medical
psychedelics) |
Companies
engaged in the genetic manipulation of microorganisms, the manufacturing
of medicinal drugs and research and application of novel pharmaceutical
formulations (including legally-derived psychedelic medicines that bind to
specific serotonin receptors and cause changes in perception and cognition
in the pursuit of treating mental diseases such as PTSD and clinically
resistant depression)
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Industrials |
Renewable
Energy (Wind and Solar) |
Companies
engaged in building solar power systems and other renewable energy systems
(e.g.,
wind, solar and energy storage)
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Information
Technology |
Software
as a Service, Microprocessors, Robotics, and Autonomous
Technologies |
Companies
that create software programs and computer hardware for corporations and
individual consumers and companies that provide equipment, an
interconnected system or subsystem of equipment or software that is used
in the acquisition, storage, manipulation, management, movement, control,
display, switching, interchange, transmission or reception of data or
information
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Materials |
Green
Technology |
Companies
engaged in using new technology to create renewable
materials
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Metals and Infrastructure |
Companies
engaged in mining the raw materials that will support the growth in
infrastructure and renewable energy ecosystems (e.g.,
solar panels, battery storage, wind turbines and hydrogen fuel cells)
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Media
and Entertainment |
Esports/Gaming |
Companies
engaged in video game publishing, creating interactive worlds and
e-sports
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Packaged
Foods and Meats |
Plant
Based Foods |
Companies
creating novel new food formulations, such as plant based meats and
dairy |
Grizzle
Investment Management LLC (the “Adviser”), the investment adviser to the Fund,
uses a proprietary internal fundamental research and analysis to identify
companies well-positioned for growth within the targeted sectors. The Adviser
uses its research and fundamental analysis findings to determine the Fund’s
industry allocations within each sector and to select individual securities
within each industry. The Adviser uses a quantitative screening overlay to
identify prospective companies in addition to deep fundamental analysis.
The
Fund’s portfolio is expected to consist of 30 to 60 equity securities, and may
be comprised of common stock and depositary receipts of U.S. and foreign issuers
of any market capitalization. The Fund’s exposure to foreign issuers may include
issuers in both developed and emerging market countries. Emerging market
countries are those countries with low- to middle-income economies as classified
by the World Bank or included in any of the Morgan Stanley Capital International
(MSCI) emerging markets indices. In addition, the Adviser may opportunistically
invest in options to both enhance the Fund’s return and seek to provide downside
risk protection for specific positions in the Fund’s portfolio. The Adviser uses
proprietary valuation models and analysis of historical portfolio profit and
loss information to identify favorable risk-managed option trading
opportunities, including use of covered calls (selling calls on stock positions
in the portfolio) and selling an option and buying another to bet on the
direction of a stock while capping both the downside risk (i.e.,
risk of loss) and upside performance (i.e.,
limiting participation in any gain).
While
the Fund’s sector exposure to sectors may vary over time, as of the date of this
Prospectus, the Fund had significant exposure to companies in the Communication
Services, Energy, Information Technology, and Materials
Sectors.
The Fund is considered to be
non-diversified, which means that it may invest more of its assets in the
securities of a single issuer or a smaller number of issuers than if it were a
diversified fund.
Principal Investment Risks
The principal risks of investing
in the Fund are summarized below. The principal risks are presented in
alphabetical order to facilitate finding particular risks and comparing them
with those of other funds. Each risk summarized below is considered a “principal
risk” of investing in the Fund, regardless of the order in which it appears.
As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value (“NAV”),
trading
price,
yield, total return and/or ability to meet its investment objective. The
following risks could affect the value of your investment in the
Fund:
•Associated
Risk of Investing in Themes - Significant Sector Exposure. To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors. The Fund may invest a significant portion of its assets in
the following sectors and, therefore, the performance of the Fund could be
negatively impacted by events affecting each of these sectors.
◦Automobiles
Industry.
The Automobiles Industry can be highly cyclical, and companies in the industry
may suffer periodic operating losses. The Automobiles Industry also can be
significantly affected by labor relations and fluctuating component prices.
Companies in the Automobiles Industry, particularly those engaged in the
production of electric vehicles may be affected by the obsolescence of existing
technology, short product cycles, falling prices and profits, competition from
new market entrants and general economic conditions. While most of the major
manufacturers are large, financially strong companies, many others are small and
can be non-diversified in both product line and customer base. Additionally,
developments in automotive technologies (e.g.,
autonomous vehicle technologies) may require significant capital expenditures
that may not generate profits for several years, if any. Companies in the
Automobiles Industry may be significantly subject to government policies and
regulations regarding imports and exports of automotive products. Governmental
policies affecting the Automobiles Industry, such as taxes, tariffs, duties,
subsidies, and import and export restrictions on automotive products can
influence industry profitability. In addition, such companies must comply with
environmental laws and regulations, for which there may be severe consequences
for non-compliance. Legislative or regulatory changes and increased government
supervision also may affect companies in the Automobiles Industry.
◦Cannabis
Sector.
▪United
States Regulatory Risks of the Cannabis Sector.
The
possession and use of marijuana, even for medical purposes, is illegal under
federal and certain states’ laws, which may negatively impact the value of the
Fund’s investments. Use of marijuana is regulated by both the federal government
and state governments, and state and federal laws regarding marijuana often
conflict. Even in those states in which the use of marijuana has been legalized,
its possession and use remains a violation of federal law. Federal law
criminalizing the use of marijuana pre-empts state laws that legalize its use
for medicinal and recreational purposes. Actions by federal agencies, such as
increased enforcement of current federal marijuana laws and the prosecution of
nonviolent federal drug crimes by the U.S. Department of Justice (the “DOJ”),
could produce a chilling effect on the Cannabis Sector’s growth and discourage
banks from expanding their services to cannabis companies where such services
are currently limited. Any of these outcomes would negatively affect the
profitability and value of the Fund’s investments and even its ability to pursue
its stated investment objective. The conflict between the regulation of
marijuana under federal and state law creates volatility and risk for all
cannabis companies.
Because
marijuana is a Schedule I controlled substance under the Controlled Substances
Act (the “CSA”), meaning that it has a high potential for abuse, there is
currently no “accepted medical use” for it in the United States, and it lacks
accepted safety for use under medical supervision, and may not be prescribed,
marketed or sold in the United States. Few drug products containing cannabis or
cannabis extracts have been approved for use by the Federal Drug Administration
(the “FDA”) or obtained registrations for commercial production from the U.S.
Drug Enforcement Agency (the “DEA”), and there is no guarantee that such
products will ever be legally produced or sold in the United States. Cannabis
companies in the United States that engage in research, manufacturing,
distributing, importing or exporting, or dispensing controlled substances must
be registered (licensed) to perform these activities and have the security,
control, recordkeeping, reporting and inventory mechanisms required by the DEA
to prevent drug loss and diversion. Failure to obtain the necessary
registrations or to comply with necessary regulatory requirements may
significantly impair the ability of certain companies in which the Fund invests
to pursue medical marijuana research or to otherwise cultivate, possess or
distribute marijuana. In addition, because cannabis is a Schedule I controlled
substance, Section 280E of the Internal Revenue Code of 1986, as amended (the
“Internal Revenue Code”) applies by its terms to the purchase and sale of
medical-use cannabis products and provides that no deduction or credit is
allowed for expenses incurred during a taxable year “in carrying on any trade or
business if such trade or business (or the activities which comprise such trade
or business) consists of trafficking in controlled substances (within the
meaning of Schedules I and II of the CSA) which is prohibited by federal law or
the law of any state in which such trade or business is conducted.” The
disallowance of such tax deductions will likely affect the value of cannabis
companies.
▪Non-U.S.
Regulatory Risks of the Cannabis Sector.
Laws and regulations related to the possession, use (medical and recreational),
sale, transport and cultivation of marijuana vary throughout the world, and the
Fund will only invest in non-U.S. cannabis companies if such companies are
operating legally in the relevant jurisdiction. Even if a company's operations
are permitted under current law, they may not be permitted in the future, in
which case such company may not be in a position to carry on its operations in
its current locations. Additionally, controlled substance legislation differs
between countries and legislation in certain countries may restrict or limit the
ability of certain companies in which the Fund invests to sell their
products.
▪Operational
Risks of the Cannabis Sector.
Companies
involved in the Cannabis Sector face intense competition, may have limited
access to the services of banks, may have substantial burdens on company
resources due to litigation, complaints or enforcement actions, and are heavily
dependent on receiving necessary permits and authorizations to engage in medical
cannabis research or to otherwise cultivate, possess or distribute cannabis.
Because the cultivation, possession, and distribution of cannabis is in all
circumstances illegal under United States federal law, federally regulated
banking institutions may be unwilling to make financial services available to
growers and sellers of cannabis.
◦Communications
Services Sector.
Companies in the Communications Services Sector are subject to extensive
government regulation. The costs of complying with governmental regulations,
delays or failure to receive required regulatory approvals, or the enactment of
new adverse regulatory requirements may adversely affect the business of such
companies. Companies in the Communications Services Sector also can be
significantly affected by intense competition, including competition with
alternative technologies such as wireless communications (including with 5G and
other technologies), product compatibility, consumer preferences, rapid product
obsolescence, and research and development of new products. Technological
innovations may make the products and services of such companies obsolete. Media
content creation carries risks of changing consumer tastes and running afoul of
FCC content guidelines, which could result in large fines or the loss of
regulatory licenses. Media companies collect significant amounts of personal
consumer data and are at risk of data breaches and fines for the unauthorized
and unplanned public release of sensitive consumer data.
◦Energy
Sector. The
Energy Sector is comprised of energy, industrial, infrastructure, and logistics
companies, and, therefore, the Fund is susceptible to the adverse economic,
environmental, business, regulatory, or other occurrences affecting the Energy
Sector. The Energy Sector has historically experienced substantial price
volatility. At times, the performance of companies within the Energy Sector may
lag the performance of companies operating within other sectors or the market as
a whole. Companies operating in the Energy Sector are subject to specific risks,
including, among others, fluctuations in commodity prices; reduced consumer
demand for commodities such as oil, natural gas, or petroleum products; reduced
availability of natural gas or other commodities for transporting, processing,
storing, or delivering; slowdowns in new construction; extreme weather or other
natural disasters; and threats of attack by terrorists on energy assets.
Additionally, companies within the Energy Sector are subject to substantial
government regulation and oversight and changes in the regulatory environment
for energy companies may adversely impact their profitability and thus, the
Fund’s performance. Over time, depletion of natural gas reserves and other
energy reserves also may affect the profitability of energy
companies.
◦Financial
Services Sector.
The Financial Services Sector can be significantly affected by changes in
interest rates, government regulation, the rate of defaults on corporate,
consumer and government debt, the availability and cost of capital, and fallout
from the housing and sub-prime mortgage crisis. Insurance companies, in
particular, may be significantly affected by changes in interest rates,
catastrophic events, price and market competition, the imposition of premium
rate caps, or other changes in government regulation or tax law and/or rate
regulation, which may have an adverse impact on their profitability. The
Financial Services Sector has experienced significant losses in the recent past,
and the impact of more stringent capital requirements and of recent or future
regulation on any individual financial company or on the sector as a whole
cannot be predicted. In recent years, cyber-attacks and technology malfunctions
and failures have become increasingly frequent in this sector and have caused
significant losses.
◦Food
Sector.
The Food Sector is highly competitive and can be significantly affected by
demographic and product trends, competitive pricing, food fads, marketing
campaigns, environmental factors, government regulation, adverse changes in
general economic conditions, agricultural commodity prices, evolving consumer
preferences, nutritional and health-related concerns, federal, state and local
food inspection and processing controls, consumer product liability claims,
consumer boycotts, risks of product tampering and the availability and expense
of liability insurance.
◦Gambling
and Gaming Sector.
The Gambling and Gaming Sector is characterized by an increasingly high degree
of competition among a large number of participants including from participants
performing illegal activities or unregulated companies. Expansion of gambling
and gaming in other jurisdictions (both regulated and unregulated) could
increase competition with traditional gambling and gaming companies, which could
have an adverse impact on their financial condition, operations and cash flows.
In a broader sense, companies operating in the Gambling and Gaming Sector face
competition from all manner of leisure and entertainment activities, including
shopping, athletic events, television and movies, concerts and travel. In
addition, established jurisdictions could award additional licenses or permit
the expansion or relocation of existing gambling and gaming companies. These
companies operating in the Gambling and Gaming Sector also may be subject to
increasing regulatory constraints, particularly with respect to cybersecurity
and privacy. In addition to the costs of complying with such constraints, the
unintended disclosure of confidential information, whether because of an error
or a cybersecurity event, could adversely affect the reputation, profitability
and value of companies within the Gambling and Gaming Sector.
◦Healthcare
Sector.
Companies in the Healthcare Sector are subject to extensive government
regulation and their profitability can be significantly affected by restrictions
on government reimbursement for medical expenses, rising costs of medical
products and services, pricing pressure (including price discounting), limited
product lines, and an increased emphasis on the delivery of healthcare through
outpatient services. The costs associated with developing new drugs can be
significant, and the
results
are unpredictable. Newly developed drugs may be susceptible to product
obsolescence due to intense competition from new products and less costly
generic products. Moreover, the process for obtaining regulatory approval by the
FDA or other governmental regulatory authorities is long and costly and there
can be no assurance that the necessary approvals will be obtained or maintained.
The values of many companies in the Healthcare Sector also are dependent on the
development, protection and exploitation of intellectual property rights and
other proprietary information, and the profitability of these companies may be
significantly affected by such things as the expiration of patents or the loss
of, or the inability to enforce, intellectual property rights.
◦Industrials
Sector. Companies
in the Industrials Sector can be significantly affected by supply and demand for
specific products or services and for Industrials Sector products in general; a
decline in demand for products due to rapid technological developments and
frequent new product introduction; government regulation, world events and
economic conditions; and the risks associated with potential environmental
damage and product liability claims.
◦Information
Technology Sector.
Market or economic factors impacting information technology companies and
companies that rely heavily on technological advances could have a significant
effect on the value of the Fund’s investments. The value of stocks of
information technology companies and companies that rely heavily on technology
is particularly vulnerable to rapid changes in technology product cycles, rapid
product obsolescence, government regulation and competition, both domestically
and internationally, including competition from foreign competitors with lower
production costs. Stocks of information technology companies and companies that
rely heavily on technology, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall market. Information
technology companies are heavily dependent on patent and intellectual property
rights, the loss or impairment of which may adversely affect profitability.
Information technology companies and companies that rely heavily on technology
also may be prone to operational and information security risks resulting from
cyber-attacks and/or technological malfunctions.
◦Materials
Sector.
Companies in the Materials Sector may be adversely impacted by the volatility of
commodity prices, changes in exchange rates, depletion of resources,
over-production, litigation and changes in government regulations, among other
factors.
◦Media
and Entertainment Sector. Media
and entertainment companies, including companies engaged in the design,
production or distribution of goods or services for the media and entertainment
industries (including video game publishing, creating interactive worlds and
e-sports) may become obsolete quickly. Media and entertainment companies are
subject to risks that include cyclicality of revenues and earnings, a decrease
in the discretionary income of targeted individuals, changing consumer tastes
and interests, fierce competition in the industry and the potential for
increased government regulation. Media and entertainment company revenues
largely are dependent on advertising spending. A weakening general economy or a
shift from online to other forms of advertising may lead to a reduction in
discretionary spending on online advertising. Additionally, competitive
pressures and government regulation can significantly affect and entertainment
companies.
◦Psychedelics
Sector.
Psychedelics companies are subject to various laws and regulations that may
differ at the state/local and federal levels. These laws and regulations may
significantly affect a psychedelics company’s ability to secure financing,
impact the market for psychedelics business sales and services, and set
limitations on psychedelics use, production, transportation, and storage. There
can be no guarantees that such approvals or administrative actions will happen
or be favorable for psychedelics companies, and such actions may be subject to
lengthy delays, and may require length and expensive clinical trials.
Additionally, therapies containing controlled substances may generate public
controversy. Political and social pressures and adverse publicity could lead to
delays in approval of, and increased expenses for, psychedelics companies and
any future therapeutic candidates they may develop. All of these factors and
others may prevent psychedelics companies from becoming profitable, which may
materially affect the value of certain Fund investments. In addition,
psychedelics companies are subject to the risks associated with the
biotechnology and pharmaceutical industries.
In
Canada, certain psychedelic drugs, including psilocybin, are classified as
Schedule III drugs under the Controlled Drugs and Substances Act (the “CDSA”)
and, as such, medical and recreational use is illegal under Canadian federal
law. In the United States, most psychedelic drugs, including psilocybin, are
classified as Schedule I drugs under the CSA and the Controlled Substances
Import and Export Act (the “CSIEA”) and, as such, medical and recreational use
is illegal under the U.S. federal laws. There is no guarantee that psychedelic
drugs will ever be approved as medicines in either jurisdiction.
In
the United States, DEA scheduling determinations removing a substance from
Schedule I are dependent on FDA approval of a substance or a specific
formulation of a substance for a therapeutic or medicinal use. Unless and until
psilocybin, psilocin, or other psychedelics-based products receive FDA approval,
such products are prohibited from sale, which limits the growth opportunities
for certain portfolio companies of the Fund. Even if approved by the FDA, the
manufacture, importation, exportation, domestic distribution, storage, sale, and
legitimate use of such products will continue to be subject to a significant
degree of regulation by the DEA. There can be no guarantee that such approvals
or administrative actions will happen or be favorable for psychedelics
companies. Such actions may be subject to lengthy delays and may require lengthy
and expensive clinical trials. Additionally, therapies containing controlled
substances may generate public controversy and
carry
reputational risk. Political and social pressures and adverse publicity could
lead to delays in approval of, and increased expenses for, psychedelics
companies and any future therapeutic candidates they may develop. Psychedelics
companies also are subject to the risks associated with the Biotechnology and
Pharmaceutical Industries. In addition, because certain psychedelic drugs,
including psilocybin, are a Schedule I controlled substance, Section 280E of the
Internal Revenue Code applies by its terms to the purchase and sale of such
psychedelic drugs and provides that no deduction or credit is allowed for
expenses incurred during a taxable year “in carrying on any trade or business if
such trade or business (or the activities which comprise such trade or business)
consists of trafficking in controlled substances (within the meaning of
Schedules I and II of the CSA) which is prohibited by federal law or the law of
any state in which such trade or business is conducted.” The disallowance of
such tax deductions will likely affect the value of psychedelic drug-related
companies. All of these factors and others may prevent psychedelics companies
from becoming profitable, which may materially affect the value of certain Fund
investments.
•Counterparty
Risk. Counterparty
risk is the risk that a counterparty to Fund transactions (e.g.,
prime brokerage or securities lending arrangement or derivatives transaction)
will be unable or unwilling to perform its contractual obligation to the Fund.
Through these investments and related arrangements (e.g.,
prime brokerage or securities lending arrangements or derivatives transactions),
the Fund is exposed to credit risks that the counterparty may be unwilling or
unable to make timely payments or otherwise to meet its contractual obligations.
If the counterparty becomes bankrupt or defaults on (or otherwise becomes unable
or unwilling to perform) its payment or other obligations to the Fund, the Fund
may not receive the full amount that it is entitled to receive or may experience
delays in recovering the collateral or other assets held by, or on behalf of,
the counterparty. If this occurs, the value of your shares in the Fund will
decrease.
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, the
Sub-Adviser and/or other service providers (including custodians and financial
intermediaries) to suffer data breaches or data corruption. Additionally,
cybersecurity failures or breaches of the electronic systems of the Fund, the
Adviser, the Sub-Adviser or the Fund’s other service providers, market makers,
Authorized Participants (“APs”), the Fund’s primary listing exchange, or the
issuers of securities in which the Fund invests have the ability to disrupt and
negatively affect the Fund’s business operations, including the ability to
purchase and sell Fund Shares, potentially resulting in financial losses to the
Fund and its shareholders.
•Depositary
Receipt Risk.
Depositary receipts, including American Depositary Receipts (“ADRs”), involve
risks similar to those associated with investments in foreign securities, such
as changes in political or economic conditions of other countries and changes in
the exchange rates of foreign currencies. Depositary receipts listed on U.S.
exchanges are issued by banks or trust companies and entitle the holder to all
dividends and capital gains that are paid out on the underlying foreign shares
(“Underlying Shares”). When the Fund invests in depositary receipts as a
substitute for an investment directly in the Underlying Shares, the Fund is
exposed to the risk that the depositary receipts may not provide a return that
corresponds precisely with that of the Underlying Shares. Because the Underlying
Shares trade on foreign exchanges that may be closed when the Fund’s primary
listing exchange is open, the Fund may experience premiums and discounts greater
than those of funds without exposure to such Underlying Shares.
•Derivatives
Risk. Derivatives
may pose risks in addition to and greater than those associated with investing
directly in securities, currencies or other investments, including risks
relating to leverage, imperfect correlations with underlying investments or the
Fund’s other portfolio holdings, high price volatility, lack of availability,
counterparty credit, liquidity, valuation and legal restrictions. Their use is a
highly specialized activity that involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
The Fund’s use of derivatives to obtain short exposure, if any, may result in
greater volatility of the Fund’s NAV per share. If the Adviser is incorrect
about its expectations of market conditions, the use of derivatives also could
result in a loss, which in some cases may be unlimited. In addition, the Fund’s
use of derivatives may cause the Fund to realize higher amounts of short-term
capital gains (generally taxed at ordinary income tax rates) than if the Fund
had not used such instruments. Some of the derivatives in which the Fund invests
may be traded (and privately negotiated) in the OTC market. OTC derivatives are
subject to heightened counterparty credit, liquidity and valuation risks.
Certain risks also are specific to the derivatives in which the Fund
invests.
•Options
Risk.
The prices of options may change rapidly over time and do not necessarily move
in tandem with the price of the underlying securities. Selling call options
reduces the Fund’s ability to profit from increases in the value of the Fund’s
equity portfolio and purchasing put options may result in the Fund’s loss of
premiums paid in the event that the put options expire unexercised. To the
extent that the Fund reduces its put option holdings relative to the number of
call options sold by the Fund, the Fund’s ability to mitigate losses in the
event of a market decline will be reduced.
•Emerging
Markets Risk.
The Fund may invest in companies organized in emerging market nations.
Investments in securities and instruments traded in developing or emerging
markets, or that provide exposure to such securities or markets, can involve
additional risks relating to political, economic, or regulatory conditions not
associated with investments in U.S. securities and instruments or investments in
more developed international markets. Such conditions may impact the ability of
the Fund to buy, sell or otherwise transfer securities, adversely affect the
trading market and price for Shares and cause the Fund to decline in value.
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, sectors or companies in which the Fund invests.
Common stocks are generally exposed to greater risk than other types of
securities, such as preferred stocks and debt obligations, because common
stockholders generally have inferior rights to receive payment from
issuers.
•ETF
Risks.
The Fund is an ETF, and, as a result of this structure, is exposed directly or
indirectly to the following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares Risk.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums or discounts greater than those of domestic ETFs.
◦Trading
Risk. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares.
•Foreign
Securities Risk. Investments
in securities of non-U.S. companies, including ADRs, involve certain risks that
may not be present with investments in U.S. companies. For example, investments
in securities of non-U.S. companies may be subject to risk of loss due to
foreign currency fluctuations or to political or economic instability.
Investments in non-U.S. companies also may be subject to withholding or other
taxes. These and other factors can make investments in the Fund more volatile
and potentially less liquid than other types of investments.
•Geographic
Investment Risk. To
the extent the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region.
◦Risks
Related to Investing in Canada.
Canada is a major producer of agricultural products and commodities, such as
forest products, metals, and energy, including oil, gas and hydroelectricity.
The Canadian economy, therefore, is heavily reliant on the sale of such products
and resources, which can pose risks such as price fluctuations and variability
of demand for exportation. Changes in spending on Canadian products by the
economies of other countries or changes in any of these economies, whether due
to changes in demand, market events, regulatory changes or other factors, may
cause a significant impact on the Canadian economy and adversely affect the
Fund.
•Growth
Investing Risk. Growth
stocks can be volatile for several reasons. Since growth companies usually
invest a high portion of earnings in their businesses, they may lack the
dividends of value stocks that can cushion stock prices in a falling market. The
prices of growth stocks are based largely on projections of the issuer’s future
earnings and revenues. If a company’s earnings or revenues fall short of
expectations, its stock price may fall dramatically.
•Investment
Company Risk. The
risks of investing in investment companies, such as ETFs, typically reflect the
risks of the types of instruments in which the investment companies invest. By
investing in another investment company, the Fund becomes a shareholder of that
investment company and bears its proportionate share of the fees and expenses of
the other investment company. The Fund may be subject to statutory limits with
respect to the amount it can invest in other ETFs, which may adversely affect
the Fund’s ability to achieve its investment objective. ETFs may be less liquid
than other investments, and thus their share values more volatile than the
values of the investments they hold. Investments in ETFs are also subject to the
“ETF Risks” described above.
•Limited
Operating History Risk. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment
decision.
•Management
Risk.
The
Fund is actively managed using proprietary investment strategies and processes.
There can be no guarantee that the Adviser’s judgments about the attractiveness,
value and potential appreciation of particular investments and strategies for
the Fund will be correct or produce the desired results or that the Fund will
achieve its investment objective. If the Adviser fails to accurately evaluate
market risk or appropriately react to current and developing market conditions,
the Fund’s share price may be adversely affected.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing.
The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and, therefore, subject to slower growth during times of
economic expansion. Large-capitalization companies also may be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing.
The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole. Some medium capitalization companies have limited product lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization companies.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some small capitalization companies have limited product
lines, markets, and financial and managerial resources and tend to concentrate
on fewer geographical markets relative to large- or mid-capitalization
companies. There is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and earnings.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. In addition, local, regional or global events such as war,
including Russia’s invasion of Ukraine, acts of terrorism, spread of infectious
diseases or other public health issues, recessions, rising inflation, or other
events could have a significant negative impact on the Fund and its investments.
These developments as well as other events could result in further market
volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets. It is unknown how long circumstances related to the COVID-19 pandemic
will persist, whether they will reoccur in the future, whether efforts to
support the economy and financial markets will be successful, and what
additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund
performance.
•Models
and Data Risk.
When Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon expose the Fund to potential risks. Some of the models used to
construct the Fund are predictive in nature. The use of predictive models has
inherent risks. For example, such models may incorrectly forecast future
behavior, leading to potential losses. In addition, in unforeseen or certain
low-probability scenarios (often involving a market disruption of some kind),
such models may produce unexpected results, which can result in losses for the
Fund. Furthermore, because predictive models are usually constructed based on
historical data supplied by third parties, the success of relying on such models
may depend heavily on the accuracy and reliability of the supplied historical
data.
•Non-Diversification
Risk. Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a lesser number of issuers than if it was a diversified fund. As a result,
the Fund may be more exposed to the risks associated with and developments
affecting an individual issuer or a lesser number of issuers than a fund that
invests more widely. This may increase the Fund’s volatility and cause the
performance of a relatively small number of issuers to have a greater impact on
the Fund’s performance.
•Style
Risk.
If at any time the market is not favoring the Fund’s growth investment style,
the Fund’s gains may not be as big as, or its losses may be bigger than, those
of other funds using different investment styles.
•Temporary
Defensive Positions Risk. If
the Fund takes a temporary defensive position, it may invest all or a large
portion of its assets in cash and/or cash equivalents. If the Fund takes a
temporary defensive position, it may not achieve its investment
objective.
Performance
The Fund is new and therefore does not have a
performance history for a full calendar year. In the future,
performance information for the Fund will be presented in this section. Updated
performance information is available on the Fund’s website at www.etf.grizzle.com.
Portfolio
Management
|
|
|
|
| |
Adviser |
Grizzle
Investment Management LLC |
Sub-Adviser |
Exchange
Traded Concepts, LLC (the “Sub-Adviser”) |
Portfolio
Managers |
Thomas
George, CFA, and Scott Willis, CFA, each a founder and portfolio manager
of the Adviser, have been portfolio managers of the Fund since its
inception in December 2021. |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.etf.grizzle.com.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
ADDITIONAL
INFORMATION ABOUT THE FUND
Investment
Objective
The
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed by the Board of Trustees (the “Board”) of Listed Funds
Trust (the “Trust”) without shareholder approval upon written notice to
shareholders.
Other
Investment Practices and Strategies
Temporary
Defensive Positions
To
respond to adverse market, economic, political, or other conditions, the Fund
may invest up to 100% of its assets in a temporary defensive manner by holding
all or a substantial portion of its assets in cash, cash equivalents, or other
high quality short-term investments. Temporary defensive investments generally
may include short-term U.S. government securities, commercial paper, bank
obligations, repurchase agreements, money market fund shares, other money market
instruments, and ETFs that invest in the foregoing instruments. The Adviser also
may invest in these types of securities or hold cash while looking for suitable
investment opportunities or to maintain liquidity. In these circumstances, the
Fund may be unable to achieve its investment objective.
Principal
Investment Risks
An
investment in the Fund entails risks. The Fund could lose money, or its
performance could trail that of other investment alternatives. The following
provides additional information about the Fund’s principal risks. It is
important that investors closely review and understand these risks before making
an investment in the Fund. Just as in the Fund’s summary section, the principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with those of other funds. Each risk summarized below is
considered a “principal risk” of investing in the Fund, regardless of the order
in which it appears.
•Associated
Risk of Investing in Themes - Significant Sector Exposure. To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors. The Fund may invest a significant portion of its assets in
the following sectors and, therefore, the performance of the Fund could be
negatively impacted by events affecting each of these sectors.
◦Automobiles
Industry. The
Automobiles Industry can be highly cyclical, and companies in the industry may
suffer periodic operating losses. The Automobiles Industry also can be
significantly affected by labor relations and fluctuating component prices.
Companies in the Automobiles Industry, particularly those engaged in the
production of electric vehicles may be affected by the obsolescence of existing
technology, short product cycles, falling prices and profits, competition from
new market entrants and general economic conditions. While most of the major
manufacturers are large, financially strong companies, many others are small and
can be non-diversified in both product line and customer base. Additionally,
developments in automotive technologies (e.g.,
autonomous vehicle technologies) may require significant capital expenditures
that may not generate profits for several years, if any. Companies in the
Automobiles Industry may be significantly subject to government policies and
regulations regarding imports and exports of automotive products. Governmental
policies affecting the Automobiles Industry, such as taxes, tariffs, duties,
subsidies, and import and export restrictions on automotive products can
influence industry profitability. In addition, such companies must comply with
environmental laws and regulations, for which there may be severe consequences
for non-compliance. Legislative or regulatory changes and increased government
supervision also may affect companies in the Automobiles Industry.
◦Cannabis
Sector.
▪United
States Regulatory Risks of the Cannabis Sector.
The
possession and use of marijuana, even for medical purposes, is illegal under
federal and certain states’ laws, which may negatively impact the value of the
Fund’s investments. Use of marijuana is regulated by both the federal government
and state governments, and state and federal laws regarding marijuana often
conflict. Marijuana is a Schedule I controlled substance under the CSA and is
illegal under federal law. Currently, over half of the states plus the District
of Columbia have laws and/or regulations that recognize, in one form or another,
legitimate medical uses for cannabis and consumer use of cannabis in connection
with medical treatment or for non-medical purposes. Even in those states in
which the use of marijuana has been legalized for medical or recreational
purposes, its sale and use remains a violation of federal law. Federal law
criminalizing the use of marijuana pre-empts state laws that legalize its use
for medicinal and recreational purposes. The priority for enforcement of federal
marijuana laws may vary by presidential administrations. It is not yet known
whether the current administration will push back against states where marijuana
use and possession is legal and step up the enforcement of federal marijuana
laws and the prosecution of nonviolent federal drug crimes. Such actions could
produce a chilling effect on the Cannabis Sector’s growth and discourage banks
from expanding their services to cannabis companies. This conflict between the
regulation of marijuana under federal and state law creates volatility and risk
for all cannabis companies. In particular, the stepped up enforcement of
marijuana laws by the federal government would adversely affect the value of the
Fund’s U.S. investments. Certain companies engaged in the cannabis business may
never be able to legally produce and sell products in the United States or other
national or local jurisdictions.
As
noted above, marijuana is a Schedule I controlled substance in the United States
under the CSA. The DEA classifies controlled substances into five schedules:
Schedule I, II, III, IV or V substances. Schedule I substances by definition
have a high potential for abuse, have no currently “accepted medical use” in the
United States, lack accepted safety for use under medical supervision, and may
not be prescribed, marketed or sold in the United States. Pharmaceutical
products approved by the FDA for use in the United States may be listed as
Schedule II, III, IV or V, with Schedule II substances considered to present the
highest potential for abuse or dependence and Schedule V substances the lowest
relative risk among such substances.
Few
drug products containing natural cannabis or naturally-derived cannabis extracts
have been approved by the FDA for use in the United States or obtained DEA
registrations for commercial production. Drug products containing cannabis or
cannabis extracts that receive the required government approvals for use in
commercial production may be subject to significant government regulation
regarding manufacture, importation, exportation, domestic distribution, storage,
sale, and legitimate use. In addition, the scheduling process may take one or
more years, thereby delaying the launch of the drug product in the United
States.
Cannabis
companies in the United States that engage in medical or pharmaceutical research
or the production and distribution of controlled substances such as marijuana
must be registered with the DEA to perform such activities and have the
security, control, recordkeeping, reporting and inventory mechanisms required by
the DEA to prevent drug loss and diversion. Failure to obtain the necessary
registrations or comply with necessary regulatory requirements may significantly
impair the ability of certain companies in which the Fund invests to pursue
medical marijuana research or to otherwise cultivate, possess or distribute
marijuana.
Additionally,
federal tax law prohibits a taxpayer from claiming a deduction or credit for any
amount paid or incurred during the tax year in carrying on any trade or business
if that trade or business (or the activities that comprise that trade or
business) consists of trafficking in controlled substances (e.g.,
marijuana) where that trafficking is prohibited by either federal law or the
state law for the state in which the trade or business is conducted.
Consequently, companies engaged in the cannabis business may pay higher amounts
of taxes than non-cannabis companies, which could result in less income to the
Fund and, in turn, less for the Fund to distribute to shareholders.
▪Non-U.S.
Regulatory Risks of the Cannabis Sector.
Laws and regulations related to the possession, use (medical or recreational),
sale, transport and cultivation of marijuana vary throughout the world, and the
Fund will only invest in non-U.S. cannabis companies if such companies are
operating legally in the relevant jurisdiction. Even if a company's operations
are permitted under current law, they may not be permitted in the future, in
which case such company may not be in a position to carry on its operations in
its current locations. Additionally, controlled substance legislation differs
between countries and legislation in certain countries may restrict or limit the
ability of certain companies in which the Fund invests to sell their
products.
▪Operational
Risks of the Cannabis Sector.
Companies
involved in the Cannabis Sector face intense competition, may have limited
access to the services of banks, and are heavily dependent on receiving
necessary permits and authorizations to engage in medical cannabis research or
to otherwise cultivate, possess or distribute cannabis. Because the cultivation,
possession, and distribution of cannabis is in all circumstances illegal under
United States federal law, federally regulated banking institutions may be
unwilling to make financial services available to growers and sellers of
cannabis.
◦Communications
Services Sector.
Companies in the Communications Services Sector are subject to extensive
government regulation. The costs of complying with governmental regulations,
delays or failure to receive required regulatory approvals, or the enactment of
new adverse regulatory requirements may adversely affect the business of such
companies. Companies in the Communications Services Sector also can be
significantly affected by intense competition, including competition with
alternative technologies such as wireless communications (including with 5G and
other technologies), product compatibility, consumer preferences, rapid product
obsolescence, and research and development of new products. Technological
innovations may make the products and services of such companies obsolete. Media
content creation carries risks of changing consumer tastes and running afoul of
FCC content guidelines, which could result in large fines or the loss of
regulatory licenses. Media companies collect significant amounts of personal
consumer data and are at risk of data breaches and fines for the unauthorized
and unplanned public release of sensitive consumer data.
◦Energy
Sector. The
Energy Sector is comprised of energy, industrial, infrastructure, and logistics
companies, and, therefore, the Fund is susceptible to the adverse economic,
environmental, business, regulatory, or other occurrences affecting the Energy
Sector. The Energy Sector has historically experienced substantial price
volatility. At times, the performance of companies within the Energy Sector may
lag the performance of companies operating within other sectors or the market as
a whole. Companies operating in the Energy Sector are subject to specific risks,
including, among others, fluctuations in commodity prices; reduced consumer
demand for commodities such as oil, natural gas, or petroleum products; reduced
availability of natural gas or other commodities for transporting, processing,
storing, or delivering; slowdowns in new construction; extreme weather or other
natural disasters; and threats of attack by terrorists on energy assets.
Additionally, companies within the Energy Sector are subject to substantial
government regulation and oversight and changes in the
regulatory
environment for energy companies may adversely impact their profitability and
thus, the Fund’s performance. Over time, depletion of natural gas reserves and
other energy reserves also may affect the profitability of energy
companies.
◦Financial
Services Sector.
The Financial Services Sector can be significantly affected by changes in
interest rates, government regulation, the rate of defaults on corporate,
consumer and government debt, the availability and cost of capital, and fallout
from the housing and sub-prime mortgage crisis. Insurance companies, in
particular, may be significantly affected by changes in interest rates,
catastrophic events, price and market competition, the imposition of premium
rate caps, or other changes in government regulation or tax law and/or rate
regulation, which may have an adverse impact on their profitability. The
Financial Services Sector has experienced significant losses in the recent past,
and the impact of more stringent capital requirements and of recent or future
regulation on any individual financial company or on the sector as a whole
cannot be predicted. In recent years, cyber-attacks and technology malfunctions
and failures have become increasingly frequent in this sector and have caused
significant losses.
◦Food
Sector.
The Food Sector is highly competitive and can be significantly affected by
demographic and product trends, competitive pricing, food fads, marketing
campaigns, environmental factors, government regulation, adverse changes in
general economic conditions, agricultural commodity prices, evolving consumer
preferences, nutritional and health-related concerns, federal, state and local
food inspection and processing controls, consumer product liability claims,
consumer boycotts, risks of product tampering and the availability and expense
of liability insurance.
◦Gambling
and Gaming Sector.
The Gambling and Gaming Sector is characterized by an increasingly high degree
of competition among a large number of participants including from participants
performing illegal activities or unregulated companies. Expansion of gambling
and gaming in other jurisdictions (both regulated and unregulated) could
increase competition with traditional gambling and gaming companies, which could
have an adverse impact on their financial condition, operations and cash flows.
In a broader sense, companies operating in the Gambling and Gaming Sector face
competition from all manner of leisure and entertainment activities, including
shopping, athletic events, television and movies, concerts and travel. In
addition, established jurisdictions could award additional licenses or permit
the expansion or relocation of existing gambling and gaming companies. These
companies operating in the Gambling and Gaming Sector also may be subject to
increasing regulatory constraints, particularly with respect to cybersecurity
and privacy. In addition to the costs of complying with such constraints, the
unintended disclosure of confidential information, whether because of an error
or a cybersecurity event, could adversely affect the reputation, profitability
and value of companies within the Gambling and Gaming Sector.
◦Healthcare
Sector.
Companies in the Healthcare Sector are subject to extensive government
regulation and their profitability can be significantly affected by restrictions
on government reimbursement for medical expenses, rising costs of medical
products and services, pricing pressure (including price discounting), limited
product lines, and an increased emphasis on the delivery of healthcare through
outpatient services. The costs associated with developing new drugs can be
significant, and the results are unpredictable. Newly developed drugs may be
susceptible to product obsolescence due to intense competition from new products
and less costly generic products. Moreover, the process for obtaining regulatory
approval by the FDA or other governmental regulatory authorities is long and
costly and there can be no assurance that the necessary approvals will be
obtained or maintained. The values of many companies in the Healthcare Sector
also are dependent on the development, protection and exploitation of
intellectual property rights and other proprietary information, and the
profitability of these companies may be significantly affected by such things as
the expiration of patents or the loss of, or the inability to enforce,
intellectual property rights.
◦Industrials
Sector. Companies
in the Industrials Sector can be significantly affected by supply and demand for
specific products or services and for Industrials Sector products in general; a
decline in demand for products due to rapid technological developments and
frequent new product introduction; government regulation, world events and
economic conditions; and the risks associated with potential environmental
damage and product liability claims.
◦Information
Technology Sector.
Market or economic factors impacting information technology companies and
companies that rely heavily on technological advances could have a significant
effect on the value of the Fund’s investments. The value of stocks of
information technology companies and companies that rely heavily on technology
is particularly vulnerable to rapid changes in technology product cycles, rapid
product obsolescence, government regulation and competition, both domestically
and internationally, including competition from foreign competitors with lower
production costs. Stocks of information technology companies and companies that
rely heavily on technology, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall market. Information
technology companies are heavily dependent on patent and intellectual property
rights, the loss or impairment of which may adversely affect profitability.
Information technology companies and companies that rely heavily on technology
also may be prone to operational and information security risks resulting from
cyber-attacks and/or technological malfunctions.
◦Materials
Companies.
Companies in the Materials Sector may be adversely impacted by the volatility of
commodity prices, changes in exchange rates, depletion of resources,
over-production, litigation and changes in government regulations, among other
factors.
◦Media
and Entertainment Sector. Media
and entertainment companies, including companies engaged in the design,
production or distribution of goods or services for the media and entertainment
industries (including video game publishing, creating interactive worlds and
e-sports) may become obsolete quickly. Media and entertainment companies are
subject to risks that include cyclicality of revenues and earnings, a decrease
in the discretionary income of targeted individuals, changing consumer tastes
and interests, fierce competition in the industry and the potential for
increased government regulation. Media and entertainment company revenues
largely are dependent on advertising spending. A weakening general economy or a
shift from online to other forms of advertising may lead to a reduction in
discretionary spending on online advertising. Additionally, competitive
pressures and government regulation can significantly affect and entertainment
companies.
◦Psychedelics
Sector.
Psychedelics companies are subject to various laws and regulations that may
differ at the state/local and federal levels. These laws and regulations may
significantly affect a psychedelics company’s ability to secure financing,
impact the market for psychedelics business sales and services, and set
limitations on psychedelics use, production, transportation, and storage. There
can be no guarantees that such approvals or administrative actions will happen
or be favorable for psychedelics companies, and such actions may be subject to
lengthy delays, and may require length and expensive clinical trials.
Additionally, therapies containing controlled substances may generate public
controversy. Political and social pressures and adverse publicity could lead to
delays in approval of, and increased expenses for, psychedelics companies and
any future therapeutic candidates they may develop. All of these factors and
others may prevent psychedelics companies from becoming profitable, which may
materially affect the value of certain Fund investments. In addition,
psychedelics companies are subject to the risks associated with the
biotechnology and pharmaceutical industries.
In
Canada, certain psychedelic drugs, including psilocybin, are classified as
Schedule III drugs under the CDSA and as such, medical and recreational use is
illegal under Canadian federal laws. In the United States, most psychedelic
drugs, including psilocybin, are classified as Schedule I drugs under the CSA
and the CSIEA and as such, medical and recreational use is illegal under the
U.S. federal laws. There is no guarantee that psychedelic drugs will ever be
approved as medicines in either jurisdiction.
In
the United States, to the extent a company is conducting research with such
psychedelic-based products, the company would need to comply with the FDA’s laws
and regulations regarding research, be DEA registered, comply with DEA laws and
regulations, and comply with any applicable state laws and regulations. DEA
scheduling determinations removing a substance from Schedule I are dependent on
FDA approval of a substance or a specific formulation of a substance for a
therapeutic or medicinal use. Unless and until psilocybin, psilocin, or other
psychedelic-based products receive FDA approval, such products are prohibited
from sale, which limits the growth opportunities for certain investments of the
Fund. Even if approved by the FDA, the manufacture, importation, exportation,
domestic distribution, storage, sale, and legitimate use of such products will
continue to be subject to a significant degree of regulation by the DEA, FDA,
and other governmental authorities. There can be no guarantee that such
approvals or administrative actions will happen or be favorable for psychedelics
companies. Such actions may be subject to lengthy delays and may require lengthy
and expensive clinical trials. Additionally, therapies containing controlled
substances may generate public controversy and carry reputational risk.
Political and social pressures and adverse publicity could lead to delays in
approval of, and increased expenses for, psychedelics companies and any future
therapeutic candidates they may develop. All of these factors and others may
prevent psychedelics companies from becoming profitable, which may materially
affect the value of certain Fund investments. In addition, psychedelics
companies are subject to the risks associated with the Biotechnology and
Pharmaceutical Industries.
•Counterparty
Risk. Counterparty
risk is the risk that a counterparty to Fund transactions (e.g.,
prime brokerage or securities lending arrangement or derivatives transaction)
will be unable or unwilling to perform its contractual obligation to the Fund.
The Fund may use counterparty agreements to exchange the returns (or
differentials in rates of return) earned or realized in particular predetermined
investments or instruments. Through these investments and related arrangements
(e.g.,
prime brokerage or securities lending arrangements or derivatives transactions),
the Fund is exposed to credit risks that the counterparty may be unwilling or
unable to make timely payments or otherwise meet its contractual obligations. If
the counterparty becomes bankrupt or defaults on (or otherwise becomes unable or
unwilling to perform) its payment or other obligations to the Fund, the risk of
which is particularly acute under current conditions, the Fund may not receive
the full amount that it is entitled to receive or may experience delays in
recovering the collateral or other assets held by, or on behalf of, the
counterparty. If this occurs, or if exercising contractual rights involves
delays or costs for the Fund, the value of your shares in the Fund may decrease.
The Fund bears the risk that counterparties may be adversely affected by
legislative or regulatory changes, adverse market conditions (such as the
current conditions), increased competition, and/or wide scale credit losses
resulting from financial difficulties of the counterparties’ other trading
partners or borrowers.
•Cybersecurity
Risk.
With the increased use of technologies such as the Internet and the dependence
on computer systems to perform business and operational functions, funds (such
as the Fund) and their service providers may be prone to operational and
information security risks resulting from cyber-attacks and/or technological
malfunctions. In general, cyber-attacks are deliberate, but unintentional events
may have similar effects. Cyber-attacks include, among others, stealing or
corrupting data maintained online or digitally, preventing legitimate users from
accessing information or services on a website, releasing confidential
information
without authorization, and causing operational disruption. Cybersecurity
incidents may allow an unauthorized party to gain access to Fund assets or
proprietary information, or cause the Fund, the Adviser, the Sub-Adviser and/or
other service providers (including custodians and financial intermediaries) to
suffer data breaches or data corruption. Additionally, cybersecurity failures or
breaches of the electronic systems of the Fund, the Adviser, the Sub-Adviser or
the Fund’s other service providers, market makers, APs, the Fund’s primary
listing exchange, or the issuers of securities in which the Fund invests have
the ability to disrupt and negatively affect the Fund’s business operations,
including the ability to purchase and sell Fund Shares, potentially resulting in
financial losses to the Fund and its shareholders. For instance, cyber-attacks
or technical malfunctions may interfere with the processing of shareholder or
other transactions, affect the Fund’s ability to calculate its NAV, cause the
release of private shareholder information or confidential Fund information,
impede trading, cause reputational damage, and subject the Fund to regulatory
fines, penalties or financial losses, reimbursement or other compensation costs,
and additional compliance costs. Cyber-attacks or technical malfunctions may
render records of Fund assets and transactions, shareholder ownership of Fund
Shares, and other data integral to the functioning of the Fund inaccessible or
inaccurate or incomplete. The Fund also may incur substantial costs for
cybersecurity risk management in order to prevent cyber incidents in the future.
The Fund and its shareholders could be negatively impacted as a
result.
•Depositary
Receipt Risk.
The Fund may hold the securities of non-U.S. companies in the form of depositary
receipts, including ADRs and Global Depositary Receipts (“GDRs”). ADRs are
negotiable certificates issued by a U.S. financial institution that represent a
specified number of shares in a foreign stock and trade on a U.S. national
securities exchange, such as the New York Stock Exchange (the “NYSE”). Sponsored
ADRs are issued with the support of the issuer of the foreign stock underlying
the ADRs and carry all of the rights of common shares, including voting rights.
GDRs are similar to ADRs, but may be issued in bearer form and are typically
offered for sale globally and held by a foreign branch of an international bank.
The underlying issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through
to them any voting rights with respect to the deposited securities. Issuers of
unsponsored depositary receipts are not contractually obligated to disclose
material information in the U.S. and, therefore, such information may not
correlate to the market value of the unsponsored depositary receipt. The
Underlying Shares in the Fund’s portfolio are usually denominated or quoted in
currencies other than the U.S. dollar. As a result, changes in foreign currency
exchange rates may affect the value of the Fund’s portfolio. In addition,
because the Underlying Shares trade on foreign exchanges at times when the U.S.
markets are not open for trading, the value of the Underlying Shares may change
materially at times when the U.S. markets are not open for trading, regardless
of whether there is an active U.S. market for Shares.
•Derivatives
Risk.
The Fund may invest in options to seek to gain market exposure, enhance return
and provide downside risk protection. The Fund’s use of derivative instruments
involves risks different from, or possibly greater than, the risks associated
with investing directly in securities and other traditional investments. These
risks include risks relating to leverage, correlation (imperfect correlations
with underlying instruments or the Fund’s other portfolio holdings), high price
volatility, lack of availability, counterparty credit, liquidity, valuation and
legal restrictions. The use of such derivatives also may expose the Fund to the
performance of securities that the Fund does not own. The skills necessary to
successfully execute derivatives strategies may be different from those for more
traditional portfolio management techniques, and if the Adviser is incorrect
about its expectations of market conditions, the use of derivatives also could
result in a loss, which in some cases may be unlimited. Use of derivatives also
may cause the Fund to be subject to additional regulations, which may generate
additional Fund expenses. These practices also entail transactional expenses and
may cause the Fund to realize higher amounts of short-term capital gains than if
the Fund had not engaged in such transactions. The markets for certain
derivatives, including those located in certain foreign countries, are
relatively new and still developing, which may expose the Fund to increased
counterparty credit and liquidity risks.
Certain
of the derivatives in which the Fund invests are traded (and privately
negotiated) in the OTC market. OTC derivatives are complex and often valued
subjectively, which exposes the Fund to heightened liquidity, mispricing and
valuation risks. Improper valuations can result in increased cash payment
requirements to counterparties or a loss of value to the Fund. In addition, OTC
derivative instruments are often highly customized and tailored to meet the
needs of the Fund and its trading counterparties. If a derivative transaction is
particularly large or if the relevant market is illiquid, it may not be possible
to initiate a transaction or liquidate a position at an advantageous time or
price. As a result, and similar to other privately negotiated contracts, the
Fund is subject to counterparty credit risk with respect to such derivative
contracts. Certain derivatives are subject to mandatory exchange trading and/or
clearing, which exposes the Fund to the credit risk of the clearing broker or
clearinghouse. While exchange trading and central clearing are intended to
reduce counterparty credit risk and to increase liquidity, they do not make
derivatives transactions risk-free. Certain risks also are specific to the
derivatives in which the Fund invests.
The
Fund is subject to the risk that a change in U.S. law and related regulations
will impact the way the Fund operates, increase the particular costs of the
Fund’s operation and/or change the competitive landscape. In October 2020, the
SEC adopted a new rule governing a fund’s use of derivatives. The new rule,
among other things, generally requires a fund to adopt a derivatives risk
management program, appoint a derivatives risk manager to oversee the program
and comply with an outer limit on fund leverage risk based on value at risk, or
“VaR.” Certain funds may be exempted from these requirements if they use
derivatives only to a limited extent and in a limited manner and comply with
certain other conditions set forth in the new rule. The new rule significantly
changes the regulatory framework applicable to a fund’s use of derivatives,
including by replacing the existing asset segregation regulatory framework in
its entirety. The new rule may influence the extent to which the Fund uses
derivatives,
adversely
affect the Fund’s performance, and increase costs related to the Fund’s use of
derivatives. As of the date of this Prospectus, the Fund anticipates using
derivatives only to a limited extent and as a result, it expects to be exempt
from certain of the conditions of the new rule, including compliance with a
VaR-based limit on the leverage risk.
◦Options
Risk.
Selling (writing) and buying options are speculative activities and entail
greater than ordinary investment risks. The Fund’s use of put options can lead
to losses because of adverse movements in the price or value of the underlying
asset, which may be magnified by certain features of the options. When selling a
put option, the Fund will receive a premium; however, this premium may not be
enough to offset a loss incurred by the Fund if the price of the underlying
asset is below the strike price by an amount equal to or greater than the
premium. Purchasing of put options involves the payment of premiums, which may
adversely affect the Fund’s performance. Purchasing a put option gives the
purchaser of the option the right to sell a specified quantity of an underlying
asset at a fixed exercise price over a defined period of time. Purchased put
options may expire worthless resulting in the Fund’s loss of the premium it paid
for the option.
The
value of an option may be adversely affected if the market for the option
becomes less liquid or smaller, and will be affected by changes in the value or
yield of the option’s underlying asset, an increase in interest rates, a change
in the actual or perceived volatility of the stock market or the underlying
asset and the remaining time to expiration. Additionally, the value of an option
does not increase or decrease at the same rate as the underlying asset. The
Fund’s use of options may reduce the Fund’s ability to profit from increases in
the value of the underlying asset. If the price of the underlying asset of an
option is above the strike price of a written put option, the value of the
option, and consequently of the Fund, may decline significantly more than if the
Fund invested directly in the underlying asset instead of using options. While
the Fund will segregate liquid assets at least equal in value to the maximum
potential loss for the Fund, the Fund could still lose a significant amount or
nearly all of its value if the price of an underlying asset changes
significantly enough.
•Emerging
Markets Risk.
Emerging markets are subject to greater market volatility, lower trading volume,
political and economic instability, uncertainty regarding the existence of
trading markets and more governmental limitations on foreign investment than
more developed markets. In addition, securities in emerging markets may be
subject to greater price fluctuations than securities in more developed markets.
Differences in regulatory, accounting, auditing, and financial reporting and
recordkeeping standards could impede the Adviser’s ability to evaluate local
companies and impact the Fund’s performance. There also may be limitations on
the rights and remedies available to investors in emerging market companies
compared to those associated with U.S. companies. In addition, brokerage and
other transaction costs on foreign securities exchanges are often higher than in
the U.S. and there is generally less government supervision and regulation of
exchanges, brokers and issuers in foreign countries.
•Equity
Market Risk. Common
stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of
their issuers change. These investor perceptions are based on various and
unpredictable factors including: expectations regarding government, economic,
monetary and fiscal policies; inflation and interest rates; economic expansion
or contraction; and global or regional political, economic and banking crises.
If you held common stock, or common stock equivalents, of any given issuer, you
would generally be exposed to greater risk than if you held preferred stocks and
debt obligations of the issuer because common stockholders, or holders of
equivalent interests, generally have inferior rights to receive payments from
issuers in comparison with the rights of preferred stockholders, bondholders,
and other creditors of such issuers.
The
respiratory illness COVID-19 has spread globally for over two years, resulting
in a global pandemic and major disruption to economies and markets around the
world, including the United States. During this time, financial markets have
experienced extreme volatility and severe losses, and trading in many
instruments has been disrupted or suspended. Liquidity for many instruments has
been greatly reduced for periods of time. Some sectors of the economy and
individual issuers have experienced particularly large losses. Governments and
central banks, including the Federal Reserve in the U.S., have taken
extraordinary and unprecedented actions to support local and global economies
and the financial markets. The impact of these measures, and whether they will
be effective to mitigate the economic and market disruption, will not be known
for some time. However, the rapid COVID-19 vaccination rollout in the United
States and certain other developed countries, coupled with the passage of
stimulus programs in the U.S. and abroad, have resulted in the re-opening of
businesses, a reduction in quarantine and masking requirements, increased
consumer demand, and the resumption of in-person schooling, travel and events.
As a result, many global economies, including the U.S. economy, have either
re-opened fully or decreased significantly the number of public safety measures
in place that are designed to mitigate virus transmission. Despite these
positive trends, the prevalence of new COVID-19 variants, a failure to achieve
herd immunity, or other unforeseen circumstances may result in the continued
spread of the virus throughout unvaccinated populations or a resurgence in
infections among vaccinated individuals. As a result, it remains unclear if
recent positive trends will continue in developed markets and whether such
trends will spread world-wide to countries with limited access to effective
vaccines that are still experiencing rising COVID-19 hospitalizations and
deaths.
•ETF
Risks.
The Fund is an ETF and, as a result of its structure, is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers
in the marketplace. To the extent either of the following events occur, Shares
may trade at a material discount to NAV and possibly face delisting: (i) APs
exit the business or otherwise become unable to process creation and/or
redemption orders and no other APs step forward to perform these services, or
(ii) market makers and/or liquidity providers exit the business or significantly
reduce their business activities and no other entities step forward to perform
their functions.
◦Costs
of Buying or Selling Shares Risk.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors also will incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, a relatively small investor base
in the Fund, asset swings in the Fund and/or increased market volatility may
cause increased bid/ask spreads. Due to the costs of buying or selling Shares,
including bid/ask spreads, frequent trading of Shares may significantly reduce
investment results and an investment in Shares may not be advisable for
investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV Risk.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility or periods of
steep market declines and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant. The market price of Shares during the trading day, like the price
of any exchange-traded security, includes a “bid/ask” spread charged by the
exchange specialist, market makers or other participants that trade Shares. In
times of severe market disruption, the bid/ask spread can increase
significantly. At those times, Shares are most likely to be traded at a discount
to NAV, and the discount is likely to be greatest when the price of Shares is
falling fastest, which may be the time that you most want to sell your Shares.
The Adviser believes that, under normal market conditions, large market price
discounts or premiums to NAV will not be sustained because of arbitrage
opportunities.
Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums or discounts greater than those of domestic ETFs.
◦Trading
Risk.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500®
Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than
Shares.
•Foreign
Securities Risk.
Investments in securities of non-U.S. companies, including ADRs, involve certain
risks that may not be present with investments in securities of U.S. companies.
For example, investments in non-U.S. companies may be subject to risk of loss
due to foreign currency fluctuations or to political or economic instability.
There may be less information publicly available about a non-U.S. issuer than a
U.S. issuer. Non-U.S. issuers may be subject to different accounting, auditing,
financial reporting, and investor protection standards than U.S. issuers.
Investments in non-U.S. companies also may be subject to withholding or other
taxes and may be subject to additional trading, settlement, custodial, and
operational risks. With respect to certain countries, there is the possibility
of government intervention and expropriation or nationalization of assets.
Because legal systems differ, there is also the possibility that it will be
difficult to obtain or enforce legal judgments in certain countries. Since
foreign exchanges may be open on days when the Fund does not price its shares,
the value of the securities in the Fund’s portfolio may change on days when
shareholders will not be able to purchase or sell Shares. Conversely, Shares may
trade on days when foreign exchanges are closed. These and other factors can
make investments in the Fund more volatile and potentially less liquid than
other types of investments.
•Geographic
Investment Risk. To
the extent the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region.
◦Canada-Specific
Risk.
Investment in Canadian issuers may subject the Fund to regulatory, political,
currency, security, and economic risk specific to Canada. The Canadian economy
is reliant on the sale of natural resources and commodities, which can pose
risks such as the fluctuation of prices and the variability of demand for
exportation of such products. Changes in spending on Canadian products by other
countries or changes in the other countries’ economies may cause a significant
impact on the Canadian economy. In particular, the Canadian economy is heavily
dependent on relationships with certain key
trading
partners, including the United States and China. The United States is Canada’s
largest trading and investment partner, and the Canadian economy is
significantly affected by developments in the U.S. economy. Any downturn in the
U.S. or Chinese economic activity is likely to have an adverse impact on the
Canadian economy and may adversely affect the Fund.
•Growth
Investing Risk.
Growth stocks can be volatile for several reasons. Since growth companies
usually invest a high portion of earnings in their businesses, they may lack the
dividends of value stocks that can cushion stock prices in a falling market. The
prices of growth stocks are based largely on projections of the issuer’s future
earnings and revenues. If a company’s earnings or revenues fall short of
expectations, its stock price may fall dramatically. Growth stocks may be more
expensive relative to their earnings or assets compared to value or other
stocks.
•Investment
Company Risk.
The risks of investing in investment companies, such as ETFs, typically reflect
the risks of the types of instruments in which the investment companies invest.
By investing in another investment company, the Fund becomes a shareholder of
that investment company and bears its proportionate share of the fees and
expenses of the other investment company. The Fund may be subject to statutory
limits with respect to the amount it can invest in other ETFs, which may
adversely affect the Fund’s ability to achieve its investment objective. ETFs
may be less liquid than other investments, and thus their share values more
volatile than the values of the investments they hold. Investments in ETFs also
are subject to the “ETF Risks” described above.
•Limited
Operating History Risk. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Management
Risk. The
Fund is actively managed and uses proprietary investment strategies and
processes. There can be no guarantee that the Adviser’s judgments about the
attractiveness, value and potential appreciation of particular investments and
strategies for the Fund will be correct or produce the desired results, and
there is no guarantee that the Fund will achieve its investment objective or
outperform other investment strategies over the short- or long-term market
cycles. If the Adviser fails to accurately evaluate market risk or appropriately
react to current and developing market conditions, the Fund’s share price may be
adversely affected. Securities selected by the Adviser may not perform as
expected. This could result in the Fund’s underperformance compared to other
funds with similar investment objectives.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing.
The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and, therefore, subject to slower growth during times of
economic expansion. Large-capitalization companies also may be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing.
The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole. Some medium capitalization companies have limited product lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization companies.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some small capitalization companies have limited product
lines, markets, and financial and managerial resources and tend to concentrate
on fewer geographical markets relative to larger capitalization companies. There
is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and earnings.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
economic, political and global macro factors, including public health issues,
growth concerns in the U.S. and overseas, uncertainties regarding interest
rates, trade tensions and the threat of tariffs imposed by the U.S. and other
countries. In addition, local, regional or global events such as war, including
Russia’s invasion of Ukraine, acts of terrorism, spread of infectious diseases
or other public health issues, recessions, rising inflation, or other events
could have a significant negative impact on the Fund and its investments. These
developments as well as other events could result in further market volatility
and negatively affect financial asset prices, the liquidity of certain
securities and the normal operations of securities exchanges and other markets,
which could have an adverse effect on the Fund.
The
COVID-19 pandemic has significantly impacted economies and markets around the
world, including the United States. The pandemic has resulted in a wide range of
social and economic disruptions, including closed borders, voluntary or
compelled quarantines of large populations, stressed healthcare systems, reduced
or prohibited domestic or international travel, supply chain disruptions, and
so-called “stay-at-home” orders throughout much of the United States and many
other countries. Financial markets have experienced extreme volatility and
severe losses, and trading in many instruments has been disrupted. Some sectors
of the economy and individual issuers have experienced particularly large
losses. Such disruptions may continue for an extended period of time or reoccur
in the future to a similar or greater extent. Liquidity for many instruments has
been greatly reduced for periods of time. In response to these disruptions, the
U.S. government and the Federal Reserve have taken extraordinary actions to
support the domestic economy and financial markets. It is unknown how long
circumstances related to the COVID-19 pandemic will persist, whether they will
reoccur in the future, whether efforts to support the economy and financial
markets will be successful, and what additional implications may follow from the
pandemic. The impact of these events and other epidemics or pandemics in the
future could adversely affect Fund performance.
•Models
and Data Risk.
When Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon expose the Fund to potential risks. For example, by relying on
Models and Data, the Adviser may be induced to buy certain investments at prices
that are too high, to sell certain other investments at prices that are too low,
or to miss favorable opportunities altogether. Similarly, any hedging based on
faulty Models and Data may prove to be unsuccessful.
Some
of the models used by the Adviser for the Fund are predictive in nature. The use
of predictive models has inherent risks. For example, such models may
incorrectly forecast future behavior, leading to potential losses on a cash flow
and/or a mark-to-market basis. In addition, in unforeseen or certain
low-probability scenarios (often involving a market disruption of some kind),
such models may produce unexpected results, which can result in losses for the
Fund. Furthermore, because predictive models are usually constructed based on
historical data supplied by third parties, the success of relying on such models
may depend heavily on the accuracy and reliability of the supplied historical
data.
All
models rely on correct market data inputs. If incorrect market data is entered
into even a well-founded model, the resulting information will be incorrect.
However, even if market data is input correctly, “model prices” will often
differ substantially from market prices, especially for instruments with complex
characteristics, such as derivative instruments.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may invest a greater percentage of its
assets in the securities of a single issuer or a lesser number of issuers than
if it was a diversified fund. As a result, the Fund may be more exposed to the
risks associated with and developments affecting an individual issuer or a
lesser number of issuers than a fund that invests more widely. This may increase
the Fund’s volatility and cause the performance of a relatively small number of
issuers to have a greater impact on the Fund’s performance.
•Style
Risk. If
at any time the market is not favoring the Fund’s growth investment style, the
Fund’s gains may not be as big as, or its losses may be bigger than, those of
other funds using different investment styles.
•Temporary
Defensive Position Risk. If
the Fund takes a temporary defensive position, it may invest all or a large
portion of its assets in cash and/or cash equivalents. If the Fund takes a
temporary defensive position, it may not achieve its investment
objective.
PORTFOLIO
HOLDINGS INFORMATION
Information
about the Fund’s daily portfolio holdings is available at www.etf.grizzle.com. A
complete description of the Fund’s policies and procedures with respect to the
disclosure of the Fund’s portfolio holdings is available in the Fund’s Statement
of Additional Information (the “SAI”).
MANAGEMENT
Investment
Adviser
Grizzle
Investment Management LLC, located at 573 Coldstream Drive, Berwyn, Pennsylvania
19312, serves as the investment adviser for the Fund. The Adviser oversees the
day-to-day operations of the Fund, subject to the general supervision and
oversight of the Board. The Adviser also arranges for sub-advisory, transfer
agency, custody, fund administration, distribution and all other services
necessary for the Fund to operate. The Adviser is an SEC-registered investment
adviser. As of November 30, 2022, the assets managed by the Adviser are only
those of the Fund.
The
Adviser continuously reviews, supervises, and administers the Fund’s investment
program. In particular, the Adviser provides investment and operational
oversight of the Sub-Adviser. The Board supervises the Adviser and establishes
policies that the Adviser must follow in its day-to-day management activities.
For the services it provides to the Fund, the Adviser is entitled to a unified
management fee, which is calculated daily and paid monthly, at an annual rate of
0.75% of the Fund’s average daily net assets.
Pursuant
to an investment advisory agreement between the Trust, on behalf of the Fund,
and the Adviser (the “Advisory Agreement”), the Adviser has agreed to pay all
expenses of the Fund except the fee payable to the Adviser under the Advisory
Agreement, interest charges on any borrowings, dividends, and other expenses on
securities sold short, taxes, brokerage commissions and other expenses
incurred
in placing orders for the purchase and sale of securities and other investment
instruments, acquired fund fees and expenses, accrued deferred tax liability,
extraordinary expenses, and distribution (12b-1) fees and expenses paid by the
Trust under any distribution plan adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the “1940 Act”). The Adviser, in
turn, compensates the Sub-Adviser from the management fee it
receives.
The
basis for the Board’s approval of the Advisory Agreement is included in the
Fund’s Semi-Annual Report to Shareholders for the period ended January 31,
2022.
Investment
Sub-Adviser
Exchange
Traded Concepts, LLC, an Oklahoma limited liability company located at 10900
Hefner Pointe Drive, Suite 400, Oklahoma City, Oklahoma 73120, is responsible
for the day-to-day management of the Fund. An SEC-registered investment adviser
formed in 2018, the Sub-Adviser is majority owned and controlled by Cottonwood
ETF Holdings LLC. As of August 31, 2022, the Sub-Adviser had approximately $5.05
billion under management.
Pursuant
to an investment sub-advisory agreement between the Trust, on behalf of the
Fund, the Adviser and the Sub-Adviser (the “Sub-Advisory Agreement”), the
Sub-Adviser is responsible for trading portfolio securities for the Fund,
including selecting broker-dealers to execute purchase and sale transactions or
in connection with any rebalancing or reconstitution of the Fund, subject to the
supervision of the Adviser and the Board. For its services, the Sub-Adviser is
entitled to a fee, payable by the Adviser, which fee is calculated daily and
paid monthly, at an annual rate of 0.05% based on the average daily net assets
of the Fund.
The
basis for the Board’s approval of the Sub-Advisory Agreement is included in the
Fund’s Semi-Annual Report to Shareholders for the period ended January 31,
2022.
Portfolio
Managers
The
below individuals are jointly and primarily responsible for day-to-day
management of the Fund’s portfolio.
Thomas
George co-founded the Adviser in 2021. He began his career in 2002 at TD Asset
Management. During his time at TD Asset Management, he held various roles,
including Head of Resource Investments, Head of ESG Research and Investing and
Portfolio Manager of the TD Resource Fund, TD Energy Fund, TD Precious Metals
Fund, TD Sustainability Fund and TD PIC North American SRI Fund. Mr. George
graduated from The University of Waterloo in 2002 with an Honors Bachelors in
Environmental Engineering. He is a CFA Charterholder.
Scott
Willis co-founded the Adviser in 2021. He began his career at BNY Mellon,
managing portfolios for ultra-high net worth individuals. Mr. Willis later
joined Credit Suisse, where he was an analyst covering the energy sector with a
focus on exploration and production, refining and oilfield services. He later
joined TD Asset Management, where he was a fixed income analyst covering the
energy, industrials and transportation sectors. Mr. Willis graduated from
Bucknell University in 2006 with a degree in Economics. He is a CFA
Charterholder.
The
Fund’s SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by the Portfolio Managers, and
the Portfolio Managers’ ownership of Shares.
Other
Service Providers
Foreside
Fund Services, LLC (the “Distributor”) serves as the principal underwriter and
distributor of the Fund’s Shares. The Distributor’s principal address is Three
Canal Plaza, Suite 100, Portland, Maine 04101. The Distributor will not
distribute shares in less than whole Creation Units, and it does not maintain a
secondary market in the Shares. The Distributor is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended, and a member of the
Financial Industry Regulatory Authority, Inc. (“FINRA”). The Distributor has no
role in determining the policies of the Fund or the securities that are
purchased or sold by the Fund and is not affiliated with the Adviser,
Sub-Adviser, or any of their respective affiliates.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services,
located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the
administrator and transfer agent for the Fund.
U.S.
Bank National Association, located at 1555 N. Rivercenter Drive, Suite 302,
Milwaukee, Wisconsin 53212, serves as the custodian for the Fund.
Morgan,
Lewis & Bockius LLP, located at 1111 Pennsylvania Avenue, N.W., Washington,
D.C. 20004, serves as legal counsel to the Trust.
Cohen
& Company, Ltd., located at 1350 Euclid Avenue, Suite 800, Cleveland, Ohio
44115, serves as the Fund’s independent registered public accounting firm. The
independent registered public accounting firm is responsible for auditing the
annual financial statements of the Fund.
HOW
TO BUY AND SELL SHARES
The
Fund issues and redeems Shares only in Creation Units at the NAV per share next
determined after receipt of an order from an AP. Only APs may acquire Shares
directly from the Fund, and only APs may tender their Shares for redemption
directly to the Fund,
at
NAV. APs must be a member or participant of a clearing agency registered with
the SEC and must execute a Participant Agreement that has been agreed to by the
Distributor, and that has been accepted by the Fund’s transfer agent, with
respect to purchases and redemptions of Creation Units. Once created, Shares
trade in the secondary market in quantities less than a Creation
Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Individual Shares are listed for trading on the secondary market on the Exchange
and can be bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares and receive less than NAV when you sell those Shares.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (the “DTC”) or its nominee is the record owner of
all outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly from the Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Fund accommodates
frequent purchases and redemptions by APs. However, frequent purchases and
redemptions for cash may increase tracking error and portfolio transaction costs
and lead to the realization of capital gains. The Fund’s fair valuation of its
holdings consistent with the 1940 Act and Rule 2a-5 thereunder and its ability
to impose transaction fees on purchases and redemptions of Creation Units to
cover the custodial and other costs incurred by the Fund in effecting trades
help to minimize the potential adverse consequences of frequent purchases and
redemptions. In addition, the Fund and the Adviser reserve the right to reject
any purchase order at their discretion.
Determination
of Net Asset Value
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the
NYSE, generally 4:00 p.m. Eastern time, each day the NYSE is open for business.
The NAV is calculated by dividing the Fund’s net assets by its Shares
outstanding.
In
calculating its NAV, the Fund generally values its assets on the basis of market
quotations, last sale prices, or estimates of value furnished by a pricing
service or brokers who make markets in such instruments. In particular, the Fund
generally values equity securities at their readily available market quotations.
If such information is not available for a security held by the Fund or is
determined to be unreliable, the security will be valued by the Adviser at fair
value pursuant to procedures established by the Adviser and approved by the
Board (as described below).
Fair
Value Pricing
The
Adviser has been designated by the Board as the valuation designee for the Fund
pursuant to Rule 2a-5 under the 1940 Act. In its capacity as valuation designee,
the Adviser has adopted procedures and methodologies to fair value Fund
securities whose market prices are not “readily available” or are deemed to be
unreliable. For example, such circumstances may arise when: (i) a security has
been de-listed or has had its trading halted or suspended; (ii) a security’s
primary pricing source is unable or unwilling to provide a price; (iii) a
security’s primary trading market is closed during regular market hours; or (iv)
a security’s value is materially affected by events occurring after the close of
the security’s primary trading. Generally, when fair valuing a security held by
the Fund, the Adviser will take into account all reasonably available
information that may be relevant to a particular valuation including, but not
limited to, fundamental analytical data regarding the issuer, information
relating to the issuer’s business, recent trades or offers of the security,
general and/or specific market conditions and the specific facts giving rise to
the need to fair value the security. Fair value determinations are made in good
faith and in accordance with the fair value methodologies established by the
Adviser. Due to the subjective and variable nature of determining the fair value
of a security or other investment, there can be no assurance that the Adviser’s
determined fair value will match or closely correlate to any market quotation
that subsequently becomes available or the price quoted or published by other
sources. In addition, the Fund may not be able to obtain the fair value assigned
to an investment if the Fund were to sell such investment at or near the time
its fair value is determined.
Investments
by Registered Investment Companies
Section
12(d)(1) of the 1940 Act restricts investments by registered investment
companies in the securities of other investment companies. Registered investment
companies are permitted to invest in the Fund beyond the limits set forth in
section 12(d)(1), subject to certain terms and conditions, including that such
investment companies enter into an agreement with the Fund.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
The
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. The Fund will declare and
pay capital gain distributions in cash, if any. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to
you.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax adviser
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws. This summary does not apply
to Shares held in an IRA or other tax-qualified plans, which are generally not
subject to current tax. Transactions relating to Shares held in such accounts
may, however, be taxable at some time in the future. This summary is based on
current tax laws, which may change.
The
Fund intends to elect and to qualify each year for treatment as a regulated
investment company (a “RIC”) within the meaning of Subchapter M of the Internal
Revenue Code. If it meets certain minimum distribution requirements, a RIC is
not subject to tax at the fund level on income and gains from investments that
are timely distributed to shareholders. However, the Fund’s failure to qualify
as a RIC or to meet minimum distribution requirements would result (if certain
relief provisions were not available) in fund-level taxation and, consequently,
a reduction in income available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA, you need to be aware of the possible tax consequences
when the Fund makes distributions, when you sell your Shares listed on the
Exchange, and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions
The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long the Fund owned the investments that generated them,
rather than how long a shareholder has owned his or her Shares. Sales of assets
held by the Fund for more than one year generally result in long-term capital
gains and losses, and sales of assets held by the Fund for one year or less
generally result in short-term capital gains and losses. Distributions of the
Fund’s net capital gain (the excess of net long-term capital gains over net
short-term capital losses) that are reported by the Fund as capital gain
dividends (“Capital Gain Dividends”) will be taxable as long-term capital gains,
which for non-corporate shareholders are subject to tax at reduced rates of up
to 20% (lower rates apply to individuals in lower tax brackets). Distributions
of short-term capital gain will generally be taxable as ordinary income.
Dividends and distributions are generally taxable to you whether you receive
them in cash or reinvest them in additional Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that the Fund receives in respect of stock of certain
foreign corporations may be qualified dividend income if that stock is readily
tradable on an established U.S. securities market. Corporate shareholders may be
entitled to a dividends received deduction for the portion of dividends they
receive from the Fund that are attributable to dividends received by the Fund
from U.S. corporations, subject to certain limitations. Certain of the Fund’s
investment strategies may limit its ability to distribute dividends eligible for
the dividends received deduction for corporate shareholders.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares from non-U.S. shareholders generally are not subject to U.S.
taxation, unless you are a nonresident alien individual who is physically
present in the U.S. for 183 days or more per year. The Fund may, under certain
circumstances, report all or a portion of a dividend as an “interest-related
dividend” or a “short-term capital gain dividend,” which would generally be
exempt from this 30% U.S. withholding tax, provided certain other requirements
are met. Different tax consequences may result if you are a foreign shareholder
engaged in a trade or business within the United States or if a tax treaty
applies.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act),
the Fund is required to withhold 30% of certain ordinary dividends it pays to
shareholders that are foreign entities and that fail to meet prescribed
information reporting or certification requirements.
Under
the “backup withholding” provisions of the Internal Revenue Code, the Fund (or a
financial intermediary, such as a broker, through which a shareholder owns
Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage (currently 24%) of the taxable distributions and sale or redemption
proceeds paid to any shareholder who fails to properly furnish a correct
taxpayer identification number, who has underreported dividend or interest
income, or who fails to certify that he, she or it is not subject to such
withholding.
Backup
withholding is not an additional tax. Any amounts withheld under the backup
withholding rules may be allowed as a refund or a credit against a holder’s U.S.
federal income tax liability, provided the required information is timely
furnished to the Internal Revenue Service.
Taxes
When Shares Are Sold on the Exchange
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares of the Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of Shares. The ability to deduct capital
losses may be limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Internal Revenue Code. The difference
between the selling price and the cost basis of Shares generally determines the
amount of the capital gain or loss realized on the sale or exchange of Shares.
Contact the broker through whom you purchased your Shares to obtain information
with respect to the available cost basis reporting methods and elections for
your account.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash sales” (for an AP who does not mark-to-market its
holdings) or on the basis that there has been no significant change in economic
position. APs exchanging securities should consult their own tax adviser with
respect to whether wash sale rules apply and when a loss might be
deductible.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Net
Investment Income Tax
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
Foreign
Investments by the Fund
Interest
and other income received by the Fund with respect to foreign securities may
give rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. If as of the close of a taxable year more than 50% of the
value of the Fund’s assets consists of certain foreign stock or securities, the
Fund will be eligible to elect to “pass through” to investors the amount of
foreign income and similar taxes (including withholding taxes) paid by the Fund
during that taxable year. This means that investors would be considered to have
received as additional income their respective shares of such foreign taxes, but
may be entitled to either a corresponding tax deduction in calculating taxable
income, or, subject to certain limitations, a credit in calculating federal
income tax. If the Fund does not so elect, it will be entitled to claim a
deduction for certain foreign taxes incurred by the Fund. The Fund (or a
financial intermediary, such as a broker, through which a shareholder owns
Shares) will notify you if it makes such an election and provide you with the
information necessary to reflect foreign taxes paid on your income tax return.
Investments
in Complex Securities
Certain
of the Fund’s investments may be subject to complex provisions of the Internal
Revenue Code that, among other things, may affect the Fund’s ability to qualify
as a RIC, may affect the character of gains and losses realized by the Fund
(e.g.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer losses. These rules could therefore
affect the character, amount and timing of distributions to shareholders. These
provisions also may require the Fund to mark to market certain types of
positions in its portfolio (i.e.,
treat them as if they were closed out) which may cause the Fund to recognize
income without the Fund receiving cash with which to make distributions in
amounts sufficient to enable the Fund to satisfy the RIC distribution
requirements for avoiding income and excise taxes.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax adviser about the
potential tax consequences of an investment in Shares under all applicable tax
laws. For more information, please see the section entitled “Federal Income
Taxes” in the SAI.
DISTRIBUTION
PLAN
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year for certain
distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the future,
because the fees are paid out of Fund assets, over time these fees will increase
the cost of your investment and may cost you more than certain other types of
sales charges.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often Shares traded on the Exchange at a price above (i.e.,
at a premium) or below (i.e.,
at a discount) the NAV per share is available on the Fund’s website at
www.etf.grizzle.com.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange is not
responsible for, nor has it participated in the determination of, the timing,
prices, or quantities of Shares to be issued, nor in the determination or
calculation of the equation by which Shares are redeemable. The Exchange has no
obligation or liability to owners of Shares in connection with the
administration, marketing, or trading of Shares.
Without
limiting any of the foregoing, in no event shall the Exchange have any liability
for any lost profits or indirect, punitive, special, or consequential damages
even if notified of the possibility thereof.
The
Adviser, the Sub-Adviser, and the Fund make no representation or warranty,
express or implied, to the owners of Shares or any member of the public
regarding the advisability of investing in securities generally or in the Fund
particularly.
FINANCIAL
HIGHLIGHTS
The
following financial highlights table shows the financial performance information
for the Fund’s five most recent fiscal years (or the life of the Fund, if
shorter). Certain information reflects financial results for a single share of
the Fund. The total returns in the table represent the rate that you would have
earned or lost on an investment in the Fund (assuming you reinvested all
distributions). This information has been audited by Cohen & Company, Ltd.,
the independent registered public accounting firm of the Fund, whose report,
along with the Fund’s financial statements, is included in the Fund’s
annual
report,
which is available upon request.
For
a Share Outstanding Throughout the Period
|
|
|
|
| |
|
Period
Ended
July
31,
2022(1) |
Net
Asset Value, Beginning of Period |
$ |
24.39 |
|
| |
Income
(Loss) from Investment Operations: |
|
Net
investment income(2) |
0.20 |
|
Net
realized and unrealized gain (loss) |
(1.29)(7) |
Total
from investment operations |
(1.09) |
|
| |
Net
Asset Value, End of Period |
$ |
23.30 |
|
| |
Total
Return, at NAV(3)(4) |
-4.47 |
% |
Total
Return, at Market(3)(4) |
-4.43 |
% |
| |
Supplemental
Data and Ratios: |
|
Net
assets, end of period (000’s) |
$ |
1,864 |
|
| |
Ratio
of expenses to average net assets(5) |
0.75% |
Ratio
of net investment income to average net assets(5) |
1.37 |
% |
Portfolio
turnover rate(4)(6) |
102% |
(1) The
Fund commenced investment operations on December 16, 2021.
(2)
Per
share net investment income was calculated using average shares
outstanding.
(3)
Total
return in the table represents the rate that the investor would have earned or
lost on an investment in the Fund, assuming reinvestment of
dividends.
(4)
Not
annualized for periods less than one year.
(5)
Annualized
for periods less than one year.
(6)
Excludes in-kind transactions associated with creations
of the Fund.
(7)
Due to timing of capital share transactions, the per
share amount of net realized and unrealized gain (loss) on investments varies
from the amounts shown in the Statement of Operations.
Grizzle
Growth ETF
|
|
|
|
|
|
|
|
|
|
| |
Adviser |
Grizzle
Investment Management LLC
573
Coldstream Drive
Berwyn,
Pennsylvania 19312 |
Sub-Adviser |
Exchange
Traded Concepts, LLC
10900
Hefner Pointe Drive, Suite 400
Oklahoma
City, Oklahoma 73120 |
Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
Transfer
Agent and Administrator |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004-2541 |
Custodian |
U.S.
Bank National Association
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115 |
| |
Investors
may find more information about the Fund in the following
documents:
Statement
of Additional Information: The
Fund’s SAI provides additional details about the investments of the Fund and
certain other additional information. The SAI is on file with the SEC and is
herein incorporated by reference into this Prospectus. It is legally considered
a part of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the Fund’s investments is available in the Fund’s annual and
semi-annual reports to shareholders. In the Fund’s annual report, you will find
a discussion of the market conditions and investment strategies that
significantly affected the Fund’s performance during its last fiscal year.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at c/o U.S. Bank Global
Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or by calling
1-800-617-0004.
Shareholder
reports and other information about the Fund also are available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov;
•Free
of charge from the Fund’s Internet web site at www.etf.grizzle.com;
or
(SEC
Investment Company Act File No. 811-23226)