ck0001683471-20240831
PROSPECTUS
Overlay Shares Large Cap
Equity ETF (OVL)
Overlay Shares Small Cap
Equity ETF (OVS)
Overlay Shares Foreign
Equity ETF (OVF)
Overlay Shares Hedged Large
Cap Equity ETF (OVLH)
Overlay Shares Core Bond
ETF (OVB)
Overlay Shares Short Term
Bond ETF (OVT)
Overlay Shares Municipal
Bond ETF (OVM)
Listed
on Cboe
BZX Exchange, Inc.
December 31,
2024
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.
TABLE
OF CONTENTS
|
|
| |
|
OVERLAY
SHARES
LARGE
CAP
EQUITY
ETF |
Investment
Objective
The
Overlay Shares Large Cap Equity ETF (the “Fund” or “Large Cap ETF”) seeks total
return.
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.
|
|
|
|
|
| |
|
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) |
|
| |
| Management
Fees |
0.75% |
| Distribution
and/or Service (12b-1) Fees |
0.00% |
| Other
Expenses |
0.01% |
| Acquired
Fund Fees and Expenses |
0.03% |
|
Total
Annual Fund Operating Expenses* |
0.79% |
*
The
Total Annual Fund Operating Expenses do not correlate to the expense ratio in
the Fund’s Financial Highlights and financial statements because the Financial
Highlights and financial statements include only the direct operating expenses
incurred by the Fund and exclude Acquired Fund Fees and Expenses, which are the
indirect costs of investing in other investment
companies.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| 1
Year: |
$81 |
3
Years: |
$252 |
5
Years: |
$439 |
10
Years: |
$978 |
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 year ended August 31, 2024, the Fund’s portfolio turnover
rate was 11% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its objective by (i) investing in one or more other ETFs that seek to obtain
exposure to the performance of U.S. large cap equity securities or directly in
the securities held by such ETFs (collectively, the “Underlying Investments”)
and (ii) selling and purchasing listed short-term put options to generate income
to the Fund (the “Overlay Strategy”).
The
Fund’s Overlay Strategy seeks to generate income for the Fund by utilizing a
“put spread” consisting of the sale of exchange-listed short-term put options
(“Short Puts”) with a notional value (strike price times the value of the
shares) up to 100% of the Fund’s net assets and the purchase of an identical
number of short-term put options (“Long Puts”) with a lower strike price. The
Fund seeks to generate income from the sale and purchase of put options with a
lower strike price to hedge against a decline in the options’ reference asset,
an index of large-cap securities (the “reference index”).
A
put option gives the purchaser of the option, in exchange for the premium paid,
the right to sell the underlying asset at a specified price (“strike price”) at
a specified date (“expiration date”). In contrast, the seller of a put option,
in exchange for the premium received, is obligated to sell the underlying asset
at the strike price on the expiration date. In the event the underlying asset
declines in value, the value of a put option will generally increase. In the
event the underlying asset appreciates in value, the value of a put option will
generally decrease. The options sold by the Fund are typically expected to have
an expiration date within one to two weeks of their purchase date. The strike
price of the Short Puts will typically be less than the value of the reference
index at the time such options are sold, and the strike price of the Long Puts
will be less than the strike price of the Short Puts. The difference between
such strike prices is based on Liquid Strategies, LLC’s (the “Adviser”) judgment
as to the level of expected volatility in the market prior to
the
options’ expiration. Because the Long Puts will have a lower strike price than
the Short Puts, the Long Puts are not expected to completely protect the Fund
from a decline in the value of the reference index.
The
Fund’s Overlay Strategy is designed to seek to generate a positive return in
rising and flat equity markets, and may generate a positive return in equity
markets that are modestly declining, assuming the net premium collected from the
options sold and purchased exceeds the net cost to close the positions. In an
effort to limit losses in declining equity markets, the Fund may reduce its sale
of Short Puts and/or purchase of Long Puts with strike prices closer to the
strike prices of the Short Puts.
The
Fund focuses primarily on equity index options which offer both European
settlement (i.e.,
options can only be exercised at their expiration date) and cash settlement
(i.e.,
options carry an obligation by their seller to pay the difference between their
strike price and their settlement value instead of allowing the seller to take
delivery of securities).
The
potential returns of the Fund are generally limited to the amount of cash
(premiums) the Fund receives when selling Short Puts, net of any cash (premiums)
paid by the Fund to purchase Long Puts, plus the returns of the Underlying
Investments in which the Fund invests. The Fund’s sale and purchase of put
options may result in the generation of positive returns for the Fund; however,
the loss potential if the strategy is not effective may be greater than the
profit potential. The
Fund may lose significantly more than the premiums it receives in highly
volatile market conditions.
The Adviser employs a disciplined portfolio construction process that
relies on guidelines to govern capital allocations based on a quantitative
methodology designed by the Adviser to measure the perceived risk of the broad
U.S. equity market. In making this determination, the Adviser considers various
factors including but not limited to the overall volatility (rate of change) in
the markets. The Adviser bases allocation decisions on a combination of
quantitative risk metrics and a qualitative assessment of potential risk/reward
scenarios, with the ultimate goals of mitigating the effects of volatility in
the Fund’s portfolio and maintaining adequate portfolio diversification while
seeking to achieve the Fund’s targeted return. The Adviser evaluates the metrics
associated with the valuation of options, including volatility, time to
expiration and the relationship of the exercise price to the prevailing market
price of the reference asset. There can be no guarantee that the Adviser will be
successful in implementing the Fund’s strategy. During market conditions in
which market volatility rises, the price of options could rise, which, in turn,
could have a detrimental effect on the Fund’s performance and achieving its
targeted return.
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 the risks 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:
•Cybersecurity
Risk. Cybersecurity incidents may allow an unauthorized party to gain
access to Fund assets or proprietary information, or cause the Fund, the
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, 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 Shares, potentially resulting in financial losses to the Fund and its
shareholders.
•Derivatives
Securities Risk. The Fund invests in options that derive their performance from the
performance of the reference index. Derivatives, such as the options in which
the Fund invests, can be volatile and involve various types and degrees of
risks, depending upon the characteristics of a particular derivative.
Derivatives may entail investment exposures that are greater than their cost
would suggest, meaning that a small investment in a derivative could have a
substantial impact on the performance of the Fund. The Fund could experience a
loss if its derivatives do not perform as anticipated, or are not correlated
with the performance of their underlying asset or if the Fund is unable to
purchase or liquidate a position because of an illiquid secondary market. The
market for many derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid, and unpredictable changes in the
prices for derivatives.
•Equity
Market Risk. The trading prices of equity securities and other instruments
fluctuate in response to a variety of factors. The Fund’s NAV and market price
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.
•ETF
Risks.
The Fund is an ETF and invests in other ETFs, 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 APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. Shares may trade at a material discount
to NAV and possibly face delisting if either: (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.
◦Cash
Redemption Risk.
The Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. For example, the Fund
may not be able to redeem in-kind certain securities held by the Fund
(e.g.,
short positions and derivative instruments). In such a case, the Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used.
◦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.
◦Trading
Risk. Although
Shares are listed for trading on the Cboe
BZX Exchange, 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 the
Shares.
•Implied
Volatility Risk. When
the Fund sells an option, it gains the amount of the premium it receives, but
also incurs a liability representing the value of the option it has sold until
the option is either exercised and finishes “in the money,” meaning it has value
and can be sold, or the option expires worthless, or the expiration of the
option is “rolled,” or extended forward. The value of the options in which the
Fund invests is based partly on the volatility used by market participants to
price such options (i.e.,
implied volatility). Accordingly, increases in the implied volatility of such
options will cause the value of such options to increase (even if the prices of
the options’ underlying stocks do not change), which will result in a
corresponding increase in the liabilities of the Fund under such options and
thus decrease the Fund’s NAV.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing Risk. 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.
•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 and trade tensions. In
addition, local, regional or global events such as war, including Russia’s
invasion of Ukraine, acts of terrorism, 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.
•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 limit its leverage risk based on its value-at-risk test (or
“VaR”), the Fund could still lose a significant amount or nearly all of its
value if the price of an underlying asset changes significantly
enough.
•Tax
Risk.
The writing of options by the Fund may significantly reduce or
eliminate its ability to make distributions eligible to be treated as qualified
dividend income. Options entered into by the Fund may also be subject to the
federal tax rules applicable to straddles under the Internal Revenue Code of
1986, as amended (the “Code”). If positions held by the Fund were treated as
“straddles” for federal income tax purposes, or the Fund’s risk of loss with
respect to a position was otherwise diminished as set forth in Treasury
regulations, dividends on stocks that are a part of such positions would not
constitute qualified dividend income subject to such favorable income tax
treatment in the hands of non-corporate shareholders or eligible for the
dividends received deduction for corporate shareholders. In addition, generally,
straddles are subject to certain rules that may affect the amount, character,
and timing of the Fund’s recognition of gains and losses with respect to
straddle positions.
Performance
The performance
information presented below provides some indication of the risks of investing
in the Fund by showing the extent to which the Fund’s performance can change
from year to year and over time. The bar chart below shows the
Fund’s performance for the most recent calendar years ended December 31. The
table illustrates how the Fund’s average annual returns for the 1-year and since
inception periods compare with those of the S&P 500®
TR
Index, which reflects a broad measure of market performance. The
Fund’s past performance, before and after taxes, does not necessarily indicate
how it will perform in the future. Updated performance
information is available on the Fund’s website at www.overlayshares.com
or by calling the Fund at 1-866-704-6857.
Calendar Year Total
Returns
The
calendar year-to-date total return of the
Fund as of September 30, 2024 was
25.37%. During the
period of time shown in the bar chart, the highest quarterly
return was 22.04% for the quarter ended June 30, 2020, and the
lowest quarterly return was
-21.35% for the quarter ended March 31,
2020.
Average
Annual Total Returns
(for
periods ended December 31, 2023)
|
|
|
|
|
|
|
|
| |
|
Overlay
Shares Large Cap Equity ETF |
1-Year |
Since
Inception
(9/30/2019) |
| Return Before
Taxes |
27.86% |
13.86% |
| Return After
Taxes on Distributions |
27.31% |
13.14% |
| Return After
Taxes on Distributions and Sale of Shares |
16.84% |
10.90% |
|
S&P
500®
TR Index
(reflects no deduction for
fees, expenses, or taxes) |
26.29% |
13.59% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. After-tax returns shown are
not relevant to investors who hold their shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts.
In
certain cases, the figure representing “Return After Taxes on Distributions and
Sale of Fund Shares” may be higher than the other return figures for the same
period. A higher after-tax return results when a capital loss occurs upon
redemption and provides an assumed tax benefit to the
investor.
Portfolio
Management
|
|
|
|
|
| |
|
Adviser |
Liquid
Strategies, LLC |
|
Portfolio
Managers |
Adam
Stewart, CFA and Shawn Gibson have been portfolio managers of the Fund
since its inception in 2019. |
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.overlayshares.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
held in an 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.
|
|
| |
|
OVERLAY
SHARES
SMALL
CAP
EQUITY
ETF |
Investment
Objective
The
Overlay Shares Small Cap Equity ETF (the “Fund” or “Small Cap ETF”) seeks total
return.
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.
|
|
|
|
|
| |
|
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) |
|
| |
| Management
Fees |
0.75% |
| Distribution
and/or Service (12b-1) Fees |
0.00% |
| Other
Expenses |
0.02% |
| Acquired
Fund Fees and Expenses |
0.06% |
|
Total
Annual Fund Operating Expenses* |
0.83% |
*
The Total Annual
Fund Operating Expenses do not correlate to the expense ratio in the Fund’s
Financial Highlights and financial statements because the Financial Highlights
and financial statements include only the direct operating expenses incurred by
the Fund and exclude Acquired Fund Fees and Expenses, which are the indirect
costs of investing in other investment
companies.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| 1
Year: |
$85 |
3
Years: |
$265 |
5
Years: |
$460 |
10
Years: |
$1,025 |
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 year ended August 31, 2024, the Fund’s portfolio turnover
rate was 9% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its objective by (i) investing in one or more other ETFs that seek to obtain
exposure to the performance of U.S. small cap equity securities or directly in
the securities held by such ETFs (collectively, the “Underlying Investments”)
and (ii) selling and purchasing listed short-term put options to generate income
to the Fund (the “Overlay Strategy”).
The
Overlay Strategy seeks to generate income for the Fund by utilizing a “put
spread” consisting of the sale of exchange-listed short-term put options (“Short
Puts”) with a notional value (strike price times the value of the shares) up to
100% of the Fund’s net assets and the purchase of an identical number of
short-term put options (“Long Puts”) with a lower strike price. The Fund seeks
to generate income from the sale and purchase of put options with a lower strike
price to hedge against a decline in the options’ reference asset, an index of
large-cap securities (the “reference index”).
A
put option gives the purchaser of the option, in exchange for the premium paid,
the right to sell the underlying asset at a specified price (“strike price”) at
a specified date (“expiration date”). In contrast, the seller of a put option,
in exchange for the premium received, is obligated to sell the underlying asset
at the strike price on the expiration date. In the event the underlying asset
declines in value, the value of a put option will generally increase. In the
event the underlying asset appreciates in value, the value of a put option will
generally decrease. The options sold by the Fund are typically expected to have
an expiration date within one to two weeks of their purchase date. The strike
price of the Short Puts will typically be less than the value of the reference
index at the time such options are sold, and the strike price of the Long Puts
will be less than the strike price of the Short Puts. The difference between
such strike prices is based on Liquid Strategies, LLC’s (the “Adviser”) judgment
as to the level of expected volatility in the market prior to
the
options’ expiration. Because the Long Puts will have a lower strike price than
the Short Puts, the Long Puts are not expected to completely protect the Fund
from a decline in the reference index.
The
Fund’s Overlay Strategy is designed to seek to generate a positive return in
rising and flat equity markets, and may generate a positive return in equity
markets that are modestly declining, assuming the net premium collected from the
options sold and purchased exceeds the net cost to close the option positions.
In an effort to limit losses in declining equity markets, the Fund may reduce
its sale of Short Puts and/or purchase of Long Puts with strike prices closer to
the strike prices of the Short Puts.
The
Fund focuses primarily on equity index options which offer both European
settlement (i.e.,
options can only be exercised at their expiration date) and cash settlement
(i.e.,
options carry an obligation by their seller to pay the difference between their
strike price and their settlement value instead of allowing the seller to take
delivery of securities).
The
potential returns of the Fund are generally limited to the amount of cash
(premiums) the Fund receives when selling Short Puts, net of any cash (premiums)
paid by the Fund to purchase Long Puts, plus the returns of the Underlying
Investments in which the Fund invests. The Fund’s sale and purchase of put
options may result in the generation of positive returns for the Fund; however,
the loss potential if the strategy is not effective may be greater than the
profit potential. The
Fund may lose significantly more than the premiums it receives in highly
volatile market conditions.
The Adviser employs a disciplined portfolio construction process that
relies on guidelines to govern capital allocations based on a quantitative
methodology designed by the Adviser to measure the perceived risk of the broad
U.S. equity market. In making this determination, the Adviser considers various
factors including but not limited to the overall volatility (rate of change) in
the markets. The Adviser bases allocation decisions on a combination of
quantitative risk metrics and a qualitative assessment of potential risk/reward
scenarios, with the ultimate goals of mitigating the effects of volatility in
the Fund’s portfolio and maintaining adequate portfolio diversification while
seeking to achieve the Fund’s targeted return. The Adviser evaluates the metrics
associated with the valuation of options, including volatility, time to
expiration and the relationship of the exercise price to the prevailing market
price of the underlying instrument. There can be no guarantee that the Adviser
will be successful in implementing the Fund’s strategy. During market conditions
in which market volatility rises, the price of options could rise, which, in
turn, could have a detrimental effect on the Fund’s performance and achieving
its targeted return.
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 the risks 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:
•Cybersecurity
Risk. Cybersecurity incidents may allow an unauthorized party to gain
access to Fund assets or proprietary information, or cause the Fund, the
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, 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 Shares, potentially resulting in financial losses to the Fund and its
shareholders.
•Derivatives
Securities Risk. The Fund invests in options that derive their performance from the
performance of the reference index. Derivatives, such as the options in which
the Fund invests, can be volatile and involve various types and degrees of
risks, depending upon the characteristics of a particular derivative.
Derivatives may entail investment exposures that are greater than their cost
would suggest, meaning that a small investment in a derivative could have a
substantial impact on the performance of the Fund. The Fund could experience a
loss if its derivatives do not perform as anticipated, or are not correlated
with the performance of their underlying asset or if the Fund is unable to
purchase or liquidate a position because of an illiquid secondary market. The
market for many derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid, and unpredictable changes in the
prices for derivatives.
•Equity
Market Risk. The trading prices of equity securities and other instruments
fluctuate in response to a variety of factors. The Fund’s NAV and market price
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.
•ETF
Risks.
The Fund is an ETF and invests in other ETFs, 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 APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. Shares may trade at a material discount
to NAV and possibly face delisting if either: (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.
◦Cash
Redemption Risk.
The Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. For example, the Fund
may not be able to redeem in-kind certain securities held by the Fund
(e.g.,
short positions and derivative instruments). In such a case, the Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used.
◦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.
◦Trading
Risk. Although
Shares are listed for trading on the Cboe
BZX Exchange, 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 the
Shares.
•Implied
Volatility Risk. When
the Fund sells an option, it gains the amount of the premium it receives, but
also incurs a liability representing the value of the option it has sold until
the option is either exercised and finishes “in the money,” meaning it has value
and can be sold, or the option expires worthless, or the expiration of the
option is “rolled,” or extended forward. The value of the options in which the
Fund invests is based partly on the volatility used by market participants to
price such options (i.e.,
implied volatility). Accordingly, increases in the implied volatility of such
options will cause the value of such options to increase (even if the prices of
the options’ underlying stocks do not change), which will result in a
corresponding increase in the liabilities of the Fund under such options and
thus decrease the Fund’s NAV.
•Market
Capitalization Risk.
◦Small-Capitalization
Investing Risk. The securities of small-capitalization
companies may be more vulnerable to adverse issuer, market, political, or
economic developments than securities of large- or mid-capitalization companies.
The securities of small-capitalization companies generally trade in lower
volumes and are subject to greater and more unpredictable price changes than
large- or mid-capitalization stocks or the stock market as a whole. There is
typically less publicly available information concerning smaller-capitalization
companies than for larger, more established
companies.
•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 and trade tensions. In
addition, local, regional or global events such as war, including Russia’s
invasion of Ukraine, acts of terrorism, 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.
•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 limit its leverage risk based on its value-at-risk test (or
“VaR”), the Fund could still lose a significant amount or nearly all of its
value if the price of an underlying asset changes significantly
enough.
•Tax
Risk.
The writing of options by the Fund may significantly reduce or
eliminate its ability to make distributions eligible to be treated as qualified
dividend income. Options entered into by the Fund may also be subject to the
federal tax rules applicable to straddles under the Internal Revenue Code of
1986, as amended (the “Code”). If positions held by the Fund were treated as
“straddles” for federal income tax purposes, or the Fund’s risk of loss with
respect to a position was otherwise diminished as set forth in Treasury
regulations, dividends on stocks that are a part of such positions would not
constitute qualified dividend income subject to such favorable income tax
treatment in the hands of non-corporate shareholders or eligible for the
dividends received deduction for corporate shareholders. In addition, generally,
straddles are subject to certain rules that may affect the amount, character,
and timing of the Fund’s recognition of gains and losses with respect to
straddle positions.
Performance
The performance
information presented below provides some indication of the risks of investing
in the Fund by showing the extent to which the Fund’s performance can change
from year to year and over time. The bar chart below shows the
Fund’s performance for the most recent calendar years ended December 31. The
table illustrates how the Fund’s average annual returns for the 1-year and since
inception periods compare with those of the S&P 500®
TR Index, which reflects a broad measure of market performance. Performance also is shown for the S&P SmallCap
600® TR Index, an additional index that represents the asset class in
which the Fund invests. The Fund’s past
performance, before and after taxes, does not necessarily indicate how it will
perform in the future. Updated performance information is
available on the Fund’s website at www.overlayshares.com
or by calling the Fund at 1-866-704-6857.
Calendar Year Total
Returns
The
calendar year-to-date total return of the
Fund as of September 30, 2024 was
12.37%. During the
period of time shown in the bar chart, the highest quarterly
return was 31.99% for the quarter ended December 31, 2020, and
the lowest quarterly return was
-34.12% for the quarter ended March 31,
2020.
Average
Annual Total Returns
(for
periods ended December 31, 2023)
|
|
|
|
|
|
|
|
| |
|
Overlay
Shares Small Cap Equity ETF |
1-Year |
Since
Inception
(9/30/2019) |
| Return Before
Taxes |
17.36% |
9.99% |
| Return After
Taxes on Distributions |
16.61% |
9.27% |
| Return After
Taxes on Distributions and Sale of Shares |
10.32% |
7.72% |
|
S&P
500®
TR Index*
(reflects no deduction for
fees, expenses, or taxes) |
26.29% |
13.59% |
|
S&P
SmallCap 600®
TR Index
(reflects no deduction for
fees, expenses, or taxes) |
16.05% |
9.78% |
*
Effective August 31, 2024, the S&P 500®
TR Index has replaced the S&P SmallCap 600®
TR Index as the Fund’s required broad-based securities market index in
conjunction with certain regulatory requirements.
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. After-tax returns shown are
not relevant to investors who hold their shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts.
In
certain cases, the figure representing “Return After Taxes on Distributions and
Sale of Fund Shares” may be higher than the other return figures for the same
period. A higher after-tax return results when a capital loss occurs upon
redemption and provides an assumed tax benefit to the
investor.
Portfolio
Management
|
|
|
|
|
| |
| Adviser |
Liquid
Strategies, LLC |
|
Portfolio
Managers |
Adam
Stewart, CFA and Shawn Gibson have been portfolio managers of the Fund
since its inception in 2019. |
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.overlayshares.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
held in an 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.
|
|
| |
|
OVERLAY
SHARES
FOREIGN
EQUITY
ETF |
Investment
Objective
The
Overlay Shares Foreign Equity ETF (the “Fund” or “Foreign Equity ETF”) seeks
total return.
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.
|
|
|
|
|
| |
|
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) |
|
| |
| Management
Fees |
0.75% |
| Distribution
and/or Service (12b-1) Fees |
0.00% |
| Other
Expenses |
0.01% |
| Acquired
Fund Fees and Expenses |
0.07% |
|
Total
Annual Fund Operating Expenses* |
0.83% |
*
The
Total Annual Fund Operating Expenses do not correlate to the expense ratio in
the Fund’s Financial Highlights and financial statements because the Financial
Highlights and financial statements include only the direct operating expenses
incurred by the Fund and exclude Acquired Fund Fees and Expenses, which are the
indirect costs of investing in other investment
companies.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| 1
Year: |
$85 |
3
Years: |
$265 |
5
Years: |
$460 |
10
Years: |
$1,025 |
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 year ended August 31, 2024, the Fund’s portfolio turnover
rate was 12% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its objective by (i) investing in one or more other ETFs that seek exposure to
the performance of non-U.S. equity securities (from both developed and emerging
markets) or directly in the securities held by such ETFs (collectively, the
“Underlying Investments”) and (ii) selling and purchasing listed short-term put
options to generate income to the Fund (the “Overlay Strategy”).
The
Fund’s Overlay Strategy seeks to generate income for the Fund by utilizing a
“put spread” consisting of the sale of exchange-listed short-term put options
(“Short Puts”) with a notional value (strike price times the value of the
shares) up to 100% of the Fund’s net assets and the purchase of an identical
number of short-term put options (“Long Puts”) with a lower strike price. The
Fund seeks to generate income from the sale and purchase of put options with a
lower strike price to hedge against a decline in the options’ reference asset,
an index of large-cap securities (the “reference index”).
A
put option gives the purchaser of the option, in exchange for the premium paid,
the right to sell the underlying asset at a specified price (“strike price”) at
a specified date (“expiration date”). In contrast, the seller of a put option,
in exchange for the premium received, is obligated to sell the underlying asset
at the strike price on the expiration date. In the event the underlying asset
declines in value, the value of a put option will generally increase. In the
event the underlying asset appreciates in value, the value of a put option will
generally decrease. The options sold by the Fund are typically expected to have
an expiration date within one to two weeks of their purchase date. The strike
price of the Short Puts will typically be less than the value of the reference
index at the time such options are sold, and the strike price of the Long Puts
will be less than the strike price of the Short Puts. The difference between
such strike prices is based on Liquid Strategies, LLC’s (the “Adviser”) judgment
as to the level of expected volatility in the market prior to
the
options’ expiration. Because the Long Puts will have a lower strike price than
the Short Puts, the Long Puts are not expected to completely protect the Fund
from a decline in the reference index.
The
Fund’s Overlay Strategy is designed to seek to generate a positive return in
rising and flat equity markets, and may generate a positive return in equity
markets that are modestly declining, assuming the net premiums collected from
the options sold and purchased exceeds the net cost to close the positions. In
an effort to limit losses in declining equity markets, the Fund may reduce its
sale of Short Puts and/or purchase Long Puts with strike prices closer to the
strike prices of the Short Puts. The Fund focuses primarily on equity index
options which offer both European settlement (i.e.,
options can only be exercised at their expiration date) and cash settlement
(i.e.,
options carry an obligation by their seller to pay the difference between their
strike price and their settlement value instead of allowing the seller to take
delivery of securities).
The
potential returns of the Fund are generally limited to the amount of cash
(premiums) the Fund receives when selling Short Puts, net of any cash (premiums)
paid by the Fund to purchase Long Puts, plus the returns of the Underlying
Investments in which the Fund invests. The Fund’s sale and purchase of put
options may result in the generation of positive returns for the Fund; however,
the loss potential if the strategy is not effective may be greater than the
profit potential. The
Fund may lose significantly more than the premiums it receives in highly
volatile market conditions.
The Adviser employs a disciplined portfolio construction process that
relies on guidelines to govern capital allocations based on a quantitative
methodology designed by the Adviser to measure the perceived risk of the broad
U.S. equity market. In making this determination, the Adviser considers various
factors including but not limited to the overall volatility (rate of change) in
the markets. The Adviser bases allocation decisions on a combination of
quantitative risk metrics and a qualitative assessment of potential risk/reward
scenarios, with the ultimate goals of mitigating the effects of volatility in
the Fund’s portfolio and maintaining adequate portfolio diversification while
seeking to achieve the Fund’s targeted return. The Adviser evaluates the metrics
associated with the valuation of options, including volatility, time to
expiration and the relationship of the exercise price to the prevailing market
price of the underlying instrument. There can be no guarantee that the Adviser
will be successful in implementing the Fund’s strategy. During market conditions
in which market volatility rises, the price of options could rise, which, in
turn, could have a detrimental effect on the Fund’s performance and achieving
its targeted return.
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 the risks 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:
•Currency
Exchange Rate Risk. The Fund invests, directly or indirectly, in investments denominated
in non-U.S. currencies or in securities that provide exposure to such
currencies. Changes in currency exchange rates and the relative value of
non-U.S. currencies will affect the value of the Fund’s investment and the value
of your Shares. Currency exchange rates can be very volatile and can change
quickly and unpredictably. As a result, the value of an investment in the Fund
may change quickly and without warning and you may lose money.
•Cybersecurity
Risk. Cybersecurity incidents may allow an unauthorized party to gain
access to Fund assets or proprietary information, or cause the Fund, the
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, 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 Shares, potentially resulting in financial losses to the Fund and its
shareholders.
•Derivatives
Securities Risk. The Fund invests in options that derive their performance from the
performance of the reference index. Derivatives, such as the options in which
the Fund invests, can be volatile and involve various types and degrees of
risks, depending upon the characteristics of a particular derivative.
Derivatives may entail investment exposures that are greater than their cost
would suggest, meaning that a small investment in a derivative could have a
substantial impact on the performance of the Fund. The Fund could experience a
loss if its derivatives do not perform as anticipated, or are not correlated
with the performance of their underlying asset or if the Fund is unable to
purchase or liquidate a position because of an illiquid secondary market. The
market for many derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid, and unpredictable changes in the
prices for derivatives.
•Emerging
Markets Risk.
The Fund’s direct or indirect investments in securities of issuers in emerging
market countries are subject to all of the risks of foreign investing generally,
and have additional heightened risks due to a lack of established legal,
political, business, and social frameworks to support securities markets,
including: delays in settling portfolio securities
transactions; currency and capital controls; greater sensitivity to
interest rate changes; pervasiveness of corruption and crime; currency exchange
rate volatility; and inflation, deflation, or currency
devaluation.
•Equity
Market Risk. The trading prices of equity securities and other instruments
fluctuate in response to a variety of factors. The Fund’s NAV and market price
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.
•ETF
Risks.
The Fund is an ETF and invests in other ETFs, 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 APs. In addition, there may be a limited number of market makers
and/or liquidity providers in the marketplace. Shares may trade at a material
discount to NAV and possibly face delisting if either: (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.
◦Cash
Redemption Risk.
The Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. For example, the Fund
may not be able to redeem in-kind certain securities held by the Fund
(e.g.,
short positions and derivative instruments). In such a case, the Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used.
◦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 ETFs that
invest in and hold only securities and other investments that are listed and
trade in the U.S.
◦Trading
Risk. Although
Shares are listed for trading on the Cboe
BZX Exchange, 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 the
Shares.
•Foreign
Securities Risk. Investments in non-U.S. securities involve certain risks that may not
be present with investments in U.S. securities. These include risks of adverse
changes in foreign economic, political, regulatory and other conditions; changes
in currency exchange rates or exchange control regulations (including
limitations on currency movements and exchanges); differing accounting,
auditing, financial reporting, and legal standards and practices; differing
securities market structures; and higher transaction costs. In addition, the
securities of some foreign companies may be less liquid and, at times, more
volatile than securities of comparable U.S. companies.
•Geographic
Investment Risk. To
the extent the Fund invests, directly or indirectly, 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 China.
The
Chinese economy is generally considered an emerging market and can be
significantly affected by economic and political conditions and policy in China
and surrounding Asian countries. A relatively small number of Chinese companies
represent a large portion of China’s total market and thus may be more sensitive
to adverse political or economic circumstances and market movements. The economy
of China differs, often unfavorably, from the U.S. economy in such respects as
structure, general development, government involvement, wealth distribution,
rate of inflation, growth rate, allocation of resources and capital
reinvestment, among others. Under China’s political and economic system, the
central government has historically exercised substantial control over virtually
every sector of the Chinese economy through administrative regulation and/or
state ownership. In addition, expropriation, including nationalization,
confiscatory taxation, political, economic or social instability or other
developments could adversely affect and significantly
diminish the values of the Chinese companies in which the Fund
invests. Additionally, from time to time, China has experienced outbreaks of
infectious illnesses, including the COVID-19 pandemic, and the country may be
subject to other public health threats, diseases or similar issues in the
future. The Fund may invest in shares of Chinese companies traded on stock
markets in Mainland China or Hong Kong. These stock markets have experienced
high levels of volatility, which may continue in the future. The Hong Kong stock
market may behave differently from the Mainland China stock market and there may
be little to no correlation between the performance of the Hong Kong stock
market and the Mainland China stock market.
◦Risks
Related to Investing in India. Investments
in Indian issuers involve risks that are specific to India, including legal,
regulatory, political and economic risks. Political and legal uncertainty,
greater government control over the economy, currency fluctuations or blockage
and the risk of nationalization or expropriation of assets may result in higher
potential for losses. The securities markets in India are relatively
underdeveloped and may subject the Fund to higher transaction costs or greater
uncertainty than investments in more developed securities
markets.
◦Risks
Related to Investing in Japan.
The
Japanese economy may be subject to considerable degrees of economic, political
and social instability, which could have a negative impact on Japanese
securities. Japan’s economic growth rate has remained relatively low for an
extended period of time and it may remain low in the future. In addition, Japan
is subject to the risk of natural disasters, such as earthquakes, volcanoes,
typhoons and tsunamis. Additionally, decreasing U.S. imports, new trade
regulations, changes in the U.S. dollar exchange rates, a recession in the
United States or continued increases in foreclosure rates may have an adverse
impact on the economy of Japan. Japan also has few natural resources, and any
fluctuation or shortage in the commodity markets could have a negative impact on
Japanese securities.
◦Risks
Related to Investing in Taiwan. Investments in Taiwanese issuers may subject the Fund to risks
specific to Taiwan. Taiwan is a small island state with few raw material
resources and limited land area and is reliant on imports for its commodity
needs. Any fluctuations or shortages in the commodity markets could have a
negative impact on the Taiwanese economy. Also, continued labor outsourcing may
adversely affect the Taiwanese economy. Taiwan’s economy is intricately linked
with economies of Asian countries that have experienced over-extensions of
credit, frequent and pronounced currency fluctuations, currency devaluations,
currency repatriation, rising unemployment and fluctuations in inflation. The
Taiwanese economy is dependent on the economies of Japan and China, as well as
the United States, and negative changes in their economies or a reduction in
purchases by any of them of Taiwanese products and services would likely have an
adverse impact on the Taiwanese economy. Taiwan’s geographic proximity to China
and Taiwan’s history of political contention with China have resulted in ongoing
tensions with China, including the risk of war with China. These tensions may
materially affect the Taiwanese economy and securities
markets.
◦Risks
Related to Investing in Western Europe.
Most developed countries in Western Europe are members of the European Union
(EU), and many are also members of the European Monetary Union (EMU), which
requires compliance with restrictions on inflation rates, deficits, and debt
levels. Unemployment in certain European nations is historically high and
several countries face significant debt problems. These conditions can
significantly affect every country in Europe. The euro is the official currency
of the EU. Funds that invest in Europe may have significant exposure to the euro
and events affecting the euro. Recent market events affecting several of the EU
member countries have adversely affected the sovereign debt issued by those
countries, and ultimately may lead to a decline in the value of the euro. A
significant decline in the value of the euro may produce unpredictable effects
on trade and commerce generally and could lead to increased volatility in
financial markets worldwide.
In addition, on January 31, 2020, the
U.K. formally withdrew from the EU (commonly referred to as “Brexit”) and
entered an 11-month transition period, which concluded on December 31, 2020,
with the U.K. leaving the EU single market and customs union under the terms of
a new trade agreement. The agreement governs the new relationship between the
United Kingdom (UK) and EU with respect to trading goods and services, but
critical aspects of the relationship remain unresolved and subject to further
negotiation and agreement. There is still considerable uncertainty relating to
the potential consequences associated with the exit and whether the UK’s exit
will increase the likelihood of other countries also departing the EU. Any exits
from the EU, or the possibility of such exits, may have a significant impact on
the UK, Europe, and global economies, which may result in increased volatility
and illiquidity, new legal and regulatory uncertainties and potentially lower
economic growth for these economies that could potentially have an adverse
effect on the value of the Fund’s
investments.
•Geopolitical
Risk. Some
countries and regions in which the Fund invests have experienced security
concerns, war or threats of war and aggression, terrorism, economic uncertainty,
natural and environmental disasters and/or systemic market dislocations that
have led, and in the future may lead, to increased short-term market volatility
and may have adverse long-term effects on the U.S. and world economies and
markets generally.
•Implied
Volatility Risk. When
the Fund sells an option, it gains the amount of the premium it receives, but
also incurs a liability representing the value of the option it has sold until
the option is either exercised and finishes “in the money,” meaning it has value
and can be sold, or the option expires worthless, or the expiration of the
option is “rolled,” or extended forward. The value
of
the options in which the Fund invests is based partly on the volatility used by
market participants to price such options (i.e.,
implied volatility). Accordingly, increases in the implied volatility of such
options will cause the value of such options to increase (even if the prices of
the options’ underlying stocks do not change), which will result in a
corresponding increase in the liabilities of the Fund under such options and
thus decrease the Fund’s NAV.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing Risk. 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 Risk. 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.
•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 and trade tensions. In
addition, local, regional or global events such as war, including Russia’s
invasion of Ukraine, acts of terrorism, 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.
•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 limit its leverage risk based on its value-at-risk test (or
“VaR”), the Fund could still lose a significant amount or nearly all of its
value if the price of an underlying asset changes significantly
enough.
•Tax
Risk.
The writing of options by the Fund may significantly reduce or
eliminate its ability to make distributions eligible to be treated as qualified
dividend income. Options entered into by the Fund may also be subject to the
federal tax rules applicable to straddles under the Internal Revenue Code of
1986, as amended (the “Code”). If positions held by the Fund were treated as
“straddles” for federal income tax purposes, or the Fund’s risk of loss with
respect to a position was otherwise diminished as set forth in Treasury
regulations, dividends on stocks that are a part of such positions would not
constitute qualified dividend income subject to such favorable income tax
treatment in the hands of non-corporate shareholders or eligible for the
dividends received deduction for corporate shareholders. In addition, generally,
straddles are subject to certain rules that may affect the amount, character,
and timing of the Fund’s recognition of gains and losses with respect to
straddle positions.
Performance
The performance
information presented below provides some indication of the risks of investing
in the Fund by showing the extent to which the Fund’s performance can change
from year to year and over time. The bar chart below shows the
Fund’s performance for the most recent calendar years ended December 31. The
table illustrates how the Fund’s average annual returns for the 1-year and since
inception periods compare with those of the MSCI®
AC World Index ex USA Index, which reflects a broad measure of market
performance.
The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.overlayshares.com
or by calling the Fund at 1-866-704-6857.
Calendar Year Total
Returns
The
calendar year-to-date total return of the
Fund as of September 30, 2024 was
17.50%. During the
period of time shown in the bar chart, the highest quarterly
return was 13.46% for the quarter ended December 31, 2022, and
the lowest quarterly return was
-19.21% for the quarter ended March 31,
2020.
Average
Annual Total Returns
(for
periods ended December 31, 2023)
|
|
|
|
|
|
|
|
| |
|
Overlay
Shares Foreign Equity ETF |
1-Year |
Since
Inception
(9/30/2019) |
| Return Before
Taxes |
15.62% |
2.77% |
| Return After
Taxes on Distributions |
14.83% |
1.84% |
| Return After
Taxes on Distributions and Sale of Shares |
9.77% |
2.00% |
|
MSCI®
AC World Index ex USA Index
(reflects no deduction for
fees, expenses, or taxes) |
15.62% |
5.63% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. After-tax returns shown are
not relevant to investors who hold their shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts.
In
certain cases, the figure representing “Return After Taxes on Distributions and
Sale of Fund Shares” may be higher than the other return figures for the same
period. A higher after-tax return results when a capital loss occurs upon
redemption and provides an assumed tax benefit to the
investor.
Portfolio
Management
|
|
|
|
|
| |
| Adviser |
Liquid
Strategies, LLC |
|
Portfolio
Managers |
Adam
Stewart, CFA and Shawn Gibson have been portfolio managers of the Fund
since its inception in 2019. |
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.overlayshares.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
held in an 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.
|
|
| |
|
OVERLAY
SHARES
HEDGED
LARGE
CAP
EQUITY
ETF |
Investment
Objective
The
Overlay Shares Hedged Large Cap Equity ETF (the “Fund” or “Hedged Large Cap
Equity ETF”) seeks total return.
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.
|
|
|
|
|
| |
|
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) |
|
| |
| Management
Fee |
0.75% |
| Distribution
and/or Service (12b-1) Fees |
0.00% |
| Other
Expenses |
0.07% |
| Acquired
Fund Fees and Expenses |
0.03% |
|
Total
Annual Fund Operating Expenses* |
0.85% |
*
The
Total Annual Fund Operating Expenses do not correlate to the expense ratio in
the Fund’s Financial Highlights and financial statements because the Financial
Highlights and financial statements include only the direct operating expenses
incurred by the Fund and exclude Acquired Fund Fees and Expenses, which are the
indirect costs of investing in other investment
companies.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| 1
Year: |
$87 |
3
Years: |
$271 |
5
Years: |
$471 |
10
Years: |
$1,049 |
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.
This rate excludes the value of portfolio securities received or delivered as a
result of in-kind creations or redemptions of the Fund’s Shares and securities,
including options, whose maturities or expiration dates at the time of
acquisition were one year or less. For the fiscal year ended August 31,
2024, the Fund’s portfolio turnover rate was 21% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its objective by (i) investing in one or more other ETFs that seek to obtain
exposure to the performance of U.S. large-cap equity securities or directly in
the securities held by such ETFs (collectively, the “Underlying Investments”),
(ii) selling and purchasing listed short-term put options (“put spreads”) to
generate income to the Fund (the “Overlay Strategy”), and (iii) purchasing
long-term out-of-the-money put options (i.e., put options with a strike price below the current price of the
reference asset) to seek to hedge against significant declines in U.S. large-cap
equities. Under normal circumstances, at least 80% of the Fund’s net assets,
plus borrowings for investment purposes, will be invested, directly or
indirectly through ETFs, in equity securities of large-cap
companies.
The
Fund’s Overlay Strategy seeks to generate income for the Fund by utilizing a
“put spread” consisting of the sale of exchange-listed short-term put options
(“Short Puts”) with a notional value (strike price times the value of the
shares) up to 100% of the Fund’s net assets and the purchase of an identical
number of short-term put options (“Long Puts”) with a lower strike price. The
Fund seeks to generate income from the sale and purchase of put options with a
lower strike price to hedge against a decline in the options’ reference asset,
an index of large-cap securities (the “reference index”).
In
addition to the Fund’s Overlay Strategy, the Fund seeks to mitigate the risks of
significant declines in U.S. large-cap equities by purchasing a series of
long-term out-of-the-money put options on the reference index with a notional
value generally approximating the Fund’s net asset value.
A
put option gives the purchaser of the option, in exchange for the premium paid,
the right to sell the underlying asset at a specified price (“strike price”) at
a specified date (“expiration date”). In contrast, the seller of a put option,
in exchange for the premium
received,
is obligated to sell the underlying asset at the strike price on the expiration
date. In the event the underlying asset declines in value, the value of a put
option will generally increase. In the event the underlying asset appreciates in
value, the value of a put option will generally decrease. The options sold by
the Fund are typically expected to have an expiration date within one to two
weeks of their purchase date. The strike price of the Short Puts will typically
be less than the value of the reference index at the time such options are sold,
and the strike price of the Long Puts will be less than the strike price of the
Short Puts. The difference between such strike prices is based on the Adviser’s
judgment as to the level of expected volatility in the market prior to the
options’ expiration. Because the Long Puts used in the Fund’s put spreads will
have a lower strike price than the Short Puts, the Long Puts are not expected to
completely protect the Fund from a decline in the value of large-cap equities.
The
Fund’s Overlay Strategy is designed to seek to generate a positive return in
rising and flat equity markets, and may generate a positive return in equity
markets that are modestly declining, assuming the net premium collected from the
options sold and purchased exceeds the net cost to close the positions and the
cost of purchasing Long Puts as part of the Fund’s hedging strategy. In an
effort to limit losses in declining equity markets, the Fund may reduce its sale
of Short Puts and/or purchase of Long Puts with strike prices closer to the
strike prices of the Short Puts.
The
Fund focuses primarily on equity index options which offer both European
settlement (i.e.,
options can only be exercised at their expiration date) and cash settlement
(i.e.,
options carry an obligation by their seller to pay the difference between their
strike price and their settlement value instead of allowing the seller to take
delivery of securities).
The
potential returns of the Fund are generally limited to the amount of cash
(premiums) the Fund receives when selling Short Puts, net of any cash (premiums)
paid by the Fund to purchase Long Puts, plus the returns of the Underlying
Investments in which the Fund invests. The Fund’s sale and purchase of put
options may result in the generation of positive returns for the Fund; however,
the loss potential if the strategy is not effective may be greater than the
profit potential. The
Fund may lose significantly more than the premiums it receives in highly
volatile market conditions.
The Adviser employs a disciplined portfolio construction process that
relies on guidelines to govern capital allocations based on a quantitative
methodology designed by the Adviser to measure the perceived risk of the broad
U.S. equity market. In making this determination, the Adviser considers various
factors including but not limited to the overall volatility (rate of change) in
the markets. The Adviser bases allocation decisions on a combination of
quantitative risk metrics and a qualitative assessment of potential risk/reward
scenarios, with the ultimate goals of mitigating the effects of volatility in
the Fund’s portfolio and maintaining adequate portfolio diversification while
seeking to achieve the Fund’s targeted return. The Adviser evaluates the metrics
associated with the valuation of options, including volatility, time to
expiration and the relationship of the exercise price to the prevailing market
price of the reference asset. There can be no guarantee that the Adviser will be
successful in implementing the Fund’s strategy. During market conditions in
which market volatility rises, the price of options could rise, which, in turn,
could have a detrimental effect on written options and a positive effect on
purchased options, thus affecting the Fund’s performance and ability to achieve
its targeted return.
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 the risks 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:
•Cybersecurity
Risk. Cybersecurity incidents may allow an unauthorized party to gain
access to Fund assets or proprietary information, or cause the Fund, the
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, 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 Shares, potentially resulting in financial losses to the Fund and its
shareholders.
•Derivatives
Securities Risk. The Fund invests in options that derive their performance from the
performance of the reference index. Derivatives, such as the options in which
the Fund invests, can be volatile and involve various types and degrees of
risks, depending upon the characteristics of a particular derivative.
Derivatives may entail investment exposures that are greater than their cost
would suggest, meaning that a small investment in a derivative could have a
substantial impact on the performance of the Fund. The Fund could experience a
loss if its derivatives do not perform as anticipated, or are not correlated
with the performance of their underlying asset or if the Fund is unable to
purchase or liquidate a position because of an illiquid secondary market. The
market for many derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid, and unpredictable changes in the
prices for derivatives.
•Equity
Market Risk. The trading prices of equity securities and other instruments
fluctuate in response to a variety of factors. The Fund’s NAV and market price
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.
•ETF
Risks.
The Fund is an ETF and invests in other ETFs, 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 APs. In addition, there may be a limited number of market makers
and/or liquidity providers in the marketplace. Shares may trade at a material
discount to NAV and possibly face delisting if either: (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.
◦Cash
Redemption Risk.
The Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. For example, the Fund
may not be able to redeem in-kind certain securities held by the Fund
(e.g.,
short positions and derivative instruments). In such a case, the Fund may be
required to sell or unwind portfolio investments to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to recognize a capital
gain that it might not have recognized if it had made a redemption in-kind. As a
result, the Fund may pay out higher annual capital gain distributions than if
the in-kind redemption process was used.
◦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.
◦Trading
Risk. Although
Shares are listed for trading on the Cboe
BZX Exchange, 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 the
Shares.
•Implied
Volatility Risk. When
the Fund sells an option, it gains the amount of the premium it receives, but
also incurs a liability representing the value of the option it has sold until
the option is either exercised and finishes “in the money,” meaning it has value
and can be sold, or the option expires worthless, or the expiration of the
option is “rolled,” or extended forward. The value of the options in which the
Fund invests is based partly on the volatility used by market participants to
price such options (i.e., implied volatility). Accordingly, increases in the implied
volatility of such options will cause the value of such options to increase
(even if the prices of the options’ underlying stocks do not change), which will
result in a corresponding increase in the liabilities of the Fund under such
options and thus decrease the Fund’s NAV.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing Risk. 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.
•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 and trade tensions. In
addition, local, regional or global events such as war, including Russia’s
invasion of Ukraine, acts of terrorism, 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.
•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 limit its leverage risk based on its value-at-risk test (or
“VaR”), the Fund could still lose a significant amount or nearly all of its
value if the price of an underlying asset changes significantly
enough.
•Tax
Risk.
The writing of options by the Fund may significantly reduce or
eliminate its ability to make distributions eligible to be treated as qualified
dividend income. Options entered into by the Fund may also be subject to the
federal tax rules applicable to straddles under the Internal Revenue Code of
1986, as amended (the “Code”). If positions held by the Fund were treated as
“straddles” for federal income tax purposes, or the Fund’s risk of loss with
respect to a position was otherwise diminished as set forth in Treasury
regulations, dividends on stocks that are a part of such positions would not
constitute qualified dividend income subject to such favorable income tax
treatment in the hands of non-corporate shareholders or eligible for the
dividends received deduction for corporate shareholders. In addition, generally,
straddles are subject to certain rules that may affect the amount, character,
and timing of the Fund’s recognition of gains and losses with respect to
straddle positions.
Performance
The performance
information presented below provides some indication of the risks of investing
in the Fund by showing the extent to which the Fund’s performance can change
from year to year and over time. The bar chart below shows the
Fund’s performance for the most recent calendar years ended December 31. The
table illustrates how the Fund’s average annual returns for the 1-year and since
inception periods compare with those of the S&P 500®
TR Index, which reflects a broad measure of market performance. The
Fund’s past performance, before and after taxes, does not necessarily indicate
how it will perform in the future. Updated performance
information is available on the Fund’s website at www.overlayshares.com
or by calling the Fund at 1-866-704-6857.
Calendar Year Total
Returns
The
calendar year-to-date total return of the
Fund as of September 30, 2024 was
17.02%. During the
period of time shown in the bar chart, the highest quarterly
return was 8.80% for the quarter ended December 31, 2023, and
the lowest quarterly return was
-11.36% for the quarter ended June 30,
2022.
Average
Annual Total Returns
(for
periods ended December 31, 2023)
|
|
|
|
|
|
|
|
| |
|
Overlay
Shares Hedged Large Cap Equity ETF |
1-Year |
Since
Inception
(1/14/2021) |
| Return Before
Taxes |
17.14% |
5.75% |
| Return
After Taxes on Distributions |
16.91% |
5.58% |
| Return
After Taxes on Distributions and Sale of Shares |
10.31% |
4.43% |
|
S&P
500®
TR Index
(reflects no deduction for
fees, expenses, or taxes) |
26.29% |
9.72% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. After-tax returns shown are
not relevant to investors who hold their shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts.
In
certain cases, the figure representing “Return After Taxes on Distributions and
Sale of Fund Shares” may be higher than the other return figures for the same
period. A higher after-tax return results when a capital loss occurs upon
redemption and provides an assumed tax benefit to the
investor.
Portfolio
Management
|
|
|
|
|
| |
|
Adviser |
Liquid
Strategies, LLC |
|
Portfolio
Managers |
Adam
Stewart, CFA and Shawn Gibson have been portfolio managers of the Fund
since its inception in January 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.overlayshares.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
held in an 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.
|
|
| |
|
OVERLAY
SHARES
CORE
BOND
ETF |
Investment
Objective
The
Overlay Shares Core Bond ETF (the “Fund” or “Core Bond ETF”) seeks total
return.
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.
|
|
|
|
|
| |
|
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) |
|
| |
| Management
Fees |
0.75% |
| Distribution
and/or Service (12b-1) Fees |
0.00% |
| Other
Expenses |
0.01% |
| Acquired
Fund Fees and Expenses |
0.03% |
|
Total
Annual Fund Operating Expenses* |
0.79% |
*
The Total Annual
Fund Operating Expenses do not correlate to the expense ratio in the Fund’s
Financial Highlights and financial statements because the Financial Highlights
and financial statements include only the direct operating expenses incurred by
the Fund and exclude Acquired Fund Fees and Expenses, which are the indirect
costs of investing in other investment
companies.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| 1
Year: |
$81 |
3
Years: |
$252 |
5
Years: |
$439 |
10
Years: |
$978 |
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 year ended August 31, 2024, the Fund’s portfolio turnover
rate was 11% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its objective by (i) investing in one or more other ETFs that seek to obtain
exposure to the performance of investment grade, U.S. dollar-denominated,
fixed-rate taxable bonds or directly in the securities held by such ETFs
(collectively, the “Underlying Investments”) and (ii) selling and purchasing
listed short-term put options to generate income to the Fund (the “Overlay
Strategy”).
The
Fund’s Overlay Strategy seeks to generate income for the Fund by utilizing a
“put spread” consisting of the sale of exchange-listed short-term put options
(“Short Puts”) with a notional value (strike price times the value of the
shares) up to 100% of the Fund’s net assets and the purchase of an identical
number of short-term put options (“Long Puts”) with a lower strike price. The
Fund seeks to generate income from the sale and purchase of put options with a
lower strike price to hedge against a decline in the options’ reference asset,
an index of large-cap securities (the “reference index”).
A
put option gives the purchaser of the option, in exchange for the premium paid,
the right to sell the underlying asset at a specified price (“strike price”) at
a specified date (“expiration date”). In contrast, the seller of a put option,
in exchange for the premium received, is obligated to sell the underlying asset
at the strike price on the expiration date. In the event the underlying asset
declines in value, the value of a put option will generally increase. In the
event the underlying asset appreciates in value, the value of a put option will
generally decrease. The options sold by the Fund are typically expected to have
an expiration date within one to two weeks of their purchase date. The strike
price of the Short Puts will typically be less than the value of the reference
index at the time such options are sold, and the strike price of the Long Puts
will be less than the strike price of the Short Puts. The difference between
such strike prices is based on Liquid Strategies, LLC’s (the “Adviser”) judgment
as to the level of expected volatility in the market prior to the options’
expiration. Because the Long Puts will have a lower strike price than the Short
Puts, the Long Puts are not expected to completely protect the Fund from a
decline in the value of the reference index.
The
Fund’s Overlay Strategy is designed to seek to generate a positive return in
rising and flat equity markets, and may generate a positive return in equity
markets that are modestly declining, assuming the net premium collected from the
options sold and purchased exceeds the net cost to close the positions. In an
effort to limit losses in declining equity markets, the Fund may reduce its sale
of Short Puts and/or purchase of Long Puts with strike prices closer to the
strike prices of the Short Puts.
The
Fund focuses primarily on equity index options which offer both European
settlement (i.e.,
options can only be exercised at their expiration date) and cash settlement
(i.e.,
options carry an obligation by their seller to pay the difference between their
strike price and their settlement value instead of allowing the seller to take
delivery of securities).
The
potential returns of the Fund are generally limited to the amount of cash
(premiums) the Fund receives when selling Short Puts, net of any cash (premiums)
paid by the Fund to purchase Long Puts, plus the returns of the Underlying
Investments in which the Fund invests. The Fund’s sale and purchase of put
options may result in the generation of positive returns for the Fund; however,
the loss potential if the strategy is not effective may be greater than the
profit potential. The
Fund may lose significantly more than the premiums it receives in highly
volatile market conditions.
The Adviser employs a disciplined portfolio construction process that
relies on guidelines to govern capital allocations based on a quantitative
methodology designed by the Adviser to measure the perceived risk of the broad
U.S. equity market. In making this determination, the Adviser considers various
factors including but not limited to the overall volatility (rate of change) in
the markets. The Adviser bases allocation decisions on a combination of
quantitative risk metrics and a qualitative assessment of potential risk/reward
scenarios, with the ultimate goals of mitigating the effects of volatility in
the Fund’s portfolio and maintaining adequate portfolio diversification while
seeking to achieve the Fund’s targeted return. The Adviser evaluates the metrics
associated with the valuation of options, including volatility, time to
expiration and the relationship of the exercise price to the prevailing market
price of the reference asset. There can be no guarantee that the Adviser will be
successful in implementing the Fund’s strategy. During market conditions in
which market volatility rises, the price of options could rise, which, in turn,
could have a detrimental effect on the Fund’s performance and achieving its
targeted return.
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 the risks 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:
•Cybersecurity
Risk. Cybersecurity incidents may allow an unauthorized party to gain
access to Fund assets or proprietary information, or cause the Fund, the
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, 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 Shares, potentially resulting in financial losses to the Fund and its
shareholders.
•Derivatives
Securities Risk. The Fund invests in options that derive their performance from the
performance of the reference index. Derivatives, such as the options in which
the Fund invests, can be volatile and involve various types and degrees of
risks, depending upon the characteristics of a particular derivative.
Derivatives may entail investment exposures that are greater than their cost
would suggest, meaning that a small investment in a derivative could have a
substantial impact on the performance of the Fund. The Fund could experience a
loss if its derivatives do not perform as anticipated, or are not correlated
with the performance of their underlying asset or if the Fund is unable to
purchase or liquidate a position because of an illiquid secondary market. The
market for many derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid, and unpredictable changes in the
prices for derivatives.
•ETF
Risks.
The Fund is an ETF and invests in other ETFs, 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 APs. In addition, there may be a limited number of market makers
and/or liquidity providers in the marketplace. Shares may trade at a material
discount to NAV and possibly face delisting if either: (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.
◦Cash
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. For example, the Fund
may not be able to redeem in-kind certain securities held by the Fund
(e.g.,
short positions, derivative instruments, and bonds that cannot be broken up
beyond certain minimum sizes needed for transfer and settlement). In such a
case, the Fund may be required to sell or unwind portfolio investments to obtain
the cash needed to distribute redemption proceeds. This may cause the Fund to
recognize a capital gain that it might not have recognized if it had made a
redemption in-kind. As a result, the Fund may pay out higher annual capital gain
distributions than if the in-kind redemption process was
used.
◦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.
◦Trading
Risk. Although
Shares are listed for trading on the Cboe
BZX Exchange, 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 the
Shares.
•Fixed
Income Risk.
Fixed income securities are subject to call, credit, extension, and interest
rate risk.
◦Call
Risk.
During periods of falling interest rates, an issuer of a callable bond held by
the Fund may “call” or repay the security before its stated maturity, and the
Fund may have to reinvest the proceeds at lower interest rates, resulting in a
decline in the Fund’s income.
◦Credit
Risk.
Debt issuers and other counterparties may not honor their obligations or may
have their debt downgraded by ratings agencies.
◦Extension
Risk.
During periods of rising interest rates, certain debt obligations will be paid
off substantially more slowly than originally anticipated and the value of those
securities may fall sharply, resulting in a decline in the Fund’s income and
potentially in the value of the Fund’s investments.
◦Interest
Rate Risk.
An increase in interest rates may cause the value of fixed-income securities
held by the Fund to decline. The Fund may be subject to a greater risk of rising
interest rates due to the recent historically low rates and the effect of
potential government fiscal policy initiatives and resulting market reaction to
those initiatives.
•Government
Obligations Risk.
U.S. government securities are subject to price fluctuations and to default in
the event that an agency or instrumentality defaults on an obligation not backed
by the full faith and credit of the United States.
•Implied
Volatility Risk. When
the Fund sells an option, it gains the amount of the premium it receives, but
also incurs a liability representing the value of the option it has sold until
the option is either exercised and finishes “in the money,” meaning it has value
and can be sold, or the option expires worthless, or the expiration of the
option is “rolled,” or extended forward. The value of the options in which the
Fund invests is based partly on the volatility used by market participants to
price such options (i.e.,
implied volatility). Accordingly, increases in the implied volatility of such
options will cause the value of such options to increase (even if the prices of
the options’ underlying stocks do not change), which will result in a
corresponding increase in the liabilities of the Fund under such options and
thus decrease the Fund’s NAV.
•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 and trade tensions. In
addition, local, regional or global events such as war, including Russia’s
invasion of Ukraine, acts of terrorism, 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.
•Mortgage-
and Asset-Backed Securities Risk. The Fund may invest in U.S. government agency-backed mortgage- and
asset-backed securities. Mortgage- and asset-backed securities are subject to
interest rate risk. Modest movements in interest rates (both increases and
decreases) may quickly and significantly reduce the value of certain types of
these securities. When interest rates fall, mortgage- and asset-backed
securities may be subject to prepayment risk. When interest rates rise, certain
types of mortgage- and asset-backed securities are subject to extension risk.
Mortgage- and asset-backed securities can also be subject to the risk of default
on the underlying residential or commercial mortgage(s) or other
assets.
•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 limit its leverage risk based on its value-at-risk test (or
“VaR”), the Fund could still lose a significant amount or nearly all of its
value if the price of an underlying asset changes significantly
enough.
•Tax
Risk.
The writing of options by the Fund may significantly reduce or
eliminate its ability to make distributions eligible to be treated as qualified
dividend income. Options entered into by the Fund may also be subject to the
federal tax rules applicable to straddles under the Internal Revenue Code of
1986, as amended (the “Code”). If positions held by the Fund were treated as
“straddles” for federal income tax purposes, or the Fund’s risk of loss with
respect to a position was otherwise diminished as set forth in Treasury
regulations, dividends on stocks that are a part of such positions would not
constitute qualified dividend income subject to such favorable income tax
treatment in the hands of non-corporate shareholders or eligible for the
dividends received deduction for corporate shareholders. In addition, generally,
straddles are subject to certain rules that may affect the amount, character,
and timing of the Fund’s recognition of gains and losses with respect to
straddle positions.
Performance
The performance
information presented below provides some indication of the risks of investing
in the Fund by showing the extent to which the Fund’s performance can change
from year to year and over time. The bar chart below shows the
Fund’s performance for the most recent calendar years ended December 31. The
table illustrates how the Fund’s average annual returns for the 1-year and since
inception periods compare with those of the Bloomberg®
U.S. Aggregate Bond Index, which reflects a broad measure of market performance.
The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.overlayshares.com
or by calling the Fund at 1-866-704-6857.
Calendar Year Total
Returns
The
calendar year-to-date total return of the
Fund as of September 30, 2024 was
7.72%. During the
period of time shown in the bar chart, the highest quarterly
return was 7.86% for the quarter ended December 31, 2023, and
the lowest quarterly return was
-6.95% for the quarter ended September 30,
2022.
Average
Annual Total Returns
(for
periods ended December 31, 2023)
|
|
|
|
|
|
|
|
| |
|
Overlay
Shares Core Bond ETF |
1-Year |
Since
Inception
(9/30/2019) |
| Return
Before Taxes |
7.08% |
-0.16% |
| Return
After Taxes on Distributions |
5.90% |
-1.37% |
| Return
After Taxes on Distributions and Sale of Shares |
4.16% |
-0.52% |
|
Bloomberg®
U.S. Aggregate Bond Index
(reflects no deduction for
fees, expenses, or taxes) |
5.53% |
-0.63% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. After-tax returns shown are
not relevant to investors who hold their shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts.
In certain cases, the figure
representing “Return After Taxes on Distributions and Sale of Fund Shares” may
be higher than the other return figures for the same period. A higher after-tax
return results when a capital loss occurs upon redemption and provides an
assumed tax benefit to the
investor.
Portfolio
Management
|
|
|
|
|
| |
| Adviser |
Liquid
Strategies, LLC |
|
Portfolio
Managers |
Adam
Stewart, CFA and Shawn Gibson have been portfolio managers of the Fund
since its inception in 2019. |
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.overlayshares.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
held in an 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.
|
|
| |
|
OVERLAY
SHARES
SHORT
TERM
BOND
ETF |
Investment
Objective
The
Overlay Shares Short Term Bond ETF (the “Fund” or “Short Term Bond ETF”) seeks
total return.
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.
|
|
|
|
|
| |
|
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) |
|
| |
| Management
Fee |
0.75% |
| Distribution
and/or Service (12b-1) Fees |
0.00% |
| Other
Expenses |
0.01% |
| Acquired
Fund Fees and Expenses |
0.04% |
|
Total
Annual Fund Operating Expenses* |
0.80% |
*
The Total Annual
Fund Operating Expenses do not correlate to the expense ratio in the Fund’s
Financial Highlights and financial statements because the Financial Highlights
and financial statements include only the direct operating expenses incurred by
the Fund and exclude Acquired Fund Fees and Expenses, which are the indirect
costs of investing in other investment
companies.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| 1
Year: |
$82 |
3
Years: |
$255 |
5
Years: |
$444 |
10
Years: |
$990 |
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.
This rate excludes the value of portfolio securities received or delivered as a
result of in-kind creations or redemptions of the Fund’s Shares and securities,
including options, whose maturities or expiration dates at the time of
acquisition were one year or less. For the fiscal year ended August 31,
2024, the Fund’s portfolio turnover rate was 13% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its objective by (i) investing in one or more other ETFs that seek to obtain
exposure to the performance of short-term, investment grade, U.S.
dollar-denominated, fixed-rate taxable bonds with a dollar-weighted average
maturity of no more than three years with a maximum maturity of five years or
directly in the securities held by such ETFs (collectively, the “Underlying
Investments”) and (ii) selling and purchasing listed short-term put options
(“put spreads”) to generate income to the Fund (the “Overlay Strategy”). Under
normal circumstances, at least 80% of the Fund’s net assets, plus borrowings for
investment purposes, will be invested, directly or indirectly through ETFs, in
bonds.
The
Fund’s Overlay Strategy seeks to generate income for the Fund by utilizing a
“put spread” consisting of the sale of exchange-listed short-term put options
(“Short Puts”) with a notional value (strike price times the value of the
shares) up to 100% of the Fund’s net assets and the purchase of an identical
number of short-term put options (“Long Puts”) with a lower strike price. The
Fund seeks to generate income from the sale and purchase of put options with a
lower strike price to hedge against a decline in the options’ reference asset,
an index of large-cap securities (the “reference index”).
A
put option gives the purchaser of the option, in exchange for the premium paid,
the right to sell the underlying asset at a specified price (“strike price”) at
a specified date (“expiration date”). In contrast, the seller of a put option,
in exchange for the premium received, is obligated to sell the underlying asset
at the strike price on the expiration date. In the event the underlying asset
declines in value, the value of a put option will generally increase. In the
event the underlying asset appreciates in value, the value of a put option will
generally decrease. The options sold by the Fund are typically expected to have
an expiration date within one to two weeks of their purchase date. The strike
price of the Short Puts will typically be less than the value of the reference
index at the time such options are sold, and the strike price of the Long Puts
will be less than the strike price of the Short Puts. The difference between
such
strike
prices is based on the Adviser’s judgment as to the level of expected volatility
in the market prior to the options’ expiration. Because the Long Puts will have
a lower strike price than the Short Puts, the Long Puts are not expected to
completely protect the Fund from a decline in the value of the reference index.
The
Fund’s Overlay Strategy is designed to seek to generate a positive return in
rising and flat equity markets, and may generate a positive return in equity
markets that are modestly declining, assuming the net premium collected from the
options sold and purchased exceeds the net cost to close the positions. In an
effort to limit losses in declining equity markets, the Fund may reduce its sale
of Short Puts and/or purchase of Long Puts with strike prices closer to the
strike prices of the Short Puts.
The
Fund focuses primarily on equity index options which offer both European
settlement (i.e.,
options can only be exercised at their expiration date) and cash settlement
(i.e.,
options carry an obligation by their seller to pay the difference between their
strike price and their settlement value instead of allowing the seller to take
delivery of securities).
The
potential returns of the Fund are generally limited to the amount of cash
(premiums) the Fund receives when selling Short Puts, net of any cash (premiums)
paid by the Fund to purchase Long Puts, plus the returns of the Underlying
Investments in which the Fund invests. The Fund’s sale and purchase of put
options may result in the generation of positive returns for the Fund; however,
the loss potential if the strategy is not effective may be greater than the
profit potential. The
Fund may lose significantly more than the premiums it receives in highly
volatile market conditions.
The Adviser employs a disciplined portfolio construction process that
relies on guidelines to govern capital allocations based on a quantitative
methodology designed by the Adviser to measure the perceived risk of the broad
U.S. equity market. In making this determination, the Adviser considers various
factors including but not limited to the overall volatility (rate of change) in
the markets. The Adviser bases allocation decisions on a combination of
quantitative risk metrics and a qualitative assessment of potential risk/reward
scenarios, with the ultimate goals of mitigating the effects of volatility in
the Fund’s portfolio and maintaining adequate portfolio diversification while
seeking to achieve the Fund’s targeted return. The Adviser evaluates the metrics
associated with the valuation of options, including volatility, time to
expiration and the relationship of the exercise price to the prevailing market
price of the reference asset. There can be no guarantee that the Adviser will be
successful in implementing the Fund’s strategy. During market conditions in
which market volatility rises, the price of options could rise, which, in turn,
could have a detrimental effect on the Fund’s performance and achieving its
targeted return.
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 the risks 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:
•Cybersecurity
Risk. Cybersecurity incidents may allow an unauthorized party to gain
access to Fund assets or proprietary information, or cause the Fund, the
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, 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 Shares, potentially resulting in financial losses to the Fund and its
shareholders.
•Derivatives
Securities Risk. The Fund invests in options that derive their performance from the
performance of the reference index. Derivatives, such as the options in which
the Fund invests, can be volatile and involve various types and degrees of
risks, depending upon the characteristics of a particular derivative.
Derivatives may entail investment exposures that are greater than their cost
would suggest, meaning that a small investment in a derivative could have a
substantial impact on the performance of the Fund. The Fund could experience a
loss if its derivatives do not perform as anticipated, or are not correlated
with the performance of their underlying asset or if the Fund is unable to
purchase or liquidate a position because of an illiquid secondary market. The
market for many derivatives is, or suddenly can become, illiquid. Changes in
liquidity may result in significant, rapid, and unpredictable changes in the
prices for derivatives.
•ETF
Risks.
The Fund is an ETF and invests in other ETFs, 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 APs. In addition, there may be a limited number of market makers
and/or liquidity providers in the marketplace. Shares may trade at a material
discount to NAV and possibly face delisting if either: (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.
◦Cash
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. For example, the Fund
may not be able to redeem in-kind certain securities held by the Fund
(e.g.,
short positions, derivative instruments, and bonds that cannot be broken up
beyond certain minimum sizes needed for transfer and settlement). In such a
case, the Fund may be required to sell or unwind portfolio investments to obtain
the cash needed to distribute redemption proceeds. This may cause the Fund to
recognize a capital gain that it might not have recognized if it had made a
redemption in-kind. As a result, the Fund may pay out higher annual capital gain
distributions than if the in-kind redemption process was
used.
◦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.
◦Trading
Risk. Although
Shares are listed for trading on the Cboe
BZX Exchange, 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 the
Shares.
•Fixed
Income Risk.
Fixed income securities are subject to call, credit, extension, and interest
rate risk.
◦Call
Risk.
During periods of falling interest rates, an issuer of a callable bond held by
the Fund may “call” or repay the security before its stated maturity, and the
Fund may have to reinvest the proceeds at lower interest rates, resulting in a
decline in the Fund’s income.
◦Credit
Risk.
Debt issuers and other counterparties may not honor their obligations or may
have their debt downgraded by ratings agencies.
◦Extension
Risk.
During periods of rising interest rates, certain debt obligations will be paid
off substantially more slowly than originally anticipated and the value of those
securities may fall sharply, resulting in a decline in the Fund’s income and
potentially in the value of the Fund’s investments.
◦Interest
Rate Risk.
An increase in interest rates may cause the value of fixed-income securities
held by the Fund to decline. The Fund may be subject to a greater risk of rising
interest rates due to the recent historically low rates and the effect of
potential government fiscal policy initiatives and resulting market reaction to
those initiatives.
•Government
Obligations Risk.
U.S. government securities are subject to price fluctuations and to default in
the event that an agency or instrumentality defaults on an obligation not backed
by the full faith and credit of the United States.
•Implied
Volatility Risk. When
the Fund sells an option, it gains the amount of the premium it receives, but
also incurs a liability representing the value of the option it has sold until
the option is either exercised and finishes “in the money,” meaning it has value
and can be sold, or the option expires worthless, or the expiration of the
option is “rolled,” or extended forward. The value of the options in which the
Fund invests is based partly on the volatility used by market participants to
price such options (i.e.,
implied volatility). Accordingly, increases in the implied volatility of such
options will cause the value of such options to increase (even if the prices of
the options’ underlying stocks do not change), which will result in a
corresponding increase in the liabilities of the Fund under such options and
thus decrease the Fund’s NAV.
•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 and trade tensions. In
addition, local, regional or global events such as war, including Russia’s
invasion of Ukraine, acts of terrorism, 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.
•Mortgage-
and Asset-Backed Securities Risk. The
Fund may invest in U.S. government agency-backed mortgage- and asset-backed
securities. Mortgage- and asset-backed securities are subject to interest rate
risk. Modest movements in interest rates (both
increases
and decreases) may quickly and significantly reduce the value of certain types
of these securities. When interest rates fall, mortgage- and asset-backed
securities may be subject to prepayment risk. When interest rates rise, certain
types of mortgage- and asset-backed securities are subject to extension risk.
Mortgage- and asset-backed securities can also be subject to the risk of default
on the underlying residential or commercial mortgage(s) or other
assets.
•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 limit its leverage risk based on its value-at-risk test (or
“VaR”), the Fund could still lose a significant amount or nearly all of its
value if the price of an underlying asset changes significantly
enough.
•Tax
Risk.
The writing of options by the Fund may significantly reduce or
eliminate its ability to make distributions eligible to be treated as qualified
dividend income. Options entered into by the Fund may also be subject to the
federal tax rules applicable to straddles under the Internal Revenue Code of
1986, as amended (the “Code”). If positions held by the Fund were treated as
“straddles” for federal income tax purposes, or the Fund’s risk of loss with
respect to a position was otherwise diminished as set forth in Treasury
regulations, dividends on stocks that are a part of such positions would not
constitute qualified dividend income subject to such favorable income tax
treatment in the hands of non-corporate shareholders or eligible for the
dividends received deduction for corporate shareholders. In addition, generally,
straddles are subject to certain rules that may affect the amount, character,
and timing of the Fund’s recognition of gains and losses with respect to
straddle positions.
Performance
The performance
information presented below provides some indication of the risks of investing
in the Fund by showing the extent to which the Fund’s performance can change
from year to year and over time. The bar chart below shows the
Fund’s performance for the most recent calendar years ended December 31. The
table illustrates how the Fund’s average annual returns for the 1-year and since
inception periods compare with those of the Bloomberg®
U.S. Aggregate Bond Index, which reflects a broad measure of market performance.
Performance
also is shown for the Bloomberg® US Corporate 1-5 Year TR Index, an additional index that represents
the asset class in which the Fund invests. The
Fund’s past performance, before and after taxes, does not necessarily indicate
how it will perform in the future. Updated performance
information is available on the Fund’s website at www.overlayshares.com
or by calling the Fund at 1-866-704-6857.
Calendar Year Total
Returns
The
calendar year-to-date total return of the
Fund as of September 30, 2024 was
8.56%. During the
period of time shown in the bar chart, the highest quarterly
return was 5.31% for the quarter ended December 31, 2022, and
the lowest quarterly return was
-4.56% for the quarter ended March 31,
2022.
Average
Annual Total Returns
(for
periods ended December 31, 2023)
|
|
|
|
|
|
|
|
| |
|
Overlay
Shares Short Term Bond ETF |
1-Year |
Since
Inception
(1/14/2021) |
| Return
Before Taxes |
7.70% |
-0.24% |
| Return
After Taxes on Distributions |
6.50% |
-1.43% |
| Return
After Taxes on Distributions and Sale of Shares |
4.54% |
-0.64% |
|
Bloomberg®
U.S. Aggregate Bond Index*
(reflects no deduction for
fees, expenses, or taxes) |
5.53% |
-3.06% |
|
Bloomberg®
U.S. Corporate 1-5 Year TR Index
(reflects no deduction for
fees, expenses, or taxes) |
6.20% |
-0.04% |
*
Effective August 31, 2024, the Bloomberg®
U.S. Aggregate Bond Index has replaced the Bloomberg®
U.S. Corporate 1-5 Year TR Index as the Fund’s required broad-based securities
market index in conjunction with certain regulatory
requirements.
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. After-tax returns shown are
not relevant to investors who hold their shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts.
In certain cases, the figure
representing “Return After Taxes on Distributions and Sale of Fund Shares” may
be higher than the other return figures for the same period. A higher after-tax
return results when a capital loss occurs upon redemption and provides an
assumed tax benefit to the
investor.
Portfolio
Management
|
|
|
|
|
| |
|
Adviser |
Liquid
Strategies, LLC |
|
Portfolio
Managers |
Adam
Stewart, CFA and Shawn Gibson have been portfolio managers of the Fund
since its inception in January 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.overlayshares.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
held in an 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.
|
|
| |
|
OVERLAY
SHARES
MUNICIPAL
BOND
ETF |
Investment
Objective
The
Overlay Shares Municipal Bond ETF (the “Fund” or “Municipal Bond ETF”) seeks
total return.
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.
|
|
|
|
|
| |
|
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) |
|
| |
| Management
Fees |
0.75% |
| Distribution
and/or Service (12b-1) Fees |
0.00% |
| Other
Expenses |
0.01% |
| Acquired
Fund Fees and Expenses |
0.07% |
|
Total
Annual Fund Operating Expenses* |
0.83% |
*
The Total Annual
Fund Operating Expenses do not correlate to the expense ratio in the Fund’s
Financial Highlights and financial statements because the Financial Highlights
and financial statements include only the direct operating expenses incurred by
the Fund and exclude Acquired Fund Fees and Expenses, which are the indirect
costs of investing in other investment
companies.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| 1
Year: |
$85 |
3
Years: |
$265 |
5
Years: |
$460 |
10
Years: |
$1,025 |
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 year ended August 31, 2024, the Fund’s portfolio turnover
rate was 12% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its objective by (i) investing in one or more other ETFs that seek to obtain
exposure to the performance of investment grade municipal bonds and below
investment grade municipal bonds or directly in the securities held by such ETFs
(collectively, the “Underlying Investments”) and (ii) selling and purchasing
listed short-term put options to generate income to the Fund (the “Overlay
Strategy”).
The
Fund’s Overlay Strategy seeks to generate income for the Fund by utilizing a
“put spread” consisting of the sale of exchange-listed short-term put options
(“Short Puts”) with a notional value (strike price times the value of the
shares) up to 100% of the Fund’s net assets and the purchase of an identical
number of short-term put options (“Long Puts”) with a lower strike price. The
Fund seeks to generate income from the sale and purchase of put options with a
lower strike price to hedge against a decline in the options’ reference asset,
an index of large-cap securities (the “reference index”).
A
put option gives the purchaser of the option, in exchange for the premium paid,
the right to sell the underlying asset at a specified price (“strike price”) at
a specified date (“expiration date”). In contrast, the seller of a put option,
in exchange for the premium received, is obligated to sell the underlying asset
at the strike price on the expiration date. In the event the underlying asset
declines in value, the value of a put option will generally increase. In the
event the underlying asset appreciates in value, the value of a put option will
generally decrease. The options sold by the Fund are typically expected to have
an expiration date within one to two weeks of their purchase date. The strike
price of the Short Puts will typically be less than the value of the reference
index at the time such options are sold, and the strike price of the Long Puts
will be less than the strike price of the Short Puts. The difference between
such strike prices is based on Liquid Strategies, LLC’s (the “Adviser”) judgment
as to the level of expected volatility in the market prior to
the
options’ expiration. Because the Long Puts will have a lower strike price than
the Short Puts, the Long Puts are not expected to completely protect the Fund
from a decline in the value of the reference index.
The
Fund’s Overlay Strategy is designed to seek to generate a positive return in
rising and flat equity markets, and may generate a positive return in equity
markets that are modestly declining, assuming the net premium collected from the
options sold and purchased exceeds the net cost to close the positions. In an
effort to limit losses in declining equity markets, the Fund may reduce its sale
of Short Puts and/or purchase of Long Puts with strike prices closer to the
strike prices of the Short Puts.
The
Fund focuses primarily on equity index options which offer both European
settlement (i.e.,
options can only be exercised at their expiration date) and cash settlement
(i.e.,
options carry an obligation by their seller to pay the difference between their
strike price and their settlement value instead of allowing the seller to take
delivery of securities).
The
potential returns of the Fund are generally limited to the amount of cash
(premiums) the Fund receives when selling Short Puts, net of any cash (premiums)
paid by the Fund to purchase Long Puts, plus the returns of the ETFs in which
the Fund invests. The Fund’s sale and purchase of put options may result in the
generation of positive returns for the Fund; however, the loss potential if the
strategy is not effective may be greater than the profit potential. The
Fund may lose significantly more than the premiums it receives in highly
volatile market conditions.
The Adviser employs a disciplined portfolio construction process that
relies on guidelines to govern capital allocations based on a quantitative
methodology designed by the Adviser to measure the perceived risk of the broad
U.S. equity market. In making this determination, the Adviser considers various
factors including but not limited to the overall volatility (rate of change) in
the markets. The Adviser bases allocation decisions on a combination of
quantitative risk metrics and a qualitative assessment of potential risk/reward
scenarios, with the ultimate goals of mitigating the effects of volatility in
the Fund’s portfolio and maintaining adequate portfolio diversification while
seeking to achieve the Fund’s targeted return. The Adviser evaluates the metrics
associated with the valuation of options, including volatility, time to
expiration and the relationship of the exercise price to the prevailing market
price of the reference asset. There can be no guarantee that the Adviser will be
successful in implementing the Fund’s strategy. During market conditions in
which market volatility rises, the price of options could rise, which, in turn,
could have a detrimental effect on the Fund’s performance and achieving its
targeted return.
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 the risks 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:
•Below
Investment Grade Bonds Risk. The
Fund’s investments in below investment grade bonds are subject to a greater risk
of loss of income and principal than higher grade debt securities. The Fund’s
investments in below investment grade bonds also subject the Fund to greater
levels of interest rate, credit and liquidity risk than funds that do not invest
in such securities. Issuers of below investment grade bonds are often highly
leveraged and are more vulnerable to changes in the economy. These securities
are considered predominately speculative with respect to the issuer’s continuing
ability to make principal and interest payments.
•California
and New York Municipal Securities Risk. Because
the Fund invests substantially in California and New York municipal instruments,
it is more exposed to the impact of negative political, economic and statutory
factors within California and New York than a fund that invests more
widely.
•Cybersecurity
Risk. Cybersecurity incidents may allow an unauthorized party to gain
access to Fund assets or proprietary information, or cause the Fund, the
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, 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 Shares, potentially resulting in financial losses to the Fund and its
shareholders.
•Derivatives
Securities Risk.
The Fund invests in options that derive their performance from the performance
of the reference index. Derivatives, such as the options in which the Fund
invests, can be volatile and involve various types and degrees of risks,
depending upon the characteristics of a particular derivative. Derivatives may
entail investment exposures that are greater than their cost would suggest,
meaning that a small investment in a derivative could have a substantial impact
on the performance of the Fund. The Fund could experience a loss if its
derivatives do not perform as anticipated, or are not correlated with the
performance of their underlying asset or if the Fund is unable to purchase or
liquidate a position because of an illiquid secondary
market. The market for many derivatives is, or suddenly can become,
illiquid. Changes in liquidity may result in significant, rapid, and
unpredictable changes in the prices for derivatives.
•ETF
Risks.
The Fund is an ETF and invests in other ETFs, 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 APs. In addition, there may be a limited number of market makers
and/or liquidity providers in the marketplace. Shares may trade at a material
discount to NAV and possibly face delisting if either: (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.
◦Cash
Redemption Risk. The
Fund’s investment strategy may require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. For example, the Fund
may not be able to redeem in-kind certain securities held by the Fund
(e.g.,
short positions, derivative instruments, and bonds that cannot be broken up
beyond certain minimum sizes needed for transfer and settlement). In such a
case, the Fund may be required to sell or unwind portfolio investments to obtain
the cash needed to distribute redemption proceeds. This may cause the Fund to
recognize a capital gain that it might not have recognized if it had made a
redemption in-kind. As a result, the Fund may pay out higher annual capital gain
distributions than if the in-kind redemption process was
used.
◦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.
◦Trading
Risk. Although
Shares are listed for trading on the Cboe
BZX Exchange, 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 the
Shares.
•Fixed
Income Risk.
Fixed income securities are subject to call, credit, extension, and interest
rate risk.
◦Call
Risk.
During periods of falling interest rates, an issuer of a callable bond held by
the Fund may “call” or repay the security before its stated maturity, and the
Fund may have to reinvest the proceeds at lower interest rates, resulting in a
decline in the Fund’s income.
◦Credit
Risk.
Debt issuers and other counterparties may not honor their obligations or may
have their debt downgraded by ratings agencies.
◦Extension
Risk.
During periods of rising interest rates, certain debt obligations will be paid
off substantially more slowly than originally anticipated and the value of those
securities may fall sharply, resulting in a decline in the Fund’s income and
potentially in the value of the Fund’s investments.
◦Interest
Rate Risk.
An increase in interest rates may cause the value of fixed-income securities
held by the Fund to decline. The Fund may be subject to a greater risk of rising
interest rates due to the recent historically low rates and the effect of
potential government fiscal policy initiatives and resulting market reaction to
those initiatives.
•Implied
Volatility Risk. When
the Fund sells an option, it gains the amount of the premium it receives, but
also incurs a liability representing the value of the option it has sold until
the option is either exercised and finishes “in the money,” meaning it has value
and can be sold, or the option expires worthless, or the expiration of the
option is “rolled,” or extended forward. The value of the options in which the
Fund invests is based partly on the volatility used by market participants to
price such options (i.e.,
implied volatility). Accordingly, increases in the implied volatility of such
options will cause the value of such options to increase (even if the prices of
the options’ underlying stocks do not change), which will result in a
corresponding increase in the liabilities of the Fund under such options and
thus decrease the Fund’s NAV.
•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 and trade tensions. In
addition, local, regional or global events such as war, including Russia’s
invasion of Ukraine, acts of terrorism, 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.
•Municipal
Securities Risk. Municipal securities can be significantly affected by political or
economic changes, including changes made in the law after issuance of the
securities, as well as uncertainties in the municipal market related to
taxation, legislative changes or the rights of municipal security holders,
including in connection with an issuer insolvency. Municipal securities backed
by current or anticipated revenues from a specific project or specific assets
can be negatively affected by the inability to collect revenues from the project
or the assets.
•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 limit its leverage risk based on its value-at-risk test (or
“VaR”), the Fund could still lose a significant amount or nearly all of its
value if the price of an underlying asset changes significantly
enough.
•Tax
Risk.
The
writing of options by the Fund may significantly reduce or eliminate its ability
to make distributions eligible to be treated as qualified dividend income.
Options entered into by the Fund may also be subject to the federal tax rules
applicable to straddles under the Internal Revenue Code of 1986, as amended (the
“Code”). If positions held by the Fund were treated as “straddles” for federal
income tax purposes, or the Fund’s risk of loss with respect to a position was
otherwise diminished as set forth in Treasury regulations, dividends on stocks
that are a part of such positions would not constitute qualified dividend income
subject to such favorable income tax treatment in the hands of non-corporate
shareholders or eligible for the dividends received deduction for corporate
shareholders. In addition, generally, straddles are subject to certain rules
that may affect the amount, character, and timing of the Fund’s recognition of
gains and losses with respect to straddle positions.
Because
the Fund intends to be treated as a “qualified fund of funds” (i.e.,
at the close of each quarter of the taxable year at least 50 percent of the
value of its total assets is represented by interests in other regulated
investment companies (“RICs”)), the Fund will generally be eligible to
distribute “exempt-interest dividends” to its shareholders. The Fund may
distribute exempt-interest dividends to the extent of its tax-exempt interest
income, if any, which may include both exempt-interest dividends received from
underlying funds taxable as RICs and interest income received directly by the
Fund on any investments in tax-exempt obligations (i.e., obligations that pay interest excluded from gross income under
Section 103(a) of the Code, reduced by certain expenses. An underlying fund
taxable as a RIC will generally be eligible to distribute exempt-interest
dividends if at least 50% of its total assets at the close of each quarter of
its taxable year consist of tax-exempt obligations. The Fund may not be a
suitable investment for individual retirement accounts (“IRAs”), for other
tax-exempt or tax-deferred accounts or for investors who are not sensitive to
the federal income tax consequences of their investments. The Underlying
Investments may invest in bonds subject to the federal alternative minimum tax
(“AMT”). Shareholders subject to the federal AMT will be required to report the
portion of the Fund’s distributions attributable to income from the bonds as a
tax preference item in determining their amounts due under the federal
AMT.
Performance
The performance
information presented below provides some indication of the risks of investing
in the Fund by showing the extent to which the Fund’s performance can change
from year to year and over time. The bar chart below shows the
Fund’s performance for the most recent calendar years ended December 31. The
table illustrates how the Fund’s average annual returns for the 1-year and since
inception
periods compare with those of the Bloomberg®
U.S. Aggregate Bond Index, which reflects a broad measure of market performance.
Performance
also is shown for the Bloomberg®
Municipal Bond Index, an additional index that represents the asset class in
which the Fund invests, and Bloomberg® 1-15 Year Municipal Bond Index, a previous benchmark
index. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.overlayshares.com
or by calling the Fund at 1-866-704-6857.
Calendar Year Total
Returns
The
calendar year-to-date total return of the
Fund as of September 30, 2024 was
5.20%. During the
period of time shown in the bar chart, the highest quarterly
return was 7.90% for the quarter ended December 31, 2023, and
the lowest quarterly return was
-6.33% for the quarter ended March 31,
2022.
Average
Annual Total Returns
(for
periods ended December 31, 2023)
|
|
|
|
|
|
|
|
| |
|
Overlay
Shares Municipal Bond ETF |
1-Year |
Since
Inception
(9/30/2019) |
| Return
Before Taxes |
7.13% |
1.59% |
| Return
After Taxes on Distributions |
6.07% |
0.85% |
| Return
After Taxes on Distributions and Sale of Shares |
4.19% |
1.34% |
|
Bloomberg®
U.S. Aggregate Bond Index*
(reflects no deduction for
fees, expenses, or taxes) |
5.53% |
-0.63% |
|
Bloomberg®
Municipal Bond Index
(reflects no deduction for
fees, expenses, or taxes) |
6.40% |
1.09% |
|
Bloomberg®
1-15
Year Municipal Bond Index
(reflects no deduction for
fees, expenses, or taxes) |
5.26% |
1.25% |
*
Effective
August 31, 2024, the
Bloomberg®
U.S. Aggregate Bond Index has replaced the Bloomberg®
1-15 Year Municipal Bond Index as the Fund’s required broad-based securities
market index in conjunction with certain regulatory
requirements.
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns depend on an
investor’s tax situation and may differ from those shown. After-tax returns shown are
not relevant to investors who hold their Shares through tax-deferred
arrangements such as an individual retirement account (“IRA”) or other
tax-advantaged accounts.
In certain cases, the figure
representing “Return After Taxes on Distributions and Sale of Shares” may be
higher than the other return figures for the same period. A higher after-tax
return results when a capital loss occurs upon redemption and provides an
assumed tax deduction that benefits the
investor.
Portfolio
Management
|
|
|
|
|
| |
| Adviser |
Liquid
Strategies, LLC |
|
Portfolio
Managers |
Adam
Stewart, CFA and Shawn Gibson have been portfolio managers of the Fund
since its inception in 2019. |
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.overlayshares.com.
Tax
Information
The
Fund’s distributions are generally exempt-interest dividends, or are taxable as
ordinary income, qualified dividend income, or capital gains (or a combination),
unless your investment is in an 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 FUNDS
Investment
Objectives
Each
Fund’s investment objective may be changed by the Board of Trustees (the
“Board”) of Listed Funds Trust (the “Trust”) without shareholder approval upon
written notice to shareholders.
Principal
Investment Strategies
Each
Fund has adopted a policy to comply with Rule 35d-1 under the Investment Company
Act of 1940 (the “1940 Act”). Such policies have been adopted as non-fundamental
investment policies and may be changed without shareholder approval upon 60
days’ written notice to shareholders. With respect to the relevant policies
below, a Fund defines “equity securities” to mean common and preferred stocks,
rights, warrants, depositary receipts, equity interests in real estate
investment trusts, and master limited partnerships.
Under
normal circumstances, at least 80% of the Large Cap Equity ETF’s net assets,
plus borrowings for investment purposes, will be invested, directly or
indirectly, in equity securities of large-cap companies.
Under
normal circumstances, at least 80% of the Small Cap Equity ETF’s net assets,
plus borrowings for investment purposes, will be invested, directly or
indirectly, in equity securities of small-cap companies.
Under
normal circumstances, at least 80% of the Foreign Equity ETF’s net assets, plus
borrowings for investment purposes, will be invested, directly or indirectly, in
equity securities of non-U.S. companies. For purposes of the foregoing policy,
the Foreign Equity ETF defines “securities of non-U.S. companies” as those that
are principally traded on a non-U.S. stock exchange, are issued by companies
incorporated in a non-U.S. country, or depositary receipts representing such
securities.
Under
normal circumstances, at least 80% of the Hedged Large Cap Equity ETF’s net
assets, plus borrowings for investment purposes, will be invested, directly or
indirectly through ETFs, in equity securities of large-cap companies.
Under
normal circumstances, at least 80% of the Core Bond ETF’s net assets, plus
borrowings for investment purposes, will be invested, directly or indirectly, in
bonds.
Under
normal circumstances, at least 80% of the Short Term Bond ETF’s net assets, plus
borrowings for investment purposes, will be invested, directly or indirectly
through ETFs, in bonds.
Under
normal circumstances, at least 80% of the Municipal Bond ETF’s net assets, plus
borrowings for investment purposes, will be invested, directly or indirectly, in
municipal bonds.
Principal
Investment Risks
An
investment in a Fund entails risks. A Fund could lose money, or its performance
could trail that of other investment alternatives. The following provides
additional information about each Fund’s principal risks. It is important that
investors closely review and understand these risks before making an investment
in a Fund. Each risk applies to each Fund unless otherwise specified. Just as in
each Fund’s summary section, the principal risks below 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 applicable Fund, regardless of the order in which it
appears.
•Below
Investment Grade Bonds Risk (Municipal
Bond ETF only).
Securities rated “BB” or below by S&P or “Ba” or below by Moody’s are known
as high yield securities and are commonly referred to as “junk bonds.” Such
securities entail greater price volatility and credit and interest rate risk
than investment-grade securities. Analysis of the creditworthiness of high yield
issuers is more complex than for higher-rated securities, making it more
difficult for the Adviser to accurately predict risk. There is a greater risk
with high yield fixed income securities that an issuer will not be able to make
principal and interest payments when due. If the Fund pursues missed payments,
there is a risk that Fund expenses could increase. In addition, lower-rated
securities may not trade as often and may be less liquid than higher-rated
securities, especially during periods of economic uncertainty or change. As a
result of all of these factors, these securities are generally considered to be
speculative.
•California
Municipal Securities Risk
(Municipal
Bond ETF only).
The Fund will invest in municipal securities issued by or on behalf of
California. As a result, the Fund is more exposed to risks affecting issuers of
California municipal securities than is a municipal securities fund that invests
more widely. Such risks include, but are not limited to, the strength of the
housing market and the growth in construction spending; constitutional
limitations affecting the ability of the State of California and municipalities
to address financial downturns, including limitations on the ability of the
State of California or municipalities to raise taxes, fees or charges without
voter approval; the impact of federal tax law changes; the performance of the
national and California economies; the impact of international events on
consumer confidence, oil supplies and oil prices; the impact of behavioral
changes in reaction to income and sales tax increases; shifts in monetary policy
affecting interest rates and the financial markets; the magnitude of pension and
post-retirement health care commitments, and the impact on the funding of such
benefits of lower than expected returns; the impact of consumer spending on tax
collections; increased demand in entitlement-based and claims-based programs
such as Medicaid, public assistance and general public health; access to the
capital markets in light of
disruptions
in the market; litigation against the State of California; the risk of
earthquakes or other natural catastrophes upon the State of California or
localities; actions taken by the federal government, including audits,
disallowances, changes in aid levels, and changes to Medicaid rules; and any
reduction in the creditworthiness of issuers of California municipal securities.
•Currency
Exchange Rate Risk (Foreign
Equity ETF
only).
Changes in currency exchange rates and the relative value of non-U.S. currencies
will affect the value of the Fund’s investments and the value of your Shares.
Because the Fund’s NAV is determined on the basis of U.S. dollars, the U.S.
dollar value of your investment in the Fund may go down if the value of the
local currency of the non-U.S. markets in which the Fund invests depreciates
against the U.S. dollar. This is true even if the local currency value of
securities in the Fund’s holdings goes up. Conversely, the dollar value of your
investment in the Fund may go up if the value of the local currency appreciates
against the U.S. dollar. The value of the U.S. dollar measured against other
currencies is influenced by a variety of factors. These factors include:
national debt levels and trade deficits, changes in balances of payments and
trade, domestic and foreign interest and inflation rates, global or regional
political, economic or financial events, monetary policies of governments,
actual or potential government intervention, and global energy prices. Political
instability, the possibility of government intervention and restrictive or
opaque business and investment policies also may reduce the value of a country’s
currency. Government monetary policies and the buying or selling of currency by
a country’s government also may influence exchange rates. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the value of an investment in the Fund may change quickly and without
warning, and you may lose money.
•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 a 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 a Fund, the 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 a Fund, the Adviser, or the Fund’s other
service providers, market makers, APs, a Fund’s primary listing exchange, or the
issuers of securities in which such Fund invests have the ability to disrupt and
negatively affect the Fund’s business operations, including the ability to
purchase and sell 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 a
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 a 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 Shares, and other data integral to the
functioning of a Fund inaccessible or inaccurate or incomplete. A Fund also may
incur substantial costs for cybersecurity risk management to prevent cyber
incidents in the future. A Fund and its respective shareholders could be
negatively impacted as a result.
•Derivatives
Securities Risk.
Each Fund invests in options that derive their performance from the performance
of the reference index. Derivatives, such as the options in which each Fund
invests, can be volatile and involve various types and degrees of risks,
depending upon the characteristics of a particular derivative. Derivatives may
entail investment exposures that are greater than their cost would suggest,
meaning that a small investment in a derivative could have a substantial impact
on the performance of a Fund. A Fund could experience a loss if its derivatives
do not perform as anticipated, or are not correlated with the performance of
their underlying asset or if the Fund is unable to purchase or liquidate a
position because of an illiquid secondary market. The market for many
derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid, and unpredictable changes in the prices for
derivatives.
•Emerging
Markets Risk (Foreign
Equity ETF
only).
The Fund’s direct or indirect investments in securities of issuers in emerging
market countries are subject to all of the risks of foreign investing generally,
and have additional heightened risks due to a lack of established legal,
political, business, and social frameworks to support securities markets,
including: delays in settling portfolio securities transactions; currency and
capital controls; greater sensitivity to interest rate changes; pervasiveness of
corruption and crime; currency exchange rate volatility; and inflation,
deflation, or currency devaluation.
•Equity
Market Risk (Large
Cap ETF, Small Cap ETF, Foreign Equity ETF, and Hedged Large Cap Equity ETF
only).
The
trading prices of equity securities and other instruments fluctuate in response
to a variety of factors. The Fund’s NAV and market price 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.
•ETF
Risks.
Each Fund is an ETF that invests in other ETFs and, as a result of that
structure, is exposed directly or indirectly to the following
risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
Each 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. Shares may trade at a material discount to NAV and possibly
face delisting if either: (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.
◦Cash
Redemption Risk. A
Fund’s
investment strategy may at times require it to redeem Shares for cash or to
otherwise include cash as part of its redemption proceeds. For example, the Fund
may not be able to redeem in-kind certain securities held by the Fund
(e.g.,
TBA transactions, short positions, derivative instruments, and bonds that cannot
be broken up beyond certain minimum sizes needed for transfer and settlement).
In such a case, the Fund may be required to sell or unwind portfolio investments
to obtain the cash needed to distribute redemption proceeds. This may cause the
Fund to recognize a capital gain that it might not have recognized if it had
made a redemption in-kind. As a result, the Fund may pay out higher annual
capital gain distributions than if the in-kind redemption process was
used.
◦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 a 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. To the
extent a Fund holds securities that trade on foreign exchanges that are closed
when such Fund’s primary listing exchange is open, such Fund is likely to
experience premiums and discounts greater than those of ETFs that invest in and
hold only securities and other investments that are listed and trade in the U.S.
◦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 a Fund’s underlying
portfolio holdings, which can be significantly less liquid than Shares.
•Fixed
Income Risk
(Core
Bond ETF, Short Term Bond ETF, and Municipal Bond ETF only).
Fixed
income securities are debt obligations issued by corporations, municipalities
and other borrowers. Coupons may be fixed or adjustable, based on a pre-set
formula. The market value of fixed income investments may change in response to
interest rate changes and other factors. Fixed
income securities are subject to call, credit, extension, and interest rate
risk.
◦Call
Risk.
During periods of falling interest rates, an issuer of a callable bond held by a
Fund may “call” or repay the security before its stated maturity, and the Fund
may have to reinvest the proceeds at lower interest rates, resulting in a
decline in the Fund’s income.
◦Credit
Risk.
Debt issuers and other counterparties may not honor their obligations or may
have their debt downgraded by ratings agencies. Debt instruments are subject to
varying degrees of credit risk, which may be reflected in their credit ratings.
There
is the chance that a Fund’s portfolio holdings will have their credit ratings
downgraded or will default (i.e.,
fail to make scheduled interest or principal payments), potentially reducing the
Fund’s income level or share price.
◦Extension
Risk.
During periods of rising interest rates, certain debt obligations will be paid
off substantially more slowly than originally anticipated and the value of those
securities may fall sharply, resulting in a decline in a Fund’s income and
potentially in the value of the Fund’s investments.
◦Interest
Rate Risk.
An increase in interest rates may cause the value of fixed-income securities
held by a Fund to decline. A Fund may be subject to a greater risk of rising
interest rates due to the recent period of historically low rates and the effect
of potential government fiscal policy initiatives and resulting market reaction
to those initiatives. Variable and floating rate securities may increase or
decrease in value in response to changes in interest rates, although generally
to a lesser degree than fixed-income securities.
•Foreign
Securities Risk (Foreign
Equity ETF only).
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. These include risks of adverse changes in
foreign economic, political, regulatory and other conditions, or changes in
currency exchange rates or exchange control regulations (including limitations
on currency movements and exchanges). The securities of some foreign companies
may be less liquid and, at times, more volatile than securities of comparable
U.S. companies. 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. securities 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 the Fund’s shares. Conversely,
Shares may trade on days when foreign exchanges are close. Each of these factors
can make investments in the Fund more volatile and potentially less liquid than
other types of investments.
•Geographic
Investment Risk
(Foreign
Equity ETF only).
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 China.
The
economy of China differs, often unfavorably, from the U.S. economy in such
respects as structure, general development, government involvement, wealth
distribution, rate of inflation, growth rate, allocation of resources and
capital reinvestment, among others. Under China’s political and economic system,
the central government has historically exercised substantial control over
virtually every sector of the Chinese economy through administrative regulation
and/or state ownership. Since 1978, the Chinese government has been, and is
expected to continue, reforming its economic policies, which has resulted in
less direct central and local government control over the business and
production activities of Chinese enterprises and companies. Notwithstanding the
economic reforms instituted by the Chinese government and the Chinese Communist
Party, actions of the Chinese central and local government authorities continue
to have a substantial effect on economic conditions in China, which could affect
the public and private sector companies in which the Fund may invest. In the
past, the Chinese government has from time to time taken actions that influence
the prices at which certain goods may be sold, encourage companies to invest or
concentrate in particular industries, induce mergers between companies in
certain industries and induce private companies to publicly offer their
securities to increase or continue the rate of economic growth, and control the
rate of inflation or otherwise regulate economic expansion and it may take such
actions in the future as well. Such actions and a variety of other centrally
planned or determined activities by the Chinese government could have a
significant adverse effect on economic conditions in China and the economic
prospects for, and the market prices and liquidity of, the securities of Chinese
companies and the payments of dividends and interest by Chinese companies. In
addition, expropriation, including nationalization, confiscatory taxation,
political, economic or social instability or other developments could adversely
affect and significantly diminish the values of the Chinese companies in which
the Fund may invest. Additionally, from time to time, China has experienced
outbreaks of infectious illnesses, including COVID-19, and the country may be
subject to other public health threats, diseases or similar issues in the
future. The Fund may invest in shares of Chinese companies traded on stock
markets in Mainland China or Hong Kong. These stock markets have experienced
high levels of volatility, which may continue in the future. The Hong Kong stock
market may behave differently from the Mainland China stock market and there may
be little to no correlation between the performance of the Hong Kong stock
market and the Mainland China stock market. From time to time, certain of the
companies in the Fund’s portfolio may operate in, or have dealings with,
countries subject to sanctions or embargoes imposed by the U.S. government and
the United Nations and/or in countries identified by the U.S. government as
state sponsors of terrorism. One or more of these companies may be subject to
constraints under U.S. law or regulations which could negatively affect the
company’s performance. Additionally, one or more of these companies may suffer
damage to its reputation if it is identified as a company which invests or deals
with countries which are identified by the U.S. government as state sponsors of
terrorism or subject to sanctions. As an investor in such companies, an
investing fund will be indirectly subject to these risks.
◦Risks
Related to Investing in India. India
is an emerging market and exhibits significantly greater market volatility from
time to time in comparison to more developed markets. Political and legal
uncertainty, greater government control over the economy, currency fluctuations
or blockage and the risk of nationalization or expropriation of assets may
result in higher potential for losses. Moreover, governmental actions can have a
significant effect on the economic conditions in India, which could adversely
affect the value and liquidity of the Fund’s investments. The securities markets
in India are comparatively underdeveloped, and stockbrokers and other
intermediaries may not perform as well as their counterparts in the United
States and other more developed securities markets. The limited liquidity of the
Indian securities markets may also affect the Fund’s ability to acquire or
dispose of securities at the price and time that it desires.
Global
factors and foreign actions may inhibit the flow of foreign capital on which
India is dependent to sustain its growth. In addition, the Reserve Bank of India
(“RBI”) has imposed limits on foreign ownership of Indian securities, which may
decrease the liquidity of the Fund’s portfolio and result in extreme volatility
in the prices of Indian securities. These factors, coupled with the lack of
extensive accounting, auditing and financial reporting standards and practices,
as compared to the United States, may increase the Fund’s risk of loss. Further,
certain Indian regulatory approvals, including approvals from the Securities and
Exchange Board of India, the RBI, the central government and the tax authorities
(to the extent that tax benefits need to be utilized), may be required before
the Fund can make investments in the securities of Indian companies.
◦Risks
Related to Investing in Japan.
The Japanese economy may be subject to considerable degrees of economic,
political and social instability, which could have a negative impact on Japanese
securities. Japan’s economic growth rate has remained relatively low for an
extended period of time and it may remain low in the future. In addition, Japan
is subject to the risk of natural disasters, such as earthquakes, volcanoes,
typhoons and tsunamis. Additionally, decreasing U.S. imports, new trade
regulations, changes in the U.S. dollar exchange rates, a recession in the
United States or continued increases in foreclosure rates may have an adverse
impact on the economy of Japan. Japan also has few natural resources, and any
fluctuation or shortage in the commodity markets could have a negative impact on
Japanese securities.
◦Risks
Related to Investing in Taiwan. Investments
in Taiwanese issuers may subject the Fund to risks specific to Taiwan. Taiwan is
a small island state with few raw material resources and limited land area and
is reliant on imports for its commodity needs. Any fluctuations or shortages in
the commodity markets could have a negative impact on the Taiwanese economy.
Also, continued labor outsourcing may adversely affect the Taiwanese economy.
Taiwan’s economy is intricately linked with economies of Asian countries that
have experienced over-extensions of credit, frequent and pronounced currency
fluctuations, currency devaluations, currency repatriation, rising unemployment
and fluctuations in inflation. The Taiwanese economy is dependent on the
economies of Japan and China, as well as the United States, and negative changes
in their economies or a reduction in purchases by any of them of Taiwanese
products and services would likely have an adverse impact on the Taiwanese
economy. Taiwan’s geographic proximity to China and Taiwan’s history of
political contention with China have resulted in ongoing tensions with China,
including the risk of war with China. These tensions may materially affect the
Taiwanese economy and securities markets.
◦Risks
Related to Investing in Western Europe.
Most developed countries in Western Europe are members of the European Union
(EU), and many are also members of the European Monetary Union (EMU), which
requires compliance with restrictions on inflation rates, deficits, and debt
levels. Unemployment in certain European nations is historically high and
several countries face significant debt problems. These conditions can
significantly affect every country in Europe. The euro is the official currency
of the EU. Funds that invest in Europe may have significant exposure to the euro
and events affecting the euro. Recent market events affecting several of the EU
member countries have adversely affected the sovereign debt issued by those
countries, and ultimately may lead to a decline in the value of the euro. A
significant decline in the value of the euro may produce unpredictable effects
on trade and commerce generally and could lead to increased volatility in
financial markets worldwide.
The
United Kingdom (“UK”) formally withdrew from the EU on January 31, 2020
(commonly referred to as “Brexit”) and entered an 11-month transition period,
which concluded on December 31, 2020, with the UK leaving the EU single market
and customs union under the terms of a new trade agreement. The agreement
governs the new relationship between the UK and EU with respect to trading goods
and services, but critical aspects of the relationship remain unresolved and
subject to further negotiation and agreement. Certain aspects of Brexit have had
an adverse impact on the region, leading to increased inflation, labor shortages
and business closures, among others. There is still considerable uncertainty
relating to the potential consequences associated with the UK’s exit and whether
its exit will increase the likelihood of other countries also departing the EU.
Any exits from the EU, or the possibility of such exits, may have a significant
impact on the UK, Europe, and global economies, which may result in increased
volatility and illiquidity, new legal and regulatory uncertainties and
potentially lower economic growth for these economies that could potentially
have an adverse effect on the value of the Fund’s investments. In addition, the
UK has been a target of terrorism in the past. Acts of terrorism in Europe or
the UK or against such countries’ interests abroad may cause uncertainty in the
European or UK financial markets and adversely affect the performance of the
issuers to which the Fund has exposure.
•Geopolitical
Risk
(Foreign
Equity ETF only).
Some
countries and regions in which the Fund invests have experienced security
concerns, war or threats of war and aggression, terrorism, economic uncertainty,
natural and environmental disasters and/or systemic market dislocations that
have led, and in the future may lead, to increased short-term market volatility
and may have adverse long-term effects on the U.S. and world economies and
markets generally. Such geopolitical and other events may also disrupt
securities markets and, during such market disruptions, the Fund’s exposure to
the other risks described herein will likely increase. Each of the foregoing may
negatively impact the Fund’s investments.
•Government
Obligations Risk (Core
Bond ETF and Short Term Bond ETF only).
Obligations
issued or guaranteed by the U.S. government, its agencies, authorities and
instrumentalities and backed by the full faith and credit of the United States
only guarantee principal and interest will be timely paid to holders of the
securities. The entities do not guarantee that the value of the securities will
increase and, in fact, the market values of such obligations may fluctuate. In
addition, not all U.S. government securities are backed by the full faith and
credit of the United States; some are the obligation solely of the entity
through which they are issued. There is no guarantee that the U.S. government
would provide financial support to its agencies and instrumentalities if not
required to do so by law.
•Implied
Volatility Risk.
When a Fund sells an option, it gains the amount of the premium it receives, but
also incurs a liability representing the value of the option it has sold until
the option is either exercised and finishes “in the money,” meaning it has value
and can be sold, or the option expires worthless, or the expiration of the
option is “rolled,” or extended forward. The value of the options in which a
Fund invests is based partly on the volatility used by market participants to
price such options (i.e.,
implied volatility). Accordingly, increases in the implied volatility of such
options will cause the value of such options to increase (even if the prices of
the options’ underlying stocks do not change), which will result in a
corresponding increase in the liabilities of a Fund under such options and thus
decrease such Fund’s NAV.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing Risk (Large Cap ETF, Foreign Equity ETF, and Hedged Large Cap Equity
ETF only).
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 Risk (Foreign Equity ETF only).
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 mid-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 Risk (Small Cap ETF only).
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.
Market risks, including political, regulatory, market, and economic or other
developments, and developments that impact specific economic sectors, industries
or segments of the market, can affect the value of a Fund’s Shares. Each Fund is
subject to the risk that the prices of, and the income generated by, securities
held by the Fund may decline significantly and/or rapidly in response to adverse
conditions or other developments, such as interest rate fluctuations, and events
directly involving specific issuers that may cause broad changes in market
value, public perceptions concerning these developments, and adverse investor
sentiment. Such events may cause the value of securities owned by a Fund to go
up or down, sometimes rapidly or unpredictably. There also is a risk that policy
and legislative changes by the U.S. Government and/or Federal Reserve, or
certain foreign governments and central banks, could cause increased volatility
in financial markets and higher levels of Fund redemptions, which could have a
negative impact on a Fund. These events may lead to periods of volatility and
increased redemptions, which could cause a Fund to experience a loss when
selling securities to meet redemption requests by shareholders. The risk of loss
increases if the redemption requests are unusually large or frequent. Markets
also tend to move in cycles, with periods of rising and falling prices. If there
is a general decline in the securities and other markets, your investment in a
Fund may lose value, regardless of the individual results of the securities and
other instruments in which a Fund invests.
Local,
regional, or global events, such as war, acts of terrorism, natural disasters,
public health issues, recessions, or other events could have a significant
impact on the market generally and on specific securities. The COVID-19
pandemic, Russia’s invasion of Ukraine, the Israel-Hamas conflict, and higher
inflation have resulted in extreme volatility in the financial markets, economic
downturns around the world, and severe losses, particularly to some sectors of
the economy and individual issuers, and reduced liquidity of certain
instruments. These events have caused significant disruptions to business
operations, strained healthcare systems, disruptions to supply chains, large
expansion of government deficits and debt as a result of government actions to
mitigate the effects of such events, and widespread uncertainty regarding the
long-term effects of such events. These or similar events could be prolonged and
could adversely affect the value and liquidity of a Fund’s investments, impair a
Fund’s ability to satisfy redemption requests, and negatively impact a Fund’s
performance. Furthermore, economies and financial markets throughout the world
are becoming increasingly interconnected. As a result, whether or not a Fund
invests in securities of issuers located in or with significant exposure to
countries experiencing economic and financial difficulties, the value and
liquidity of the Fund’s investments may be negatively affected.
•Mortgage-
and Asset-Backed Securities Risk (Core
Bond ETF and Short Term Bond ETF only).
A
Fund may invest in U.S. government agency-backed mortgage- and asset-backed
securities. Mortgage- and asset-backed securities are subject to interest rate
risk. Modest movements in interest rates (both increases and decreases) may
quickly and significantly reduce the value of certain types of these securities.
When interest rates fall, mortgage- and asset-backed securities may be subject
to prepayment risk. When interest rates rise, certain types of mortgage- and
asset-backed securities are subject to extension risk. Mortgage- and
asset-backed securities can also be subject to the risk of default on the
underlying residential or commercial mortgage(s) or other assets.
•Municipal
Securities Risk
(Municipal Bond ETF only).
Municipal
securities can be significantly affected by political or economic changes,
including changes made in the law after issuance of the securities, as well as
uncertainties in the municipal market related to taxation, legislative changes
or the rights of municipal security holders, including in connection with an
issuer insolvency. Municipal securities backed by current or anticipated
revenues from a specific project or specific assets can be negatively affected
by the inability to collect revenues from the project or the assets.
•New
York Municipal Securities Risk
(Municipal
Bond ETF only).
The Fund will invest in municipal securities issued by or on behalf of the State
of New York and The City of New York. As a result, the Fund is more exposed to
risks affecting issuers of New York municipal securities than is a municipal
securities fund that invests more widely. Such risks include, but are not
limited to, the condition of the New York and national economies, and the
collection of economically sensitive tax receipts in the amounts projected; the
impact of national and international events; ongoing financial risks in the
Euro-zone; changes in consumer confidence, oil supplies and oil prices; major
terrorist events, hostilities or war; climate change and extreme weather events;
federal statutory and regulatory changes concerning financial sector activities,
federal tax law and other programmatic purposes; changes concerning financial
sector bonus payouts, as well as any future legislation governing the structure
of compensation; shifts in monetary policy affecting interest rates and the
financial markets; the impact of financial and real estate market developments
which may adversely affect bonus income and capital gains realizations; the
impact of the effect of household debt on consumer spending and New York State
tax collections; and the outcomes of litigation and other claims affecting the
State of New York.
•Options
Risk.
Selling (writing) and buying options are speculative activities and entail
greater than ordinary investment risks. A 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, each 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 a 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 a 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. A 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 a Fund
will limit its leverage risk based on the VaR test, the Fund could still lose a
significant amount or nearly all of its value if the price of an underlying
asset changes significantly enough.
•Tax
Risk.
If positions held by a Fund were treated as “straddles” for federal income tax
purposes, or a Fund’s risk of loss with respect to a position was otherwise
diminished as set forth in Treasury regulations, dividends on stocks that are a
part of such positions would not constitute qualified dividend income subject to
such favorable income tax treatment in the hands of non-
corporate
shareholders or eligible for the dividends received deduction for corporate
shareholders. In addition, generally, straddles are subject to certain rules
that may affect the amount, character and timing of a Fund’s gains and losses
with respect to straddle positions by requiring, among other things, that: (1)
any loss realized on disposition of one position of a straddle may not be
recognized to the extent that the Fund has unrealized gains with respect to the
other position in such straddle; (2) the Fund’s holding period in straddle
positions be suspended while the straddle exists (possibly resulting in a gain
being treated as short-term capital gain rather than long-term capital gain);
(3) the losses recognized with respect to certain straddle positions that are
part of a mixed straddle and that are not subject to Section 1256 of the Code be
treated as 60% long-term and 40% short-term capital loss; (4) losses recognized
with respect to certain straddle positions that would otherwise constitute
short-term capital losses be treated as long-term capital losses; and (5) the
deduction of interest and carrying charges attributable to certain straddle
positions may be deferred.
Because
the Municipal Bond ETF intends to be treated as a “qualified fund of funds”
(i.e.,
at the close of each quarter of the taxable year at least 50 percent of the
value of its total assets is represented by interests in other RICs), the Fund
will generally be eligible to distribute “exempt-interest dividends” to its
shareholders. The Municipal Bond ETF may distribute exempt-interest dividends to
the extent of its tax-exempt interest income, if any, which may include both
exempt-interest dividends received from underlying funds taxable as RICs and
interest income received directly by the Fund on any investments in tax-exempt
obligations (i.e.,
obligations that pay interest excluded from gross income under Section 103(a) of
the Code), reduced by certain expenses. An underlying fund taxable as a RIC will
generally be eligible to distribute exempt-interest dividends if at least 50% of
its total assets at the close of each quarter of its taxable year consist of
tax-exempt obligations. The Municipal Bond ETF may not be a suitable investment
for IRAs, for other tax-exempt or tax-deferred accounts or for investors who are
not sensitive to the federal income tax consequences of their investments. The
Underlying Investments may invest in bonds subject to the federal AMT.
Shareholders subject to the federal AMT will be required to report the portion
of the Fund’s distributions attributable to income from the bonds as a tax
preference item in determining their amounts due under the federal
AMT.
PORTFOLIO
HOLDINGS INFORMATION
Information
about each Fund’s daily portfolio holdings is available at
www.overlayshares.com. A complete description of the Funds’ policies and
procedures with respect to the disclosure of the Funds’ portfolio holdings is
available in the Funds’ Statement of Additional Information (the “SAI”).
MANAGEMENT
Investment
Adviser
Liquid
Strategies, LLC, a Delaware limited liability company located at 3550 Lenox
Road, Suite 2550, Atlanta, Georgia 30326, serves as the investment adviser for
each Fund. The Adviser, subject to the general supervision and oversight of the
Board, provides an investment program for each Fund and manages the day-to-day
investment of each Fund’s assets. The Adviser also arranges for transfer agency,
custody, fund administration, distribution and all other services necessary for
each Fund to operate. The Adviser is an SEC-registered investment
adviser.
For
the services it provides to the Funds, the Adviser is entitled to a unified
management fee, which is calculated daily and paid monthly, at an annual rate
based on each Fund’s average daily net assets as set forth in the table below.
|
|
|
|
|
| |
| Fund |
Management
Fee |
| Overlay
Shares Large Cap Equity ETF |
0.75% |
| Overlay
Shares Small Cap Equity ETF |
0.75% |
| Overlay
Shares Foreign Equity ETF |
0.75% |
| Overlay
Shares Hedged Large Cap Equity ETF |
0.75% |
| Overlay
Shares Core Bond ETF |
0.75% |
| Overlay
Shares Short Term Bond ETF |
0.75% |
| Overlay
Shares Municipal Bond ETF |
0.75% |
Pursuant
to an investment advisory agreement between the Trust, on behalf of each Fund,
and the Adviser (the “Advisory Agreement”), the Adviser has agreed to pay all
expenses of the Funds 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 fees and expenses paid by the Trust
under any distribution plan adopted pursuant to Rule 12b-1 under the 1940
Act.
A
discussion of the basis for the Board’s approval of the continuation of the
Advisory Agreement for the Funds is available in the Funds’ Form
N-CSR filing
for the fiscal year ended August 31, 2024.
Portfolio
Managers
The
individuals identified below are jointly and primarily responsible for the day
to day management of the Funds’ portfolios.
Adam
Stewart, CFA.
Mr. Stewart has more than 23 years of investment industry experience and
co-founded the Adviser in 2013. He is a Portfolio Manager and Director of
Trading on the firm’s investment team, which is responsible for setting
portfolio allocations based on the risk profile of the markets. Mr. Stewart
began his career at Franklin Templeton in 1997 and later served as Head of
Equity Trading at Trusco Capital Management along with managing equity trading
operations. Most recently, Mr. Stewart was a founding partner and Director of
Trading for Perimeter Capital Management. Mr. Stewart received his Chartered
Financial Analyst (CFA) designation in 2001 and earned his B.A. from Auburn
University.
Shawn
Gibson.
Mr. Gibson co-Founded the Adviser in 2013 and serves as the Chief Investment
Officer and Portfolio Manager on the firm’s investment team, and is a member of
the firm’s Executive Management Committee. He brings more than 25 years of
investment experience primarily in the area of options trading and options
portfolio management. Mr. Gibson started trading options in 1997 with the Timber
Hill Group, one of the world’s largest options market making firms. While at
Timber Hill, Mr. Gibson was an options market maker on the floor of the Pacific
Exchange and was later promoted to join a small team in Greenwich, CT that was
responsible for overseeing the firm’s multi-billion dollar options trading
portfolio. He subsequently served as Head of Options Strategy and Director of
Alternative Investments at BB&T, where he worked with advisors and their
clients to develop options-based hedging and yield enhancing strategies. Mr.
Gibson was voted as one of the Top 40 leaders under 40 while living in Richmond
after being nominated by his peers due to his professional accomplishments and
community involvement. Mr. Gibson earned his B.S. in Commerce from the
University of Virginia.
Other
Service Providers
Foreside
Fund Services, LLC, a wholly-owned subsidiary of Foreside Financial Group, LLC
(doing business as ACA Group) (the “Distributor”), serves as the principal
underwriter and distributor of each 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 and a member of the
Financial Industry Regulatory Authority, Inc. (“FINRA”). The Distributor has no
role in determining the policies of the Funds or the securities that are
purchased or sold by a Fund and is not affiliated with the Adviser or any of its
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 (as applicable) for the Funds.
U.S.
Bank National Association, located at 1555 North Rivercenter Drive, Suite 302,
Milwaukee, Wisconsin 53212, serves as the custodian for the Funds.
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 1835 Market Street, Suite 310, Philadelphia,
Pennsylvania 19103, serves as the Funds’ independent registered public
accounting firm. The independent registered public accounting firm is
responsible for auditing the annual financial statements of the Funds.
HOW
TO BUY AND SELL SHARES
Each
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 a Fund, and only APs may tender their Shares for redemption
directly to a 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 Funds’
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
Funds impose 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 Funds, are an essential part of the ETF process and
help keep Share trading prices in line with NAV. As such, the Funds accommodate
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 Funds’ fair valuation of their
holdings consistent with the 1940 Act and Rule 2a-5 thereunder and their ability
to impose transaction fees on purchases and redemptions of Creation Units to
cover the custodial and other costs incurred by the Funds in effecting trades
help to minimize the potential adverse consequences of frequent purchases and
redemptions.
Determination
of Net Asset Value
Each
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (the “NYSE”), generally 4:00 p.m. Eastern Time, each day the
NYSE is open for business. The NAV for a Fund is calculated by dividing the
applicable Fund’s net assets by its Shares outstanding.
In
calculating its NAV, each 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. If such
information is not available for a security held by a 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 Funds
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
investments whose market prices are not “readily available” or are deemed to be
unreliable. For example, such circumstances may arise when: (i) an investment
has been de-listed or has had its trading halted or suspended; (ii) an
investment’s primary pricing source is unable or unwilling to provide a price;
(iii) an investment’s primary trading market is closed during regular market
hours; or (iv) an investment’s value is materially affected by events occurring
after the close of the investment’s primary trading market. Generally, when fair
valuing an investment held by a 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
investment, general and/or specific market conditions and the specific facts
giving rise to the need to fair value the investment. 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, a 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 and the rules thereunder limit investments by
registered investment companies in the securities of other investment companies.
Registered investment companies are permitted to invest in each Fund beyond the
limits set forth in section 12(d)(1), subject to certain terms and conditions,
including that such investment companies enter into an agreement with such Fund.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Funds. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Funds is available through certain broker-dealers.
If you are interested in enrolling in householding and receiving a single copy
of prospectuses and other shareholder documents, please contact your
broker-dealer. If you are currently enrolled in householding and wish to change
your householding status, please contact your broker-dealer.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
Each
Fund intends to pay out dividends in cash, if any, and distribute any net
realized capital gains to its shareholders at least annually. Each 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 certain important U.S. federal income tax
considerations generally applicable to investments in the Funds. Your investment
in a Fund may have other tax implications. Please consult your tax advisor 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.
Each
Fund has elected and intends to qualify each year for treatment as a RIC. 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, a 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 a 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
Each
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains income. 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 a Fund owned the investments that generated them, rather
than how long a shareholder has owned his or her Shares. Sales of assets held by
a Fund for more than one year generally result in long-term capital gains and
losses, and sales of assets held by a Fund for one year or less generally result
in short-term capital gains and losses. Distributions of a Fund’s net capital
gain (the excess of net long-term capital gains over net short-term capital
losses) that are reported by such 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 a 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. The investment strategies of
the Core Bond ETF, Short Term Bond ETF, and Municipal Bond ETF will
significantly limit their ability to distribute dividends eligible to be treated
as qualified dividend income. A Fund’s Overlay Strategy may prevent each Fund’s
income from being eligible for the treatment as qualified dividend income in the
hands of non-corporate shareholders.
Corporate
shareholders may be entitled to a dividends received deduction for the portion
of dividends they receive from a Fund that are attributable to dividends
received by the Fund from U.S. corporations, subject to certain limitations. The
investment strategies of the Foreign Equity ETF, Core Bond ETF, Short Term Bond
ETF, and Municipal Bond ETF will significantly limit their ability to distribute
dividends eligible for the dividends received deduction applicable to corporate
shareholders. A Fund’s Overlay Strategy may prevent each Fund’s income from
being eligible for the dividends received deduction for corporate
shareholders.
A
RIC that receives business interest income may pass through its net business
interest income for purposes of the tax rules applicable to the interest expense
limitations under Section 163(j) of the Code. A RIC’s total “Section 163(j)
Interest Dividend” for a tax year is limited to the excess of the RIC’s business
interest income over the sum of its business interest expense and its other
deductions properly allocable to its business interest income. A RIC may, in its
discretion, designate all or a portion of ordinary dividends as Section 163(j)
Interest Dividends, which would allow the recipient shareholder to treat the
designated portion of such dividends as interest income for purposes of
determining such shareholder’s interest expense deduction limitation under
Section 163(j). This can potentially increase the amount of a shareholder’s
interest expense deductible under Section 163(j). In general, to be eligible to
treat a Section 163(j) Interest Dividend as interest income, you must have held
your shares in a Fund for more than 180 days during the 361-day period beginning
on the date that is 180 days before the date on which the share becomes
ex-dividend with respect to such
dividend.
Section 163(j) Interest Dividends, if so designated by a Fund, will be reported
to your financial intermediary or otherwise in accordance with the requirements
specified by the Internal Revenue Service (the “IRS”).
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from a 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 a Fund before your
investment (and thus were included in the Shares’ NAV when you purchased your
Shares).
You
may wish to avoid investing in a 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
a 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. A 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),
a 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.
Each
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 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.
Taxes
When Shares are Sold on the Exchange
Provided
that a shareholder holds Shares as capital assets, 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 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 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 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 IRS 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 their 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.
A
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. A Fund may sell
portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause a 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, a Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Taxation
of Fund Investments
If
positions held by a Fund were treated as “straddles” for federal income tax
purposes, or the Fund’s risk of loss with respect to a position was otherwise
diminished as set forth in Treasury Regulations, dividends on stocks that are a
part of such positions would not constitute qualified dividend income subject to
such favorable income tax treatment and would not be eligible for the
dividends-dividends received deduction for corporate shareholders. In addition,
generally, straddles are subject to certain rules that may affect the amount,
character and timing of a Fund’s gains and losses with respect to straddle
positions by requiring, among other things, that: (1) any loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund’s holding period in straddle positions be suspended while
the straddle exists (possibly resulting in a gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions that are part of a mixed straddle and that
are not subject to Code Section 1256 be treated as 60% long-term and 40%
short-term capital loss; (4) losses recognized with respect to certain straddle
positions that would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) the deduction of interest and carrying
charges attributable to certain straddle positions may be deferred.
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 a Fund
The
Funds invest in foreign securities. Interest and other income received by a 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 a Fund’s assets consists of certain
foreign stock or securities, each such Fund will be eligible to elect to “pass
through” to investors the amount of foreign income and similar taxes (including
withholding taxes) paid by such 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 a Fund does
not so elect, each such Fund will be entitled to claim a deduction for certain
foreign taxes incurred by such Fund. A 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.
Foreign
tax credits, if any, received by a Fund as a result of an investment in another
RIC (including an ETF which is taxable as a RIC) will not be passed through to
you unless the Fund qualifies as a “qualified fund of funds” under the Code. If
a Fund is a “qualified fund of funds” it will be eligible to file an election
with the IRS that will enable the Fund to pass along these foreign tax credits
to its shareholders. A Fund will be treated as a “qualified fund of funds” under
the Code if at least 50% of the value of the Fund’s total assets (at the close
of each quarter of the Fund’s taxable year) is represented by interests in other
RICs.
Tax
Considerations Applicable to the Municipal Bond ETF
The
Municipal Bond ETF intends to be treated as a “qualified fund of funds”
(i.e.,
at the close of each quarter of the taxable year at least 50 percent of the
value of its total assets is represented by interests in other RICs), and
therefore the Municipal Bond ETF will generally be eligible to distribute
“exempt-interest dividends” to its shareholders. The Municipal Bond ETF may
distribute exempt-interest dividends to the extent of its tax-exempt interest
income, if any, which may include both exempt-interest dividends received from
underlying funds taxable as RICs and interest income received directly by the
Municipal Bond ETF on any investments in tax-exempt obligations (i.e.,
obligations that pay interest excluded from gross income under Section 103(a) of
the Code), reduced by certain expenses. An underlying fund taxable as a RIC will
generally be eligible to distribute exempt-interest dividends if at least 50% of
its total assets at the close of each quarter of its taxable year consist of
tax-exempt obligations. A shareholder treats an exempt-interest dividend as
interest on state and local bonds exempt from regular federal income tax.
Distributions
from the Municipal Bond ETF of exempt-interest dividends may be tax preference
items for purposes of the federal AMT. Distributions of the Municipal Bond ETF’s
income other than exempt-interest dividends generally will be taxable to
shareholders. Gains realized by the Municipal Bond ETF on the sale or exchange
of investments that generate exempt-interest income will also be taxable to
shareholders.
The
exemption from federal income tax for exempt-interest dividends does not
necessarily result in exemption for such dividends under the income or other tax
laws of any state or local taxing authority. Some states exempt from state
income tax that portion of any exempt-interest dividend that is derived from
interest received by a RIC on its holdings of securities of that state and its
political subdivisions and instrumentalities. Therefore, the Municipal Bond ETF
will report annually to its shareholders the percentage of interest income
earned by the Municipal Bond ETF during the preceding year on tax-exempt
obligations indicating, on a state-by-state
basis,
the source of such income. Shareholders of the Municipal Bond ETF are advised to
consult with their own tax advisers about state and local tax
matters.
Shares
of the Municipal Bond ETF may not be suitable for tax-exempt shareholders
because such shareholders generally would not benefit from the tax-exempt status
of distributions from the Municipal Bond ETF. Tax-exempt shareholders should
contact their tax advisers and financial planners regarding the tax consequences
to them of an investment in the Municipal Bond ETF.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in each 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 advisor 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, each 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 Funds, 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 each Fund’s Shares traded on the Exchange at a price above
(i.e.,
at a premium) or below (i.e.,
at a discount) its NAV is available on the Funds’ website at
www.overlayshares.com.
ADDITIONAL
NOTICES
The
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 and the Funds 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 a Fund particularly.
FINANCIAL
HIGHLIGHTS
The
following financial highlights table shows the financial performance information
for each Fund’s five most recent fiscal years (or the life of a Fund, if
shorter). Certain information reflects financial results for a single share of a
Fund. The total returns in the table represent the rate that you would have
earned or lost on an investment in a Fund (assuming you reinvested all
distributions). This information has been audited by Cohen & Company, Ltd.,
the independent registered public accounting firm of the Funds, whose report,
along with each Fund’s financial statements, is included in the Funds’ most
recent Form
N-CSR,
which can be located on the SEC’s website.
Overlay
Shares ETFs
Financial
Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Per
Share Operating Performance
(For a share outstanding throughout each
period) |
|
|
| Investment
Operations: |
Less
Distributions From: |
| For
the Period Ended |
Net
Asset
Value, Beginning of Period |
Net
Investment
Income(a) |
Net
Realized and Unrealized Gain (Loss) on Investments(b) |
Total
from Investment Operations |
Net
Investment Income |
Net
Realized
and
Unrealized
Loss |
| Overlay
Shares Large Cap Equity ETF |
|
| |
| For
the year 09/01/2023 — 08/31/2024 |
$ |
36.08 |
| 0.29 |
| 10.39 |
| 10.68 |
| (0.26) |
| — |
|
| For
the year 09/01/2022 — 08/31/2023 |
$ |
32.22 |
| 0.32 |
| 4.73 |
| 5.05 |
| (0.23) |
| — |
|
| For
the year 09/01/2021 — 08/31/2022 |
$ |
39.21 |
| 0.23 |
| (5.74) |
| (5.51) |
| (0.30) |
| (0.57) |
|
| For
the year 09/01/2020 — 08/31/2021 |
$ |
30.08 |
| 0.22 |
| 10.16 |
| 10.38 |
| (0.87) |
| (0.38) |
|
|
For
the period 09/30/2019 — 08/31/2020(c) |
$ |
25.00 |
| 0.20 |
| 5.15 |
| 5.35 |
| (0.23) |
| (0.04) |
|
| Overlay
Shares Small Cap Equity ETF |
|
| |
| For
the year 09/01/2023 — 08/31/2024 |
$ |
30.86 |
| 0.20 |
| 5.85 |
| 6.05 |
| (0.31) |
| (0.42) |
|
| For
the year 09/01/2022 — 08/31/2023 |
$ |
30.26 |
| 0.24 |
| 1.42 |
| 1.66 |
| (0.23) |
| — |
|
| For
the year 09/01/2021 — 08/31/2022 |
$ |
37.20 |
| 0.25 |
| (5.77) |
| (5.52) |
| (0.34) |
| (0.34) |
|
| For
the year 09/01/2020 — 08/31/2021 |
$ |
24.27 |
| 0.08 |
| 13.83 |
| 13.91 |
| (0.89) |
| (0.09) |
|
|
For
the period 09/30/2019 — 08/31/2020(c) |
$ |
25.00 |
| 0.19 |
| (0.68) |
| (0.49) |
| (0.18) |
| (0.06) |
|
| Overlay
Shares Foreign Equity ETF |
|
| |
| For
the year 09/01/2023 — 08/31/2024 |
$ |
22.36 |
| 0.57 |
| 4.03 |
| 4.60 |
| (0.57) |
| — |
|
| For
the year 09/01/2022 — 08/31/2023 |
$ |
21.04 |
| 0.45 |
| 1.89 |
| 2.34 |
| (0.48) |
| — |
|
| For
the year 09/01/2021 — 08/31/2022 |
$ |
27.84 |
| 0.44 |
| (6.04) |
| (5.60) |
| (0.54) |
| (0.14) |
|
| For
the year 09/01/2020 — 08/31/2021 |
$ |
24.13 |
| 0.33 |
| 4.39 |
| 4.72 |
| (1.01) |
| — |
|
|
For
the period 09/30/2019 — 08/31/2020(c) |
$ |
25.00 |
| 0.73 |
| (0.73) |
| — |
| (0.80) |
| (0.05) |
|
| Overlay
Shares Hedged Large Cap Equity ETF |
|
| |
| For
the year 09/01/2023 — 08/31/2024 |
$ |
27.98 |
| 0.24 |
| 5.15 |
| 5.39 |
| (0.23) |
| — |
|
| For
the year 09/01/2022 — 08/31/2023 |
$ |
25.53 |
| 0.23 |
| 2.42 |
| 2.65 |
| (0.15) |
| (0.05) |
|
| For
the year 09/01/2021 — 08/31/2022 |
$ |
28.97 |
| 0.14 |
| (3.46) |
| (3.32) |
| (0.12) |
| — |
|
|
For
the period 1/14/2021 — 08/31/2021(d) |
$ |
25.00 |
| 0.04 |
| 3.93 |
| 3.97 |
| — |
| — |
|
| Overlay
Shares Core Bond ETF |
|
| |
| For
the year 09/01/2023 — 08/31/2024 |
$ |
20.37 |
| 0.57 |
| 1.45 |
| 2.02 |
| (0.57) |
| — |
|
| For
the year 09/01/2022 — 08/31/2023 |
$ |
21.54 |
| 0.44 |
| (0.59) |
| (0.15) |
| (0.42) |
| — |
|
| For
the year 09/01/2021 — 08/31/2022 |
$ |
26.40 |
| 0.26 |
| (3.99) |
| (3.73) |
| (0.23) |
| (0.43) |
|
| For
the year 09/01/2020 — 08/31/2021 |
$ |
26.61 |
| 0.27 |
| 0.52 |
| 0.79 |
| (0.83) |
| (0.17) |
|
|
For
the period 09/30/2019 — 08/31/2020(c) |
$ |
25.00 |
| 0.35 |
| 1.92 |
| 2.27 |
| (0.62) |
| (0.04) |
|
| Overlay
Shares Short Term Bond ETF |
|
| |
| For
the year 09/01/2023 — 08/31/2024 |
$ |
21.53 |
| 0.63 |
| 1.70 |
| 2.33 |
| (0.75) |
| (0.22) |
|
| For
the year 09/01/2022 — 08/31/2023 |
$ |
21.93 |
| 0.42 |
| 0.17 |
| 0.59 |
| (0.44) |
| — |
|
| For
the year 09/01/2021 — 08/31/2022 |
$ |
25.30 |
| 0.20 |
| (2.52) |
| (2.32) |
| (0.27) |
| (0.30) |
|
|
For
the period 1/14/2021— 08/31/2021(d) |
$ |
25.00 |
| 0.11 |
| 0.62 |
| 0.73 |
| (0.43) |
| — |
|
| Overlay
Shares Municipal Bond ETF |
|
| |
| For
the year 09/01/2023 — 08/31/2024 |
$ |
21.70 |
| 0.47 |
| 1.23 |
| 1.70 |
| (0.75) |
| (0.24) |
|
| For
the year 09/01/2022 — 08/31/2023 |
$ |
22.11 |
| 0.39 |
| 0.18 |
| 0.57 |
| (0.38) |
| — |
|
| For
the year 09/01/2021 — 08/31/2022 |
$ |
26.37 |
| 0.25 |
| (3.03) |
| (2.78) |
| (0.29) |
| (0.80) |
|
| For
the year 09/01/2020 — 08/31/2021 |
$ |
25.80 |
| 0.31 |
| 1.28 |
| 1.59 |
| (0.87) |
| (0.15) |
|
|
For
the period 09/30/2019 — 08/31/2020(c) |
$ |
25.00 |
| 0.32 |
| 1.14 |
| 1.46 |
| (0.61) |
| (0.05) |
|
(a)Net
investment income per share has been calculated based on average shares
outstanding during the period.
(b)Realized
and unrealized gains and losses per share in the caption may be balancing
amounts necessary to reconcile the change in net asset value per share for the
periods, and may not reconcile with the aggregate gains and losses in the
Statements of Operations due to share transactions for the period.
(c)Inception
date of the Fund was September 30, 2019.
(d)Inception
date of the Fund was January 14, 2021.
Overlay
Shares ETFs
Financial
Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Per
Share Operating Performance
(For a share outstanding throughout each
period) |
| Less
Distributions From: |
|
|
|
| |
Return
of
Capital |
Total
Distributions |
Net
Asset Value, End of Period |
Total
Return |
Net
Assets,
End
of
Period
(in
Thousands) |
Ratio
of
Expense
to
Average
Net
Assets(e) |
Ratio
of
Interest
Expenses
to
Average
Net
Assets(e) |
Ratio
of
Expenses
to
Average
Net
Assets
Excluding
Interest(e) |
Ratio
of
Net
Investment
Income
to
Average
Net
Assets(e) |
Portfolio
Turnover
Rate |
| (1.06) |
| (1.32) |
$ |
45.44 |
| 30.25 |
% |
$ |
181,317 |
| 0.76 |
% |
0.01 |
% |
0.75 |
% |
0.74 |
% |
11 |
% |
| (0.96) |
| (1.19) |
$ |
36.08 |
| 16.19 |
% |
$ |
157,865 |
| 0.84 |
% |
0.09 |
% |
0.75 |
% |
0.98 |
% |
1 |
% |
| (0.61) |
| (1.48) |
$ |
32.22 |
| -14.53 |
% |
$ |
248,933 |
| 0.77 |
% |
0.02 |
% |
0.75 |
% |
0.65 |
% |
5 |
% |
| — |
| (1.25) |
$ |
39.21 |
| 35.36 |
% |
$ |
200,959 |
| 0.77 |
% |
0.02 |
% |
0.75 |
% |
0.66 |
% |
6 |
% |
| — |
| (0.27) |
$ |
30.08 |
| 21.62 |
% |
$ |
97,768 |
| 0.76 |
% |
0.01 |
% |
0.75 |
% |
0.85 |
% |
4 |
% |
| (0.35) |
| (1.08) |
| $ |
35.83 |
| 20.16 |
% |
$ |
12,182 |
| 0.77 |
% |
0.02 |
% |
0.75 |
% |
0.61 |
% |
9 |
% |
| (0.83) |
| (1.06) |
| $ |
30.86 |
| 5.75 |
% |
$ |
7,715 |
| 0.82 |
% |
0.07 |
% |
0.75 |
% |
0.81 |
% |
2 |
% |
| (0.74) |
| (1.42) |
| $ |
30.26 |
| -15.30 |
% |
$ |
7,565 |
| 0.78 |
% |
0.03 |
% |
0.75 |
% |
0.74 |
% |
5 |
% |
| — |
| (0.98) |
| $ |
37.20 |
| 58.12 |
% |
$ |
6,510 |
| 0.77 |
% |
0.02 |
% |
0.75 |
% |
0.25 |
% |
6 |
% |
| — |
| (0.24) |
| $ |
24.27 |
| -1.93 |
% |
$ |
3,034 |
| 0.76 |
% |
0.01 |
% |
0.75 |
% |
0.90 |
% |
6 |
% |
| (0.53) |
| (1.10) |
| $ |
25.86 |
| 21.15 |
% |
$ |
18,620 |
| 0.76 |
% |
0.01 |
% |
0.75 |
% |
2.41 |
% |
12 |
% |
| (0.54) |
| (1.02) |
| $ |
22.36 |
| 11.35 |
% |
$ |
16,770 |
| 0.80 |
% |
0.05 |
% |
0.75 |
% |
2.04 |
% |
117 |
% |
| (0.52) |
| (1.20) |
| $ |
21.04 |
| -20.64 |
% |
$ |
11,046 |
| 0.78 |
% |
0.03 |
% |
0.75 |
% |
1.79 |
% |
8 |
% |
| — |
| (1.01) |
| $ |
27.84 |
| 19.82 |
% |
$ |
6,960 |
| 0.77 |
% |
0.02 |
% |
0.75 |
% |
1.28 |
% |
10 |
% |
| (0.02) |
| (0.87) |
| $ |
24.13 |
| -0.03 |
% |
$ |
4,223 |
| 0.76 |
% |
0.01 |
% |
0.75 |
% |
3.42 |
% |
8 |
% |
| (0.01) |
| (0.24) |
| $ |
33.13 |
| 19.37 |
% |
$ |
22,859 |
| 0.82 |
% |
0.07 |
% |
0.75 |
% |
0.83 |
% |
21 |
% |
| — |
| (0.20) |
| $ |
27.98 |
| 10.49 |
% |
$ |
96,534 |
| 0.90 |
% |
0.15 |
% |
0.75 |
% |
0.86 |
% |
5 |
% |
| — |
| (0.12) |
| $ |
25.53 |
| -11.54 |
% |
$ |
26,165 |
| 0.85 |
% |
0.10 |
% |
0.75 |
% |
0.51 |
% |
24 |
% |
| — |
| — |
| $ |
28.97 |
| 15.89 |
% |
$ |
12,313 |
| 0.81 |
% |
0.06 |
% |
0.75 |
% |
0.26 |
% |
13 |
% |
| (0.54) |
| (1.11) |
| $ |
21.28 |
| 10.33 |
% |
$ |
48,838 |
| 0.76 |
% |
0.01 |
% |
0.75 |
% |
2.78 |
% |
11 |
% |
| (0.60) |
| (1.02) |
$ |
20.37 |
| -0.63 |
% |
$ |
49,405 |
| 0.84 |
% |
0.09 |
% |
0.75 |
% |
2.13 |
% |
3 |
% |
| (0.47) |
| (1.13) |
$ |
21.54 |
| -14.56 |
% |
$ |
64,634 |
| 0.77 |
% |
0.02 |
% |
0.75 |
% |
1.07 |
% |
6 |
% |
| — |
| (1.00) |
$ |
26.40 |
| 3.13 |
% |
$ |
143,901 |
| 0.77 |
% |
0.02 |
% |
0.75 |
% |
1.03 |
% |
7 |
% |
| — |
| (0.66) |
$ |
26.61 |
| 9.22 |
% |
$ |
113,744 |
| 0.76 |
% |
0.01 |
% |
0.75 |
% |
1.46 |
% |
5 |
% |
| (0.31) |
| (1.28) |
| $ |
22.58 |
| 11.23 |
% |
$ |
43,586 |
| 0.76 |
% |
0.01 |
% |
0.75 |
% |
2.90 |
% |
13 |
% |
| (0.55) |
| (0.99) |
$ |
21.53 |
| 2.81 |
% |
$ |
63,522 |
| 0.81 |
% |
0.06 |
% |
0.75 |
% |
1.95 |
% |
3 |
% |
| (0.48) |
| (1.05) |
$ |
21.93 |
| -9.39 |
% |
$ |
58,116 |
| 0.77 |
% |
0.02 |
% |
0.75 |
% |
0.85 |
% |
5 |
% |
| — |
| (0.43) |
$ |
25.30 |
| 2.95 |
% |
$ |
42,372 |
| 0.77 |
% |
0.02 |
% |
0.75 |
% |
0.71 |
% |
3 |
% |
| (0.06) |
| (1.05) |
$ |
22.35 |
| 8.05 |
% |
$ |
22,911 |
| 0.76 |
% |
0.01 |
% |
0.75 |
% |
2.15 |
% |
12 |
% |
| (0.60) |
| (0.98) |
| $ |
21.70 |
| 2.67 |
% |
$ |
14,650 |
| 0.81 |
% |
0.06 |
% |
0.75 |
% |
1.77 |
% |
3 |
% |
| (0.39) |
| (1.48) |
| $ |
22.11 |
| -11.02 |
% |
$ |
14,922 |
| 0.77 |
% |
0.02 |
% |
0.75 |
% |
1.03 |
% |
5 |
% |
| — |
| (1.02) |
$ |
26.37 |
| 6.32 |
% |
$ |
11,208 |
| 0.77 |
% |
0.02 |
% |
0.75 |
% |
1.19 |
% |
7 |
% |
| — |
| (0.66) |
$ |
25.80 |
| 5.92 |
% |
$ |
29,020 |
| 0.76 |
% |
0.01 |
% |
0.75 |
% |
1.38 |
% |
4 |
% |
(e)Does
not include income and expenses of investment companies in which the Fund
invests.
OVERLAY
SHARES LARGE CAP EQUITY ETF
OVERLAY
SHARES SMALL CAP EQUITY ETF
OVERLAY
SHARES FOREIGN EQUITY ETF
OVERLAY
SHARES HEDGED LARGE CAP EQUITY ETF
OVERLAY
SHARES CORE BOND ETF
OVERLAY
SHARES SHORT TERM BOND ETF
OVERLAY
SHARES MUNICIPAL BOND ETF
|
|
|
|
|
|
|
|
|
|
|
| |
| Adviser |
Liquid
Strategies, LLC
3550
Lenox Road, Suite 2550
Atlanta,
Georgia 30326 |
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 |
| Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
| Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1835
Market Street, Suite 310
Philadelphia,
Pennsylvania 19103 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004-2541 |
Investors
may find more information about the Funds in the following
documents:
Statement
of Additional Information: The
Funds’ SAI provides additional details about the investments of each Fund and
certain other additional information. The SAI is on file with the SEC and is
incorporated herein by reference into this Prospectus. It is legally considered
a part of this Prospectus.
Annual/Semi-Annual
Reports and Form N-CSR:
Additional information about each Fund’s investments is available in the Funds’
Annual and Semi-Annual Reports to shareholders and in Form N-CSR. In the Annual
Report, you will find a discussion of the market conditions and investment
strategies that significantly affected a Fund’s performance. In Form N-CSR, you
will find the Funds’ annual and semi-annual financial statements.
You
can obtain free copies of these documents, request other information or make
general inquiries about a 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
1-866-704-6857.
Shareholder
reports and other information about a Fund are also available:
◦Free
of charge from the SEC’s EDGAR database on the SEC’s website at
www.sec.gov;
◦Free
of charge from the Fund’s Internet web site at www.overlayshares.com;
or
(SEC
Investment Company Act File No. 811-23226)
