InfraCap
Equity Income Fund ETF
Listed
on NYSE Arca: ICAP
Prospectus
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved
of these securities or determined if this Prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
A
series of Series Portfolios Trust (the “Trust”)
TABLE
OF CONTENTS
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
|||||
| Management Fees | |||||
| Distribution and Service (Rule 12b-1) Fees | |||||
|
Other
Expenses(1) |
|||||
| Total Annual Fund Operating Expenses | |||||
(1)“Other Expenses” are estimated
for the Fund’s current fiscal year.
| One Year | Three Years | ||||
| $ |
$ | ||||
1
The
Fund will invest primarily in securities of U.S. companies, but may invest in
foreign securities, including securities of companies located in emerging
markets. The Fund’s investments in foreign securities may include sponsored and
unsponsored American Depositary Receipts (“ADRs”), Global Depositary Receipts
(“GDRs”), International Depositary Receipts (“IDRs”), U.S. dollar-denominated
foreign securities, direct foreign securities (purchased on a foreign exchange),
and securities of companies incorporated outside the U.S. but whose securities
are publicly traded on a U.S. exchange. The Fund may also invest in real estate
investment trusts (“REITs”), companies in the utilities industry, companies
whose business is related to commodities, or in registered investment companies
or other companies that invest directly or indirectly in commodities, and master
limited partnerships (“MLPs”). A REIT is a corporation, trust or association
dedicated to owning, operating or financing income-producing real estate. MLPs
are businesses organized as limited partnerships that trade their proportionate
shares of the partnership (units) on a public exchange. Utilities companies
include companies that produce or distribute gas, electricity or water.
The
Fund may purchase and write put and call options on equity securities and equity
security indices in an effort to generate additional income, reduce volatility
or hedge against market or other risks in the Fund’s portfolio. The Fund intends
to enter into swap agreements, including total return swaps. The Fund may
utilize swap agreements in an attempt to gain exposure to the securities in a
market without actually purchasing those securities. The Fund may engage in
short sales of securities in its portfolio to hedge against market,
interest-rate, commodity, inflation and credit risk and to facilitate total
return opportunities. In a short sale transaction, the Fund will borrow a
security and sell it at the current market price in the anticipation of buying
the security at a lower price prior to the time the Fund is obligated to return
the security to the owner. The Fund will not sell a security short if, as a
result of such short sale, the aggregate market value of all securities sold
short exceeds 20% of the Fund’s net assets.
The
Fund may invest up to 20% of its net assets in fixed income securities of
varying duration, maturity and credit quality, including debt securities that
have been rated below investment grade by a nationally recognized statistical
ratings organization (“NRSRO”), commonly referred to as “junk bonds” or “high
yield bonds”. The Fund is also authorized to borrow from banks for investment
purposes an amount up to 33 1/3% of its total assets (including the amount
borrowed), in compliance with the Investment Company Act of 1940 (the “1940
Act”). The use of borrowings to purchase additional securities is known as
leverage.The Fund’s use of leverage will vary depending on market conditions.
However, under normal market conditions, the Fund will employ leverage in an
amount of between 20% and 30% of the Fund’s net assets.
The
Fund’s investment adviser, Infrastructure Capital Advisors, LLC (the “Adviser”),
is a top-down manager, making investment decisions with global macroeconomic
factors in mind. The Adviser actively manages the assets of the portfolio
pursuant to a variety of quantitative, qualitative, and relative valuation
factors. As an example, when selecting securities that are subject to a call
provision, the Adviser generally seeks to underweight or eliminate those that
trade above the call price and exhibit a low or negative yield-to-call
(i.e.,
the rate of return that an investor would earn if the security was held until
its call date). As part of it’s quantitative analysis when selecting securities
and constructing the portfolio, the Adviser will evaluate potential investments
with respect to key variables, including, without limitation, the competitive
position of a company, the perceived ability of the company to earn a high
return on capital, the historical and projected stability and reliability of the
profits of the company, the anticipated ability of the company to generate cash
in excess of its growth needs, and the company’s ability to obtain additional
capital. The Adviser will also consider data points such as current yield,
market capitalization, financial risk profiles, and relative values based on
various time horizons.
To
obtain high yield and total return, the Adviser will favor sectors and
industries that it currently views are undervalued on a relative basis. For
example, the Adviser may overweight issuers in the real estate sector over the
financial sector, when the market has oversold a real estate sector or has
overbought a financial sector. In addition, to reduce volatility, the Adviser
may add preferred equity securities, which, under normal market conditions, have
historically lower volatility than common equity securities. In addition, when
constructing and maintaining the portfolio, the Adviser will consider
macroeconomic factors and outlook with the goal of achieving diversification and
the Fund’s objectives.
2
Depending
on the current market environment, the Adviser may select investments in sectors
such as Utilities, REITs, Industrials and Pipelines, when it believes equity
securities of these sectors offer high dividends and total return opportunities
on a relative basis. The Fund may invest in limited partnership interest through
MLP units, securities of companies holding primarily general partner or managing
member interests in MLPs, and other investment companies that invest in
MLPs.
In
addition to quantitative, qualitative, and relative valuation factors, the
Adviser aims to achieve an investment philosophy that is: (1) driven by
discipline, (2) applied consistently, and (3) centered around risk management.
The Adviser will execute a transaction after considering the time horizon for
the investment and the portfolio’s positioning. Factors considered as part of
the sell discipline include excessive valuation, opportunities to shift to more
favorable investments, lack of confidence in the original thesis, changes in the
company’s fundamental position, and whether a better opportunity exists to
further the Fund’s strategy. The Adviser will engage in active trading with high
portfolio turnover of the Fund’s portfolio investments to achieve the Fund’s
investment objective.
As
with any fund, there are risks to investing. An investment in the Fund is not a
deposit of a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.
In
addition to possibly not achieving your investment goals,
you could lose all or a portion
of your investment in the Fund over short or even long periods of
time . The principal risks of
investing in the Fund are summarized below.
Dividend-Paying
Investments Risk.
The Fund’s investments in dividend-paying securities could cause the Fund to
underperform other funds that invest without consideration of a company’s track
record of paying dividends. Securities that pay dividends, as a group, can fall
out of favor with the market, causing such securities to underperform securities
that do not pay dividends. In addition, issuers that have paid regular dividends
or distributions to shareholders may not continue to do so at the same level or
at all in the future. This may limit the ability of the Fund to produce current
income.
ETF
Risks.
The
Fund is an ETF, and, as a result of its structure, it is exposed to the
following risks:
•Authorized
Participants, Market Makers, and Liquidity Providers Concentration Risk.
The
Fund has only a limited number of institutional investors (known as “Authorized
Participants” or “APs”) that are authorized to purchase and redeem shares
directly from the Fund. In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, shares of the Fund may trade at a material discount
to the Fund’s net asset value (“NAV”) and possibly face delisting: (i) APs exit
the business or otherwise become unable to process creation and/or redemption
orders and no other APs step forward to perform these services, or (ii) market
makers and/or liquidity providers exit the business or significantly reduce
their business activities and no other entities step forward to perform their
functions.
•Costs
of Buying or Selling Shares. Due
to the costs of buying or selling shares of the Fund, 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. As
with all ETFs, shares of the Fund may be bought and sold in the secondary market
at market prices. Although it is expected that the market price of shares of the
Fund 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.
Although shares of the Fund are listed for trading on the NYSE Arca (the
“Exchange”), there can be no assurance that an active trading market for shares
will develop or be maintained or that shares will trade with any
3
volume,
or at all, on any stock exchange. In stressed market conditions, the market for
shares of the Fund may become less liquid in response to deteriorating liquidity
in the markets for the Fund’s underlying portfolio holdings. This adverse effect
on liquidity for the Fund’s shares, in turn, can lead to differences between the
market price of the Fund’s shares and the underlying value of those shares. In
addition, trading in Fund shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in shares of the Fund
inadvisable.
New
Fund Risk.
The Fund is a recently organized investment company with no operating history.
As a result, prospective investors have no track record or history on which to
base their investment decision.
Derivatives
Risk.
Derivatives
may pose risks in addition to and greater than those associated with investing
directly in securities, currencies or other investments, including risks
relating to leverage, imperfect correlations with underlying investments or the
Fund’s other portfolio holdings, high price volatility, lack of availability,
counterparty credit, liquidity, valuation and legal restrictions. Their use is a
highly specialized activity that involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
The Fund’s use of derivatives to obtain short exposure may result in greater
volatility of the Fund's NAV per share. If the Adviser are incorrect about their
expectations of market conditions, the use of derivatives could also result in a
loss, which in some cases may be unlimited. The Fund may enter into total return
swaps, among other instruments, for purposes of attempting to gain exposure to a
particular asset without actually purchasing that asset. Such swap arrangements
are OTC derivatives that may also subject the Fund to the risk that the
counterparty to the transaction may not meet its obligations.
Options
Risk.
Options transactions involve special risks that may make it difficult or
impossible to close a position when the Fund desires. A fund that purchases
options, which are a type of derivative, is subject to the risk that gains, if
any, realized on the position, will be less than the amount paid as premiums to
the writer of the option. A fund that writes options receives a premium that may
be small relative to the loss realized in the event of adverse changes in the
value of the underlying instruments. A fund that writes covered call options
gives up the opportunity to profit from any price increase in the underlying
security above the option exercise price while the option is in
effect.
Tax
Risk. The
Fund’s investments in options may subject the Fund to special tax rules, the
effect of which may be to accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund’s securities, convert
long-term capital gains into short-term capital gains or convert short-term
capital losses into long-term capital losses. Premiums earned by the Fund from
its use of options investments are treated as short-term capital gains, and are
taxable as ordinary income.
Counterparty
Risk.
The
Fund may use swap agreements to gain exposure to a particular group of
securities, index, asset class or other reference asset without actually
purchasing those securities or investments, to hedge a position, or for other
investment purposes. Through these investments and related arrangements the Fund
is exposed to credit risks that the counterparty may be unwilling or unable to
make timely payments or otherwise to meet its contractual obligations. If the
counterparty becomes bankrupt or defaults on (or otherwise becomes unable or
unwilling to perform) its payment or other obligations to the Fund, the Fund may
not receive the full amount that it is entitled to receive or may experience
delays in recovering the collateral or other assets held by, or on behalf of,
the counterparty. If this occurs, the value of your shares in the Fund will
decrease.
Leverage
Risk. Leverage
is investment exposure which exceeds the initial amount invested. When the Fund
borrows money for investment purposes, or when the Fund engages in certain
derivative transactions, such as options, the Fund may become leveraged. The
loss on a leveraged derivative instruments may far exceed the Fund’s principal
amount invested. Leverage can magnify the Fund’s gains and losses and therefore
increase its volatility. The Fund cannot guarantee that the use of leverage will
produce increased income or a higher return on an investment. The Fund will
segregate liquid assets or otherwise cover transactions that may give rise to
leverage to the extent required by the 1940 Act. This requirement limits the
amount of leverage the Fund may have at any one time, but it does not eliminate
leverage risk. The use of leverage may result in the Fund having to liquidate
holdings when it may not be advantageous to do so in order to satisfy its
borrowing obligations or to meet segregation
requirements.
4
Short
Sale Risk. The
Fund may enter into short sales, which are transactions in which the Fund sells
a security it does not own in anticipation of a decline in the market value of
that security. To complete a short sale, the Fund will borrow the security from
a broker-dealer, which generally involves the payment of a premium and
transaction costs, and then sell the borrowed security to a buyer in the market.
The Fund will cover its short position by buying shares in the market either (i)
at its discretion or (ii) when called by the broker-dealer lender. Covering such
short positions on a discretionary basis may not mitigate short sales risk.
Until the security is replaced, the Fund is required to pay the broker-dealer
lender any dividends or interest that accrue during the period of the loan. In
addition, the net proceeds of the short sale will be retained by the broker to
the extent necessary to meet regulatory or other requirements, until the short
position is closed out.
Investments
in Companies with Business Related to Commodities.
Investments in equity securities of companies involved in mining or related
precious metals industries, and the value of the investment companies and other
companies that invest in precious metals and other commodities are subject to a
number of risks. For example, the prices of precious metals or other commodities
can make sharp movement, up or down, in response to cyclical economic
conditions, political events or the monetary policies of various countries, any
of which may adversely affect the value of companies who business is related to
such commodities, or the value of investment companies and other companies
investing in such business or commodities. Furthermore, such companies are
subject to risks related to fluctuations of prices and perceptions of value in
commodities markets generally.
Equity
Market Risk.
The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, sectors or companies in which the Fund invests.
Common stocks are generally exposed to greater risk than other types of
securities, such as preferred stocks and debt obligations, because common
stockholders generally have inferior rights to receive payment from
issuers.
Large
Capitalization Risk.
Larger, more established companies may be unable to respond quickly to new
competitive challenges such as changes in technology and consumer tastes. Larger
companies also may not be able to attain the high growth rates of successful
smaller companies.
Small-
and Mid-Capitalization Companies Risk. The
Fund may invest in the securities of small- and mid-capitalization companies. As
a result, the Fund may be more volatile than funds that invest in larger, more
established companies. The securities of small-and mid-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. Small- and mid-capitalization companies may be particularly
sensitive to changes in interest rates, government regulation, borrowing costs
and earnings.
Preferred
Stock Risk.
Preferred stocks may be more volatile than fixed-income securities and are more
correlated with the issuer’s underlying common stock than fixed-income
securities. Additionally, the dividend on a preferred stock may be changed or
omitted by the issuer. Preferred stock market values may change based on changes
in interest rates.
Convertible
Securities Risk. If
market interest rates rise, the value of a convertible security usually falls.
In addition, convertible securities are subject to the risk that the issuer will
not be able to pay interest or dividends when due, and their market value may
change based on changes in the issuer’s credit rating or the market’s perception
of the issuer’s creditworthiness. Since it derives a portion of its value from
the common stock into which it may be converted, a convertible security is also
subject to the same types of market and issuer risks that apply to the
underlying common stock.
Real
Estate Investment Trust (“REIT”) Risk. The
Fund’s investment in REITs will subject the Fund to risks similar to those
associated with direct ownership of real estate, including losses from casualty
or condemnation, and changes in local and general economic conditions, supply
and demand, interest rates, zoning laws, regulatory limitations on rents,
property taxes and operating expenses. REITs may also be adversely affected by
failure to qualify as REIT under the Code, poor management, environmental
problems, property tax increases or changes in federal, state or local
regulation.
Utilities
Risk.
Utilities
companies include companies that produce or distribute gas, electricity or
water. These companies are subject to the risk of the imposition of rate caps,
increased competition due to deregulation, the difficulty in obtaining an
adequate return on invested capital or in financing large construction projects,
the limitations on operations and
5
increased
costs and delays attributable to environmental considerations and the capital
markets’ ability to absorb utility debt. In addition, taxes, government
regulation, international politics, price and supply fluctuations, volatile
interest rates and energy conservation may negatively affect utilities
companies.
Pipelines/MLP
Risk.
Investments in securities of Master Limited Partnership (“MLPs”) involve risks
that differ from investments in common stock including risks related to limited
control and limited rights to vote on matters affecting the MLP, risks related
to potential conflicts of interest between the MLP and the MLP’s general partner
and cash flow risks. MLP common units and other equity securities can be
affected by macro-economic and other factors affecting the stock market in
general, expectations of interest rates, investor sentiment towards MLPs or the
energy sector, changes in a particular issuer’s financial condition, or
unfavorable or unanticipated poor performance of a particular issuer (in the
case of MLPs, generally measured in terms of distributable cash flow). Prices of
common units of individual MLPs and other equity securities also can be affected
by fundamentals unique to the partnership or company, including earnings power
and coverage ratios. MLP interests may not be as liquid as other more commonly
traded equity securities.
Foreign
Investments and Emerging Markets Risk. Securities
of non-U.S. issuers, including those located in foreign countries, may involve
special risks caused by foreign political, social and economic factors,
including exposure to currency fluctuations, less liquidity, less developed and
less efficient trading markets, political instability and less developed legal
and auditing standards. These risks are heightened for investments in issuers
organized or operating in developing countries.
Depositary
Receipts Risk.
ADRs, GDRs, and IDRs are certificates evidencing ownership of shares of a
foreign issuer and are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However, they
continue to be subject to many of the risks associated with investing directly
in foreign securities. These risks include the social, political and economic
risks of the underlying issuer’s country, as well as in the case of depositary
receipts traded on non-U.S. markets, exchange risk. Issuers of unsponsored ADRs
are not contractually obligated to disclose material information in the U.S., so
there may not be a correlation between such information and the market value of
the unsponsored ADR.
High
Portfolio Turnover Risk.
A high portfolio turnover rate has the potential to result in the realization
and distribution to shareholders of higher capital gains, which may subject you
to a higher tax liability. High portfolio turnover also necessarily results in
greater transaction costs which may reduce Fund performance.
Credit
Risk. An
issuer of debt securities may not make timely payments of principal and interest
and may default entirely in its obligations. A decrease in the issuer’s credit
rating may lower the value of debt securities.
Debt
Securities Risk.
Increases in interest rates typically lower the value of debt securities held by
the Fund. Investments in debt securities include credit risk. There is also the
risk that a bond issuer may “call,” or repay its high yielding bonds before
their maturity dates. Debt securities subject to prepayment can offer less
potential for gains during a declining interest rate environment and similar or
greater potential for loss in a rising interest rate environment. Limited
trading opportunities for certain debt securities may make it more difficult to
sell or buy a security at a favorable price or time.
High
Yield Debt Securities (“Junk” Bond) Risk.
Below investment-grade debt securities (also referred to as high yield debt
securities or “junk” bonds) involve greater risk of default or price changes due
to changes in the credit quality of the issuer. The value of high yield debt
securities can be more volatile due to increased sensitivity to adverse issuer,
political, regulatory, market, or economic developments. Such securities are
generally considered speculative because they present a greater risk of loss,
including default, than higher quality debt securities.
Management
Risk.
The
Fund is actively-managed and may not meet its investment objective based on the
Adviser’s success or failure to implement investment strategies for the Fund.
The Adviser’s evaluations and assumptions regarding issuers, securities, and
other factors may not successfully achieve the Fund’s investment objective given
actual market conditions.
Market
Events Risk. One
or more markets in which the Fund invests may go down in value, including the
possibility that the markets will go down sharply and unpredictably. This may be
due to numerous factors, including interest rates, the outlook for corporate
profits, the health of the national and world economies, national and world
social and political
6
Management
Investment
Adviser
Infrastructure
Capital Advisors, LLC is the Fund’s investment adviser.
Portfolio
Manager
Jay
D. Hatfield, founder and president of the Adviser, is the portfolio manager
responsible for the day-to-day management of the Fund. Mr. Hatfield has managed
the Fund since its inception on December 28, 2021.
Purchase
and Sale of Fund Shares
Shares
of the Fund are listed on the Exchange, and individual shares may only be bought
and sold in the secondary market through brokers at market prices, rather than
NAV. Because shares of the Fund trade at market prices rather than NAV, Shares
may trade at a price greater than NAV (premium) or less than NAV
(discount).
The
Fund issues and redeems its shares at NAV only in large specified numbers of
shares 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.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at
www.Infracapequityincomefundetf.com.
Tax
Information
Fund
distributions are generally 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.
Payments
to Broker-Dealers and Other Financial Intermediaries
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
7
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.
8
Investment
Objective
The
Fund’s investment objective is to maximize income and pursue total return
opportunities. The investment objective is not fundamental and may be changed by
the Board of Trustees of the Trust (the “Board”) without shareholder approval
upon 60 days’ prior written notice to shareholders.
Principal
Investment Strategies
The
Fund, under normal conditions, will invest at least 80% of its net assets (plus
any borrowings for investment purposes) in equity securities of companies that
pay dividends during normal market conditions. The Fund’s investments in equity
securities may include common stocks, preferred stocks and convertible
securities. The Fund may invest in the equity securities of companies of any
market capitalization. To assist the Adviser’s portfolio management process, the
Adviser may purchase and write put and call options in an effort to (i) generate
additional income and reduce volatility in the portfolio, (ii) remove or add
securities from the portfolio (i.e.,
convertible securities), (iii) facilitate total return opportunities, and (iv)
hedge against market risks or other risks in the Fund’s portfolio.
The
Fund may invest directly or indirectly in securities convertible into common
stock if, for example, the Fund believes that a company’s convertible securities
are undervalued in the market. Convertible securities include fixed income
securities that may be exchanged or converted into a predetermined number of
shares of the issuer’s underlying common stock or other equity security at the
option of the holder during a specified period. Convertible securities may take
the form of convertible preferred stock, convertible bonds or debentures. The
investment characteristics of each convertible security vary widely, which
allows convertible securities to be employed for a variety of investment
strategies. The Fund will exchange or convert convertible securities into shares
of underlying common stock when, in the opinion of the Adviser, the investment
characteristics of the underlying common stock or other equity security will
assist the Fund in achieving its investment objective.
The
Fund will invest primarily in securities of U.S. companies, but may invest in
foreign securities, including securities of companies located in emerging
markets. The Fund’s investments in foreign securities may include sponsored and
unsponsored ADRs, GDRs, IDRs, U.S. dollar-denominated foreign securities, direct
foreign securities (purchased on a foreign exchange), and securities of
companies incorporated outside the U.S. but whose securities are publicly traded
on a U.S. exchange. The Fund may also invest in companies in the utilities
industry, real estate investment trusts (“REITs”), companies whose business is
related to commodities, or in registered investment companies or other companies
that invest directly or indirectly in commodities, and MLPs. Utilities companies
include companies that produce or distribute gas, electricity or water.
REITs
are publicly traded corporations or trusts that specialize in acquiring, holding
and managing residential, commercial or industrial real estate. A REIT is not
taxed at the entity level on income distributed to its shareholders or
unitholders if it distributes to shareholders or unitholders at least 95% of its
taxable income for each taxable year and complies with regulatory requirements
relating to its organization, ownership, assets and income. REITs are sometimes
informally characterized as Equity REITs, Mortgage REITs or Hybrid REITs. An
Equity REIT invests primarily in the fee ownership or leasehold ownership of
land and buildings (e.g.,
commercial equity REITs and residential equity REITs); a Mortgage REIT invests
primarily in mortgages on real property, which may secure construction,
development or long-term loans. Hybrid REITs may invest in a combination of
properties, mortgages and mortgage-backed securities.
MLPs
are businesses organized as limited partnerships the interests of which are
traded on a public exchange. MLPs typically derive income and gains from the
exploration, development, mining or production, processing, refining,
9
transportation
(including pipelines transporting gas, oil, or products thereof), or the
marketing of any mineral or natural resources. MLPs generally have two classes
of owners, the general partner and limited partners. MLPs are required to pay
out most or all of their cash flow in distributions. An investment in an MLP may
generate passive income or losses, along with dividend and investment income.
Generally speaking, MLP investment returns are enhanced during periods of
declining or low interest rates and tend to be negatively influenced when
interest rates are rising. As an income vehicle, the unit price can be
influenced by general interest rate trends independent of specific underlying
fundamentals. An MLP generally is treated as a partnership for U.S. federal
income tax purposes, which means no U.S. federal income tax is paid by the MLP,
subject to the application of certain partnership audit rules. To qualify as a
partnership, an MLP must receive at least 90% of its income from qualifying
sources as set forth in the Code. These qualifying sources include natural
resource-based activities such as the processing, transportation and storage of
mineral or natural resources. MLPs generally have two classes of owners, the
general partner (that typically controls the operations and management of the
MLP) and limited partners (that typically own common units in the MLP that have
only limited voting rights).
The
Fund may invest in securities of companies whose business is related to
commodities, or in registered investment companies or other companies that
invest directly or indirectly in commodities. For example, the Fund may invest
in companies whose business is related to mining of precious or other metals
(e.g.,
gold, silver, etc.) or registered investment companies or publicly or privately
traded companies that invest in securities of mining companies and related
instruments (including, without limitation, the underlying commodities).
The
Fund may purchase and write put and call options on equity securities and equity
security indices in an effort to generate additional income, reduce volatility
or hedge against market or other risks in the Fund’s portfolio. The Fund may use
total return swaps on equity securities as a substitute for investing in
conventional equity securities and for investment purposes to increase its
economic exposure to a particular security in a cost-effective manner. At times,
the Fund may gain all of its equity exposure through the use of total return
swaps on equity securities. The Fund’s use of total return swaps on equity
securities will have the economic effect of financial leverage. The Fund may
also engage in short sales of securities in its portfolio to hedge against
market, interest-rate, commodity, inflation and credit risk and to facilitate
total return opportunities. In a short sale transaction, the Fund will borrow a
security and sell it at the current market price in the anticipation of buying
the security at a lower price prior to the time the Fund is obligated to return
the security to the owner. The Fund will not sell a security short if, as a
result of such short sale, the aggregate market value of all securities sold
short exceeds 20% of the Fund’s net assets.
The
Fund may invest up to 20% of its net assets in fixed income securities of
varying duration, maturity and credit quality, including debt securities that
have been rated below investment grade by a nationally recognized statistical
ratings organization (“NRSRO”), commonly referred to as “junk bonds” or “high
yield bonds”. The Fund is also authorized to borrow from banks for investment
purposes an amount up to 33 1/3% of its total assets (including the amount
borrowed), in compliance with the Investment Company Act of 1940 (the “1940
Act”). The use of borrowings to purchase additional securities is known as
leverage.The Fund’s use of leverage will vary depending on market conditions.
However, under normal market conditions, the Fund will employ leverage in an
amount of between 20% and 30% of the Fund’s net assets.
The
Adviser actively manages the assets of the portfolio pursuant to a variety of
quantitative, qualitative, and relative valuation factors. As an example, when
selecting securities that are subject to a call provision, the Adviser generally
seeks to underweight or eliminate those that trade above the call price and
exhibit a low or negative yield-to-call (i.e.,
the rate of return that an investor would earn if the security was held until
its call date). As part of it’s quantitative analysis when selecting securities
and constructing the portfolio, the Adviser will evaluate potential investments
with respect to key variables, including, without limitation, the competitive
position of a company, the perceived ability of the company to earn a high
return on capital, the historical and projected stability and reliability of the
profits of the company, the anticipated ability of the company to generate cash
in excess of its growth needs, and the company’s ability to obtain additional
capital. The Adviser will also consider data points such as current yield,
market capitalization, financial risk profiles, and relative values based on
various time horizons.
10
To
obtain high yield and total return, the Adviser will favor sectors and
industries that it currently views are undervalued on a relative basis. For
example, the Adviser may overweight issuers in the real estate sector over the
financial sector, when the market has oversold a real estate sector or has
overbought a financial sector. In addition, to reduce volatility, the Adviser
may add preferred equity securities, which, under normal market conditions, have
historically lower volatility than common equity securities. In addition, when
constructing and maintaining the portfolio, the Adviser will consider
macroeconomic factors and outlook with the goal of achieving diversification and
the Fund’s objectives.
Depending
on the current market environment, the Adviser may select investments in sectors
such as Utilities, REITs, Industrials and Pipelines, when it believes equity
securities of these sectors offer high dividends and total return opportunities
on a relative basis. The Fund may invest in limited partnership interest through
MLP units, securities of companies holding primarily general partner or managing
member interests in MLPs, and other investment companies that invest in
MLPs.
In
addition to quantitative, qualitative, and relative valuation factors, the
Adviser aims to achieve an investment philosophy that is: (1) driven by
discipline, (2) applied consistently, and (3) centered around risk management.
The Adviser will execute a transaction after considering the time horizon for
the investment and the portfolio’s positioning. Factors considered as part of
the sell discipline include excessive valuation, opportunities to shift to more
favorable investments, lack of confidence in the original thesis, changes in the
company’s fundamental position, and whether a better opportunity exists to
further the Fund’s strategy. The Adviser will engage in active trading with high
portfolio turnover of the Fund’s portfolio investments to achieve the Fund’s
investment objective.
Temporary
Defensive Positions. The
Fund may, from time to time, take temporary defensive positions that are
inconsistent with the Fund’s principal investment strategies in an attempt to
respond to adverse or unstable market, economic, political, or other conditions.
During such times, the Fund may hold up to 100% of its portfolio in cash or cash
equivalent positions. When the Fund takes a temporary defensive position, the
Fund may not be able to pursue its investment objectives.
Principal
Risks
An
investment in the Fund entails risks. The Fund could lose money, or its
performance could trail that of other investment alternatives. The following
provides additional information about the Fund’s principal risks. It is
important that investors closely review and understand these risks before making
an investment decision.
Dividend-Paying
Investments Risk.
The Fund’s investments in dividend-paying securities could cause the Fund to
underperform other funds that invest without consideration of a company’s track
record of paying dividends. Securities that pay dividends, as a group, can fall
out of favor with the market, causing such securities to underperform securities
that do not pay dividends. Depending upon market conditions and political and
legislative responses to such conditions, dividend-paying securities that meet
the Fund’s investment criteria may not be widely available and/or may be highly
concentrated in only a few market sectors. In addition, issuers that have paid
regular dividends or distributions to shareholders may not continue to do so at
the same level or at all in the future. This may limit the ability of the Fund
to produce current income.
ETF
Risks.
The
Fund is an ETF, and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration Risk.
The
Fund has only a limited number of institutional investors that may act as APs.
In addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, shares of the Fund may trade at a material discount to the Fund’s NAV and
possibly face delisting: (i) APs exit the business or otherwise become unable to
process creation and/or redemption orders and no other APs step forward to
perform these services, or (ii) market makers and/or liquidity providers exit
the business or significantly reduce their business activities and no other
entities step forward to perform their functions.
11
◦Costs
of Buying or Selling Shares. Investors
buying or selling shares of the Fund 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 of the Fund. In addition, secondary market investors will also incur
the cost of the difference between the price at which an investor is willing to
buy shares of the Fund (the “bid” price) and the price at which an investor is
willing to sell shares of the Fund (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 of the Fund based on trading volume and
market liquidity, and is generally lower if the Fund’s shares have more trading
volume and market liquidity and higher if Fund’s 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 of the
Fund, including bid/ask spreads, frequent trading of the Fund’s shares may
significantly reduce investment results and an investment in Fund shares may not
be advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, shares of the Fund may be bought and sold in the secondary market
at market prices. Although it is expected that the market price of shares of the
Fund 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. The market price of shares of the Fund 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 of the Fund. In times of severe market
disruption, the bid/ask spread can increase significantly. At those times,
shares of the Fund 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.
◦Trading.
Although
shares of the Fund 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 of the Fund 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 of the Fund when extraordinary volatility causes sudden, significant
swings in the market price of shares of the Fund. There can be no assurance that
shares of the Fund will trade with any volume, or at all, on any stock exchange.
In stressed market conditions, the market for the Fund’s shares may become less
liquid in response to deteriorating liquidity in the markets for the Fund’s
underlying portfolio holdings. These factors, among others, may lead to the
Fund’s shares trading at a premium or discount to NAV.
◦Early
Close/Trading Halt.
An exchange or market may close early or issue trading halts on specific
securities or financial instruments. The ability to trade certain securities or
financial instruments may be restricted, which may disrupt the Fund’s creation
and redemption process, potentially affect the price at which the Fund’s shares
trade in the secondary market, and/or result in the Fund being unable to trade
certain securities or financial instruments. In these circumstances, the Fund
may be unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading losses.
New
Fund Risk.
As of the date of this Prospectus, the Fund has no operating history and there
can be no assurance that the Fund will grow to or maintain an economically
viable size, in which case the Board may determine to liquidate the Fund.
Liquidation of the Fund can be initiated without shareholder approval by the
Trust’s Board of Trustees if it
12
determines
it is in the best interest of shareholders. As a result, the timing of any Fund
liquidation may not be favorable to certain individual
shareholders.
Derivatives
Risk.
The
Fund may invest in swap agreements, including total return swaps, to pursue its
investment objective and to create economic leverage in the Fund; to seek to
enhance total return; to seek to hedge against fluctuations in securities
prices, interest rates, currency rates, etc.; to seek to change the effective
duration of the Fund’s portfolio; to seek to manage certain investment risks; as
a substitute for the purchase or sale of securities or currencies; and/or to
obtain or replicate market exposure. The use of such derivatives may expose the
Fund to risks in addition to and greater than those associated with investing
directly in the instruments underlying those derivatives, including risks
relating to leverage, correlation (imperfect correlations with underlying
instruments or the Fund’s other portfolio holdings), high price volatility, lack
of availability, counterparty credit, liquidity, valuation and legal
restrictions. The use of such derivatives also may expose the Fund to the
performance of securities that the Fund does not own. The skills necessary to
successfully execute derivatives strategies may be different from those for more
traditional portfolio management techniques, and if the Adviser are incorrect
about their expectations of market conditions, the use of derivatives also could
result in a loss, which in some cases may be unlimited. Use of derivatives also
may cause the Fund to be subject to additional regulations, which may generate
additional Fund expenses. These practices also entail transactional expenses and
may cause the Fund to realize higher amounts of short-term capital gains than if
the Fund had not engaged in such transactions. The markets for certain
derivatives, including those located in certain foreign countries, are
relatively new and still developing, which may expose the Fund to increased
counterparty credit and liquidity risks.
Certain
of the derivatives in which the Fund invests are traded (and privately
negotiated) in the OTC market. OTC derivatives are complex and often valued
subjectively, which exposes the Fund to heightened liquidity, mispricing and
valuation risks. Improper valuations can result in increased cash payment
requirements to counterparties or a loss of value to the Fund. In addition, OTC
derivative instruments are often highly customized and tailored to meet the
needs of the Fund and its trading counterparties. If a derivative transaction is
particularly large or if the relevant market is illiquid, it may not be possible
to initiate a transaction or liquidate a position at an advantageous time or
price. As a result and similar to other privately negotiated contracts, the Fund
is subject to counterparty credit risk with respect to such derivative
contracts. Certain derivatives are subject to mandatory exchange trading and/or
clearing, which exposes the Fund to the credit risk of the clearing broker or
clearinghouse. While exchange trading and central clearing are intended to
reduce counterparty credit risk and to increase liquidity, they do not make
derivatives transactions risk-free. Certain risks also are specific to the
derivatives in which the Fund invests.
Options
Risk.
Options transactions involve special risks that may make it difficult or
impossible to close a position when the Fund desires. A fund that purchases
options, which are a type of derivative, is subject to the risk that gains, if
any, realized on the position, will be less than the amount paid as premiums to
the writer of the option. A fund that writes options receives a premium that may
be small relative to the loss realized in the event of adverse changes in the
value of the underlying instruments. A fund that writes covered call options
gives up the opportunity to profit from any price increase in the underlying
security above the option exercise price while the option is in effect. Options
may be more volatile than the underlying instruments. There may at times be an
imperfect correlation between the movement in values of options and their
underlying securities and there may at times not be a liquid secondary market
for certain options. The Fund may be exposed to the risk that losses may exceed
the amount originally invested. In addition, the Advisor will close out options
trades approximately one year after the date in which the trades are entered and
enter new options trades, which may affect the Fund’s portfolio turnover rate
and the amount of brokerage commissions paid by the Fund.
Tax
Risk.
The Fund’s investments and investment strategies, including transactions in
options contracts, may be subject to special and complex federal income tax
provisions, the effect of which may be, among other things: (i) to disallow,
suspend, defer or otherwise limit the allowance of certain losses or deductions;
(ii) to accelerate income to the Fund; (iii) to convert long-term capital gain,
which is currently subject to lower tax rates, into short-term capital gain or
ordinary income, which are currently subject to higher tax rates; (iv) to
convert an ordinary loss or a deduction into a capital loss (the deductibility
of which is more limited); (v) to treat dividends that would otherwise
constitute qualified dividend income as non-qualified dividend income; and (vi)
to produce income that will not qualify as good income under the gross
13
income
requirements that must be met for the Fund to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
“Code”).
Counterparty
Risk.
Counterparty
risk is the risk that a counterparty to Fund transactions will be unable or
unwilling to perform its contractual obligation to the Fund. The Fund may use
swap agreements for the purpose of seeking to gain exposure to a particular
group of securities, index, asset class or reference asset without actually
purchasing those securities or investments, or seeking to hedge a position. Such
financial instruments may include, among others, total return, index, interest
rate, and credit default swap agreements. The Fund may use counterparty
agreements to exchange the returns (or differentials in rates of return) earned
or realized in particular predetermined investments or instruments. Through
these investments and related arrangements, the Fund is exposed to credit risks
that the counterparty may be unwilling or unable to make timely payments or
otherwise meet its contractual obligations. If the counterparty becomes bankrupt
or defaults on (or otherwise becomes unable or unwilling to perform) its payment
or other obligations to the Fund, the risk of which is particularly acute under
current conditions, the Fund may not receive the full amount that it is entitled
to receive or may experience delays in recovering the collateral or other assets
held by, or on behalf of, the counterparty. If this occurs, or if exercising
contractual rights involves delays or costs for the Fund, the value of your
shares in the Fund may decrease.
The
Fund bears the risk that counterparties may be adversely affected by legislative
or regulatory changes, adverse market conditions (such as the current
conditions), increased competition, and/or wide scale credit losses resulting
from financial difficulties of the counterparties’ other trading partners or
borrowers.
Leverage
Risk. Leverage
is investment exposure which exceeds the initial amount invested. When the Fund
borrows money for investment purposes, or when the Fund engages in certain
derivative transactions, such as options, the Fund may become leveraged. The
loss on a leveraged derivative instruments may far exceed the Fund’s principal
amount invested. Leverage can magnify the Fund’s gains and losses and therefore
increase its volatility. The Fund cannot guarantee that the use of leverage will
produce increased income or a higher return on an investment. The Fund will
segregate liquid assets or otherwise cover transactions that may give rise to
leverage to the extent required by the 1940 Act. This requirement limits the
amount of leverage the Fund may have at any one time, but it does not eliminate
leverage risk. The use of leverage may result in the Fund having to liquidate
holdings when it may not be advantageous to do so in order to satisfy its
borrowing obligations or to meet segregation requirements.
Short
Sales Risk. The
Fund may engage in short sales. Selling securities short creates the risk of
losing an amount greater than the amount invested. Short selling is subject to
the theoretically unlimited risk of loss because there is no limit on how much
the price of a stock may appreciate before the short position is closed out. A
short sale may result in a sudden and substantial loss if, for example, an
acquisition proposal is made for the subject company at a substantial premium
over the market price. An increasing number of jurisdictions are limiting the
ability of market participants to engage in short selling in respect of certain
securities. In some cases, these rules may also limit the ability of market
participants to enter into a short position through a credit default swap or
other similar derivatives contract. These rules may limit or preclude the Fund
from entering into short sales or otherwise taking short positions that the
Advisor believes could be advantageous to the Fund. The Fund may also incur
expenses relating to short sales, such as dividend expense (paying the value of
dividends to the person that loaned the security to the Fund so that the Fund
could sell it short; this expense is typically, but not necessarily,
substantially offset by market value gains after the dividends are announced)
and interest expense (the Fund may owe interest on its use of short sale
proceeds to purchase other investments; a portion of this expense may, but is
not necessarily, offset by stock lending rebates). When the Fund enters into a
short sale, it also must maintain a segregated account of cash or cash
equivalents equal to its margin requirements. As a result, the Fund may be
required to maintain high levels of cash or other highly liquid instruments at
times when the Fund engages in short sales, which could limit the Fund’s ability
to pursue other investment opportunities with respect to those
assets.
Investments
in Companies with Business Related to Commodities.
Investments in equity securities of companies involved in mining or related
precious metals industries, and the value of the investment companies and other
companies that invest in precious metals and other commodities are subject to a
number of risks. For example, the prices of precious metals or other commodities
can make sharp movement, up or down, in response to cyclical economic
conditions, political events or the monetary policies of various countries, any
of which may adversely affect the value of companies
14
who
business is related to such commodities, or the value of investment companies
and other companies investing in such business or commodities. Furthermore, such
companies are subject to risks related to fluctuations of prices and perceptions
of value in commodities markets generally.
Equity
Market Risk.
Common
stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of
their issuers change. These investor perceptions are based on various and
unpredictable factors including: expectations regarding government, economic,
monetary and fiscal policies; inflation and interest rates; economic expansion
or contraction; and global or regional political, economic and banking crises.
If you held common stock, or common stock equivalents, of any given issuer, you
would generally be exposed to greater risk than if you held preferred stocks and
debt obligations of the issuer because common stockholders, or holders of
equivalent interests, generally have inferior rights to receive payments from
issuers in comparison with the rights of preferred stockholders, bondholders,
and other creditors of such issuers.
Large-Capitalization
Companies Risk.
Larger, more established companies may be unable to respond quickly to new
competitive challenges such as changes in technology and consumer tastes. Larger
companies also may not be able to attain the high growth rates of successful
smaller companies.
Small-Capitalization
Companies Risk.
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 small-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.
Mid-Capitalization
Companies 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. Some medium capitalization companies have limited product lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization companies.
Preferred
Stock Risk. Preferred
stock is a class of stock having a preference over common stock as to the
payment of dividends and the recovery of investment should a company be
liquidated, although preferred stock is usually junior to the debt securities of
the issuer. Preferred stocks may receive dividends but payment is not guaranteed
as with a bond. These securities may be undervalued because of a lack of analyst
coverage resulting in a high dividend yield or yield to maturity. The risks of
preferred stocks include a lack of voting rights and the Adviser may incorrectly
analyze the security. Furthermore, preferred stock dividends are not guaranteed
and management can elect to forego the preferred dividend. In either case, such
an event would result in a loss to the Fund. In general, preferred stocks
generally pay a dividend at a specified rate and have preference over common
stock in the payment of dividends and in liquidation. Preferred stock market
values may change based on changes in interest rates.
Convertible
Securities Risk.
Convertible securities are subject to the risk that the issuer will not be able
to pay interest or dividends when due, and their market value may change based
on changes in the issuer’s credit rating or the market’s perception of the
issuer’s creditworthiness. Since it derives a portion of its value from the
common stock into which it may be converted, a convertible security is also
subject to the same types of market and issuer risks that apply to the
underlying common stock. In general, a convertible security performs more like a
stock when the underlying stock’s price is high (because it is assumed that it
will be converted into the stock) and more like a bond when the underlying
stock’s price is low (because it is assumed that it will mature without being
converted). “Mandatory” convertible bonds, which must be converted into common
stock by a certain date, may be more exposed to the risks of the underlying
common stock. Convertible securities generally have less potential for gain or
loss than common stocks.
15
REITs
Risk.
REITs may be affected by economic forces and other factors related to the real
estate industry. These risks include possible declines in the value of real
estate, possible lack of availability of mortgage funds and unexpected vacancies
of properties. REITs are also subject to heavy cash flow dependency, defaults by
borrowers, self-liquidation, interest rate risks (especially mortgage REITs) and
liquidity risk. REITs that invest in real estate mortgages are also subject to
prepayment risk. Investing in REITs may involve risks similar to those
associated with investing in small capitalization companies. REITs may have
limited financial resources, may trade less frequently and in a limited volume,
engage in dilutive offerings and may be subject to more abrupt or erratic price
movements than larger company securities. Historically, small capitalization
stocks, such as REITs, have been more volatile in price than the larger
capitalization stocks included in the S&P 500® Index. In addition, REITs
could possibly fail to (i) qualify for favorable tax treatment under applicable
tax law or (ii) maintain their exemptions from registration under the 1940
Act.
Utilities
Risk. Utilities
companies include companies that produce or distribute gas, electricity or
water. These companies are subject to the risk of the imposition of rate caps,
increased competition due to deregulation, the difficulty in obtaining an
adequate return on invested capital or in financing large construction projects,
the limitations on operations and increased costs and delays attributable to
environmental considerations and the capital markets’ ability to absorb utility
debt. In addition, taxes, government regulation, international politics, price
and supply fluctuations, volatile interest rates and energy conservation may
negatively affect utilities companies.
Pipelines/MLP
Risk. Investments
in securities of MLPs involve risks that differ from investments in common stock
including risks related to limited control and limited rights to vote on matters
affecting the MLP, risks related to potential conflicts of interest between the
MLP and the MLP’s general partner and cash flow risks. MLP common units and
other equity securities can be affected by macro-economic and other factors
affecting the stock market in general, expectations of interest rates, investor
sentiment towards MLPs or the energy sector, changes in a particular issuer’s
financial condition, or unfavorable or unanticipated poor performance of a
particular issuer (in the case of MLPs, generally measured in terms of
distributable cash flow). Prices of common units of individual MLPs and other
equity securities also can be affected by fundamentals unique to the partnership
or company, including earnings power and coverage ratios. In addition, the value
of the Fund’s investment in an MLP will depend largely on the MLP’s treatment as
a partnership for U.S. federal income tax purposes. If an MLP does not meet
current legal requirements to maintain partnership status, or if it is unable to
do so because of tax law changes, it would be treated as a corporation for U.S.
federal income tax purposes. In that case, the MLP would be obligated to pay
income tax at the entity level and distributions received by the Funds generally
would be taxed as dividend income. If the Fund retains an investment until its
basis is reduced to zero, subsequent distributions will be taxable to the Fund
at ordinary income rates and shareholders may receive a corrected IRS Form 1099.
Foreign
Investments and Emerging Markets Risk. The
Fund may be subject to the risks of investing in foreign and emerging markets.
Non-U.S. securities involve certain factors not typically associated with
investing in U.S. securities including risks relating to (i) currency exchange
matters, including fluctuations in the rate of exchange between the U.S. dollar
and the various non-U.S. currencies in which the Fund’s portfolio securities
will be denominated, and costs associated with conversion of investment
principal and income from one currency into another; (ii) differences between
the U.S. and non-U.S. securities markets, including potential price volatility
in and relative illiquidity of some non-U.S. securities markets, the absence of
uniform accounting, auditing and financial reporting standards, practices and
disclosure requirements and less government supervision and regulation; (iii)
certain economic and political risks, including potential exchange control
regulations and potential restrictions on non-U.S. investment and repatriation
of capital; and (iv) with respect to certain countries, the possibility of
expropriation, confiscatory taxation, imposition of withholding or other taxes
on dividends, interest, capital gains, other income or gross sale or disposition
proceeds, limitations on the removal of funds or other assets of the Funds,
political or social instability or diplomatic developments that could affect
investments in those countries.
Many
emerging markets have histories of political instability and abrupt changes in
policies. As a result, their governments may be more likely to take actions that
are hostile or detrimental to private enterprise or foreign investment than
those of more developed countries, including expropriation of assets,
confiscatory taxation or unfavorable diplomatic developments. Some emerging
countries have pervasive corruption and crime that may hinder investments.
Certain
16
emerging
markets may also face other significant internal or external risks, including
the risk of war, and ethnic, religious and racial conflicts. In addition,
governments in many emerging market countries participate to a significant
degree in their economies and securities markets, which may impair investment
and economic growth. National policies that may limit the Fund’s investment
opportunities include restrictions on investment in issuers or industries deemed
sensitive to national interests.
Emerging
markets may also have differing legal systems, many of which provide fewer
security holder rights and practical remedies to pursue claims than are
available for securities of companies in the U.S. or other developed countries,
including class actions or fraud claims, and the existence or possible
imposition of exchange controls, custodial restrictions or other laws or
restrictions applicable to investments differ from those found in more developed
markets. Sometimes, they may lack, or be in the relatively early development of,
legal structures governing private and foreign investments and private property.
There may be less publicly available information about issuers in emerging
markets than would be available about issuers in more developed capital markets
because such issuers may not be subject to disclosure, accounting, auditing and
financial reporting standards and requirements comparable to those which U.S.
companies are subject. In addition to withholding taxes on investment income,
some emerging market countries may impose different capital gains taxes on
foreign investors.
Depositary
Receipts Risk.
ADRs, GDRs, and IDRs are certificates evidencing ownership of shares of a
foreign issuer and are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However, they
continue to be subject to many of the risks associated with investing directly
in foreign securities. These risks include the political and economic risks of
the underlying issuer’s country, as well as in the case of depositary receipts
traded on non-U.S. markets, exchange risk. The issuer of a sponsored receipt
typically bears certain expenses of maintaining the depositary receipt facility.
Issuers of unsponsored ADRs are not contractually obligated to disclose material
information in the U.S., so there may not be a correlation between such
information and the market value of the unsponsored ADR. Depositary receipts are
also subject to the risks of investing in foreign securities.
High
Portfolio Turnover Risk.
The Fund’s strategies may involve actively trading securities, resulting in a
high portfolio turnover rate, which can increase transaction costs (thus
lowering performance) and taxable distributions. A high portfolio turnover rate
generally involves correspondingly greater brokerage commission expenses, which
must be borne directly by the Fund, reducing Fund returns accordingly. The
portfolio turnover rate of the Fund may vary from year to year.
Credit
Risk. The
Fund could lose money if the issuer or guarantor of a fixed income security, or
the counterparty to a derivatives contract or a loan of portfolio securities, is
unable or unwilling to make timely principal and/or interest payments, or to
otherwise honor its obligations. Securities are subject to varying degrees of
credit risk, which are often reflected in credit ratings.
Debt
Securities Risk.
Increases in interest rates typically lower the value of debt securities.
Investments in debt securities include credit risk, the risk that the issuer may
be unable to make principal and interest payments when they are due. There is
also the risk that a bond issuer may “call,” or repay its high yielding bonds
before their maturity dates. Debt securities subject to prepayment can offer
less potential for gains during a declining interest rate environment and
similar or greater potential for loss in a rising interest rate environment.
Limited trading opportunities for certain debt securities may make it more
difficult to sell or buy a security at a favorable price or time.
High
Yield Debt Securities (“Junk” Bond) Risk.
The Fund is permitted to invest and transact in unrated or lower-rated debt
securities and other instruments, sometimes referred to as “high yield” or
“junk” bonds. Lower-rated securities may include securities that have the lowest
rating or are in default. Investing in lower-rated or unrated securities
involves special risks in addition to the risks associated with investments in
higher-rated debt securities, including a high degree of credit risk.
Lower-rated or unrated securities may be regarded as predominantly speculative
with respect to the issuer’s continuing ability to meet principal and interest
payments. Analysis of the creditworthiness of issuers/issues of lower-rated or
unrated securities may be more complex than for issuers/issues of higher quality
debt securities. Lower-rated or unrated securities may be more susceptible to
losses and real or perceived adverse economic and competitive industry
conditions than higher-grade securities. Securities that are in the lowest
rating category are considered to have extremely poor prospects of ever
attaining any real investment standing, to have a current identifiable
vulnerability to default, and to
17
be
unlikely to have the capacity to pay interest and repay principal. The secondary
markets on which lower-rated or unrated securities are traded may be less liquid
than the market for higher-grade securities. Less liquidity in the secondary
trading markets could adversely affect and cause large fluctuations in the value
of such investments. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and liquidity of
lower-rated or unrated securities, especially in a thinly traded market. It is
possible that a major economic recession could severely disrupt the market for
such securities and may have an adverse impact on the value of such securities.
In addition, it is possible that any such economic downturn could adversely
affect the ability of the issuers of such securities to repay principal and pay
interest on the bonds and increase the incidence of default of such securities.
Furthermore, with respect to certain residential and commercial mortgage-backed
securities, it is difficult to obtain current reliable information regarding
delinquency rates, prepayment rates, servicing records, as well as updated cash
flows. The use of credit ratings as the sole method of evaluating lower-rated or
unrated securities can involve certain risks. For example, credit ratings
evaluate the safety of principal and interest payments, not the market value
risk of lower-rated securities. In addition, credit rating agencies may fail to
change credit ratings in a timely fashion to reflect events since the security
was rated.
Management
Risk.
The Fund is actively-managed and may not meet its investment objective based on
the Adviser’s success or failure to implement investment strategies for the
Fund. The Adviser’s evaluations and assumptions regarding issuers, securities,
and other factors may not successfully achieve the Fund’s investment objective
given actual market conditions.
Market
Events Risk. One
or more markets in which the Fund invests may go down in value, including the
possibility that the markets will go down sharply and unpredictably. This may be
due to numerous factors, including interest rates, the outlook for corporate
profits, the health of the national and world economies, national and world
social and political events, and the fluctuation of other stock markets around
the world. The global pandemic outbreak of an infectious respiratory illness
caused by a novel coronavirus known as COVID-19 and subsequent efforts to
contain its spread have resulted and may continue to result in, among other
things, substantial market volatility and reduced liquidity in financial
markets; exchange trading suspensions and closures; higher default rates; travel
restrictions and disruptions; significant global disruptions to business
operations and supply chains; lower consumer demand for goods and services;
significant job losses and increasing unemployment; event and service
cancellations and restrictions; significant challenges in healthcare service
preparation and delivery; prolonged quarantines; and general concern and
uncertainty. The impact of this pandemic and any other public health emergencies
(such as any other epidemics or pandemics) that may arise in the future could
adversely affect the economies of many nations or the entire global economy and
the financial performance of individual issuers, sectors, industries, asset
classes, and markets in significant and unforeseen ways. Extraordinary actions
taken by governments and central banks to support local and global economies and
the financial markets in response to the COVID-19 pandemic may not succeed or
have the intended effect, and in some cases, have resulted in a large expansion
of government deficits and debt, the long-term consequences of which are not
known. This crisis or other public health crises may also exacerbate other
pre-existing political, social, economic, market and financial risks. In
addition, the Fund may face challenges with respect to its day-to-day operations
if key personnel of the Adviser or other service providers are unavailable due
to quarantines, restrictions on travel, or other restrictions imposed by state
or federal regulatory authorities. The duration and future impact of COVID-19
are currently unknown and cannot be determined with certainty, which may
exacerbate the other risks that apply to the Fund and could adversely affect the
value and liquidity of the Fund’s investments, impair the Fund’s ability to
satisfy AP transaction requests, and negatively affect the Fund’s
performance.
Temporary
Defensive Positions.
In certain adverse market, economic, political or other conditions, the Fund may
temporarily depart from its normal investment policies and strategies. At such
times, the Fund may invest in cash or cash equivalents, such as money market
instruments, and to the extent permitted by applicable law and the Fund’s
investment restrictions, shares of other investment companies, including money
market funds. Under such circumstances, the Fund may invest up to 100% of its
assets in these investments and may do so for extended periods of time. To the
extent that the Fund invests in money market instruments or other investment
companies, shareholders of the Fund would indirectly pay both the Fund’s
expenses and the expenses relating to those other investment companies with
respect to the Fund’s assets invested in such investment companies. When the
Fund takes a temporary defensive position, the Fund may not be able to achieve
its investment objective.
18
Information
about the Fund’s daily portfolio holdings is available at
www.Infracapequityincomefundetf.com. A complete description of the Fund’s
policies and procedures with respect to the disclosure of the Fund’s portfolio
holdings is available in the Fund’s Statement of Additional Information
(“SAI”).
The
Fund has entered into an investment advisory agreement (“Advisory Agreement”)
with Infrastructure Capital Advisors LLC (the “Adviser” or “Infrastructure
Capital”), located at 1325 Avenue of the Americas, 28th Floor, New York, NY
10019. The Adviser was organized as a New York limited liability company in
January 2012 and seeks total-return opportunities driven by catalysts, largely
in key infrastructure sectors. These sectors include energy, real estate,
transportation, industrials and utilities. As of June 30, 2021, the Adviser had
approximately $672 million in assets under management.
Subject
to the oversight of the Board, the Adviser is responsible for the day-to-day
management of the Fund in accordance with the Fund’s investment objective and
policies. For the services it provides to the Fund, the Fund pays the Adviser a
unified management fee, which is calculated daily and paid monthly, at an annual
rate of 0.80% of the Fund’s average daily net assets. Under the Advisory
Agreement, the Adviser has agreed to pay all expenses incurred by the Fund
except for 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; distribution fees and expenses paid by the Fund under
any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act, and the
unified management fee payable to the Adviser (collectively, the “Excluded
Expenses”).
A
discussion regarding the basis for the Board’s initial approval of the Advisory
Agreement between the Adviser and the Trust will be available in the Fund’s
first semi-annual report to shareholders after the Fund’s commencement of
operations.
The
Fund, as a series of the Trust, does not hold itself out as related to any other
series of the Trust for purposes of investment and investor services, nor does
it share the same investment adviser with any other series of the
Trust.
Jay
Hatfield, Founder, Chief Executive Officer and President of the
Adviser
Mr.
Hatfield is the Chief Executive Officer of Infrastructure Capital Management,
LLC (“ICM”), a private investment company that he founded in 2008 and which
principally owns the Adviser. Mr. Hatfield also is a co-founder of, and holds a
significant interest in the general partner of, NGL Energy Partners, LP, an
NYSE-listed master limited partnership
Prior
to founding ICM, Mr. Hatfield was a portfolio manager with SAC Capital Advisors,
where he managed a $500 million infrastructure fund focused on investing in
credit instruments and infrastructure-related equities. Before joining SAC, Mr.
Hatfield was a Managing Director and Head of Fixed Income Research at Zimmer
Lucas Partners, where he was responsible for directing research for credit
funds, including infrastructure related equities in the energy and utility
sectors. Mr. Hatfield began his investment banking career at Morgan Stanley
& Co. Inc., where he spent over 10 years as an investment banker advising
clients in the utility, power and energy industries. Mr. Hatfield began his
career as an auditor and consultant at Arthur Young & Co. (now Ernst &
Young), where he was a Certified Public Accountant and
19
consultant,
auditing and providing consulting services to companies in the technology,
biotechnology and retailing industries.
Mr.
Hatfield has a Master of Business Administration degree from the Wharton School,
University of Pennsylvania, where he specialized in Finance and graduated with
distinction and as a member of the Beta Gamma Sigma honor society. Mr. Hatfield
also has a Bachelor of Science degree in Managerial Economics from the
University of California, Davis.
The
Fund’s SAI provides additional information about the portfolio manager’s
compensation, other accounts managed by the portfolio manager and the portfolio
manager’s ownership of Fund shares.
The
Fund issues and redeems its shares only in Creation Units at the NAV per share
next determined after receipt of an order from an AP. Only APs may acquire the
Fund’s shares directly from the Fund, and only APs may tender their shares for
redemption directly to the Fund, at NAV. APs must be a member or participant of
a clearing agency registered with the SEC and must execute an authorized
participant agreement (“Participant Agreement”) that has been agreed to by the
Distributor (defined below), and that has been accepted by the Fund’s transfer
agent, with respect to purchases and redemptions of Creation Units. Once
created, the Fund’s shares trade in the secondary market in quantities less than
a Creation Unit.
Most
investors buy and sell the Fund’s shares in secondary market transactions
through brokers. Individual shares of the Fund 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 the Fund’s shares through a broker, you will pay or receive
the market price. You may incur customary brokerage commissions and charges, and
you may pay some or all of the spread between the bid and the offered 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 the Fund’s shares, and receive
less than NAV when you sell those shares.
Shares
are held in book-entry form, which means that no stock certificates are issued.
Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding shares of the Fund.
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.
For
more information on how to buy and sell shares of the Fund, visit the Fund’s
website at www.Infracapequityincomefundetf.com or by calling the Fund toll-free
at 800-617-0004.
20
Shares
of the Fund are listed for trading on the Exchange, which allows retail
investors to purchase and sell individual shares at market prices throughout the
trading day similar to other publicly traded securities. Because these secondary
market trades do not involve the Fund directly, it is unlikely that secondary
market trading would cause any harmful effects of market timing, such as
dilution, disruption of portfolio management, increases in the Fund’s trading
costs or realization of capital gains. The Board has determined not to adopt
policies and procedures designed to prevent or monitor for frequent purchases
and redemptions of the Fund’s shares because the Fund sells and redeems its
shares at NAV only in Creation Units pursuant to the terms of a Participant
Agreement between the Distributor and an AP. The Fund may impose transaction
fees on such Creation Unit transactions that are designed to offset the Fund’s
transfer and other transaction costs associated with the issuance and redemption
of the Creation Unit shares. Direct trading by APs is critical to ensuring that
the Fund’s shares trade at or close to NAV. Although the Fund imposes no
restrictions on the frequency of purchases and redemptions of Creation Units,
the Fund and the Adviser reserve the right to reject or limit purchases at any
time as described in the Fund’s SAI.
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern time, each day the
NYSE is open for business. The NAV is calculated by dividing the Fund’s net
assets by its shares outstanding.
In
calculating its NAV, the Fund generally values its assets on the basis of market
quotations, last sale prices, or estimates of value furnished by a pricing
service or brokers who make markets in such instruments. In particular, the Fund
generally values equity securities traded on any recognized U.S. or non-U.S.
exchange at the last sale price or official closing price on the exchange or
system on which they are principally traded. If such information is not
available for a security held by the Fund or is determined to be unreliable, the
security will be valued at fair value estimates under guidelines established by
the Board (as described below).
The
Board has adopted procedures and methodologies to fair value Fund securities
whose market prices are not “readily available” or are deemed to be unreliable.
For example, such circumstances may arise when: (i) a security has been
de-listed or has had its trading halted or suspended; (ii) a security’s primary
pricing source is unable or unwilling to provide a price; (iii) a security’s
primary trading market is closed during regular market hours; or (iv) a
security’s value is materially affected by events occurring after the close of
the security’s primary trading market. Generally, when fair valuing a security,
the Fund will take into account all reasonably available information that may be
relevant to a particular valuation including, but not limited to, fundamental
analytical data regarding the issuer, information relating to the issuer’s
business, recent trades or offers of the security, general and/or specific
market conditions and the specific facts giving rise to the need to fair value
the security. Fair value determinations are made in good faith and in accordance
with the fair value methodologies included in the Board-adopted valuation
procedures. Due to the subjective and variable nature of fair value pricing,
there can be no assurance that the Adviser will be able to obtain the fair value
assigned to the security upon the sale of such security.
Section
12(d)(1) of the 1940 Act restricts investments by registered investment
companies in the securities of other investment companies, including shares of
the Fund. Registered investment companies are permitted to invest in the Fund
beyond the limits set forth in section 12(d)(1), subject to certain conditions
set forth in Rule 12d1-4 under the 1940 Act, including that such investment
companies enter into an agreement with the Fund.
21
Rule
12b-1 Distribution Fees
The
Trust has adopted a Rule 12b-1 distribution plan (the “Rule 12b-1 Plan”) under
the 1940 Act. Under the terms of the Rule 12b-1 Plan, the Fund is authorized to
pay an aggregate fee equal up to 0.25% of its average daily net assets each year
for certain distribution related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the future,
because the fees are paid out of Fund assets, over time these fees will increase
the cost of your investment and may cost you more than certain other types of
sales charges.
Dividends
and Distributions
The
Fund intends to pay dividends from net investment income monthly and to
distribute all net realized capital gains at least annually. The Fund will
declare and pay capital gain distributions in cash. Your broker is responsible
for distributing the income and capital gain distributions to you.
No
dividend reinvestment service is provided by the Trust. Financial intermediaries
may make the DTC book-entry Dividend Reinvestment Service available for use by
beneficial owners of Fund shares for reinvestment of their dividend
distributions. Beneficial owners should contact their financial intermediary to
determine the availability and costs of the service and the details of
participation therein. Financial intermediaries may require beneficial owners to
adhere to specific procedures and timetables. If this service is available and
used, dividend distributions of both income and net realized capital gains will
be automatically reinvested in additional whole shares of the Fund purchased in
the secondary market.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax advisor
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws.
The
Fund intends to elect and qualify each year for treatment as a regulated
investment company (“RIC”) under the Code. If it meets certain minimum
distribution requirements, a RIC is not subject to tax at the fund level on
income and gains from investments that are timely distributed to shareholders.
However, the Fund’s failure to qualify as a RIC or to meet minimum distribution
requirements would result (if certain relief provisions were not available) in
fund-level taxation and, consequently, a reduction in income available for
distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when the Fund makes distributions, when you sell your Shares listed
on the Exchange; and when you purchase or redeem Creation Units (APs
only).
Taxes
on Distributions
The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long the Fund owned the
22
investments
that generated them, rather than how long a shareholder has owned his or her
Shares. Sales of assets held by the Fund for more than one year generally result
in long-term capital gains and losses, and sales of assets held by the Fund for
one year or less generally result in short-term capital gains and losses.
Distributions of the Fund’s net capital gain (the excess of net long-term
capital gains over net short-term capital losses) that are reported by the Fund
as capital gain dividends (“Capital Gain Dividends”) will be taxable as
long-term capital gains, which for non-corporate shareholders are subject to tax
at reduced rates of up to 20% (lower rates apply to individuals in lower tax
brackets). Distributions of short-term capital gain will generally be taxable as
ordinary income. Dividends and distributions are generally taxable to you
whether you receive them in cash or reinvest them in additional
Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that the Fund received 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.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
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.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your investment. If the
Fund’s distributions exceed its earnings and profits, all or a portion of the
distributions made for a taxable year may be recharacterized as a return of
capital to shareholders. A return of capital distribution will generally not be
taxable, but will reduce each shareholder’s cost basis in Shares and result in a
higher capital gain or lower capital loss when the Shares are sold. After a
shareholder’s basis in Shares has been reduced to zero, distributions in excess
of earnings and profits in respect of those Shares will be treated as gain from
the sale of the Shares.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares generally are not subject to U.S. taxation, unless you are a
nonresident alien individual who is physically present in the U.S. for 183 days
or more per year. The Fund may, under certain circumstances, report all or a
portion of a dividend as an “interest-related dividend” or a “short-term capital
gain dividend,” which would generally be exempt from this 30% U.S. withholding
tax, provided certain other requirements are met. Different tax consequences may
result if you are a foreign shareholder engaged in a trade or business within
the United States or if a tax treaty applies.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act),
the Fund is required to withhold 30% of certain ordinary dividends it pays to
shareholders that are foreign entities and that fail to meet prescribed
information reporting or certification requirements.
23
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage 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
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares of the Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of Shares. The ability to deduct capital
losses may be limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your
account.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash sales” (for an AP who does not mark-to-market their
holdings), or on the basis that there has been no significant change in economic
position. APs exchanging securities should consult their own tax advisor with
respect to whether wash sale rules apply and when a loss might be
deductible.
Any
capital gain or loss realized upon redemption of Creation Units is generally
treated as 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.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Foreign
Taxes
To
the extent the Fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest the Fund received from
sources in foreign countries.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Fund shares. Consult your personal tax adviser about
the potential tax consequences of an
24
investment
in Fund shares under all applicable tax laws. For more information, please see
the section entitled “Federal Income Taxes” in the SAI.
The
Distributor, Quasar Distributors, LLC, is a broker-dealer registered with the
SEC. The Distributor distributes Creation Units for the Fund on an agency basis
and does not maintain a secondary market in the Fund’s shares. The Distributor
has no role in determining the policies of the Fund or the securities that are
purchased or sold by the Fund. The Distributor’s principal address is 111 East
Kilbourn Avenue, Suite 2200, Milwaukee, Wisconsin 53202.
Each
business day, the following information will be available, free of charge, on
the Fund’s website at www.Infracapequityincomefundetf.com: (i) information for
each portfolio holding that will form the basis of the next calculation of the
Fund’s NAV per share; (ii) the Fund’s NAV per share, market price, and premium
or discount, each as of the end of the prior business day; (iii) a table showing
the number of days the Fund’s shares traded at a premium or discount during the
most recently completed calendar year and the most recently completed calendar
quarter since that year; (iv) a line graph showing Fund share premiums or
discounts for the most recently completed calendar year and the most recently
completed calendar quarter since that year; (v) the Fund’s median bid-ask spread
over the last thirty calendar days; and (vi) if during the past year the Fund’s
premium or discount was greater than 2% for more than seven consecutive trading
days, a statement that the Fund’s premium or discount, as applicable, was
greater than 2% and a discussion of the factors that are reasonably believed to
have materially contributed to the premium or discount.
Shares
of the Fund 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 of the Fund to be issued, nor in
the determination or calculation of the equation by which shares of the Fund are
redeemable. The Exchange has no obligation or liability to owners of shares of
the Fund in connection with the administration, marketing, or trading of the
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 Fund make no representation or warranty, express or implied, to
the owners of shares of the Fund or any member of the public regarding the
advisability of investing in securities generally or in the Fund
particularly.
The
Trust enters into contractual arrangements with various parties, including,
among others, the Fund’s investment adviser, administrator and distributor, who
provide services to the Fund. Shareholders of the Fund are not parties to, or
intended (or “third-party”) beneficiaries of, any of those contractual
arrangements, and those contractual arrangements are not intended to create in
any individual shareholder or group of shareholders any right to enforce such
contractual arrangements against the service providers or to seek any remedy
under such contractual arrangements against the service providers, either
directly or on behalf of the Trust.
25
This
prospectus provides information concerning the Trust and the Fund that you
should consider in determining whether to purchase shares of the Fund. None of
this prospectus, the SAI or any document filed as an exhibit to the Trust’s
registration statement, is intended to, nor does it, give rise to an agreement
or contract between the Trust or the Fund and any investor, or give rise to any
contract or other rights in any individual shareholder, group of shareholders or
other person other than any rights conferred explicitly by federal or state
securities laws that may not be waived.
Closing
the Fund.
The Board of Trustees retains the right to close the Fund (or partially close
the Fund) to new purchases if it is determined to be in the best interest of
shareholders. Based on market and Fund conditions, and in consultation with the
Adviser, the Board of Trustees may decide to close the Fund to new investors,
all investors or certain classes of investors (such as fund supermarkets) at any
time. If the Fund is closed to new purchases it will continue to honor
redemption requests, unless the right to redeem shares has been temporarily
suspended as permitted by federal law.
The
Fund reserves the right to cease operations and liquidate at any time. See
“Liquidation of the Fund” in the SAI for additional information.
Because
the Fund has recently commenced operations, there are no financial highlights
available at this time.
26
INVESTMENT
ADVISER:
Infrastructure
Capital Advisors,
LLC
1325
Avenue of the Americas, 28th Floor
New
York, NY 10019
DISTRIBUTOR:
Quasar
Distributors, LLC
111
East Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202
CUSTODIAN:
U.S.
Bank N.A.
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212
ADMINISTRATOR,
FUND ACCOUNTANT
AND TRANSFER AGENT:
AND TRANSFER AGENT:
U.S.
Bancorp Fund Services, LLC
615
East Michigan Street
Milwaukee,
Wisconsin 53202
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM:
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
Wisconsin 53202
LEGAL
COUNSEL:
Goodwin
Procter LLP
1900
N Street, NW
Washington,
DC 20036
27
| PRIVACY NOTICE | ||
The
Fund collects non-public information about you that the law allows or requires
it to have in order to conduct its business and properly service you. The Fund
collects financial and personal information about you (“Personal Information”)
directly (e.g., information on account applications and other forms, such as
your name, address, and social security number, and information provided to
access account information or conduct account transactions online, such as
password, account number, e-mail address, and alternate telephone number), and
indirectly (e.g., information about your transactions with us, such as
transaction amounts, account balance and account holdings).
The
Fund does not disclose any non-public personal information about its
shareholders or former shareholders other than for everyday business purposes
such as to process a transaction, service an account, respond to court orders
and legal investigations or as otherwise permitted by law. Third parties that
may receive this information include companies that provide transfer agency,
technology and administrative services to the Fund, as well as the Fund’s
investment adviser who is an affiliate of the Fund. If you maintain a
retirement/educational custodial account directly with the Fund, we may also
disclose your Personal Information to the custodian for that account for
shareholder servicing purposes. The Fund limits access to your Personal
Information provided to unaffiliated third parties to information necessary to
carry out their assigned responsibilities to the Fund. All shareholder records
will be disposed of in accordance with applicable law. The Fund maintains
physical, electronic and procedural safeguards to protect your Personal
Information and requires its third party service providers with access to such
information to treat your Personal Information with the same high degree of
confidentiality.
In
the event that you hold shares of the Fund through a financial intermediary,
including, but not limited to, a broker-dealer, bank, or trust company, the
privacy policy of your financial intermediary would govern how your non-public
personal information would be shared with unaffiliated third
parties.
InfraCap
Equity Income Fund ETF
A
series of Series Portfolios Trust
FOR
MORE INFORMATION
You
can find more information about the Fund in the following
documents:
Statement
of Additional Information
The
SAI provides additional details about the investments and techniques of the Fund
and certain other additional information. A current SAI is on file with the SEC
and is incorporated into this Prospectus by reference. This means that the SAI
is legally considered a part of this Prospectus even though it is not physically
within this Prospectus.
Annual
and Semi-Annual Reports
The
Fund’s annual and semi-annual reports (collectively, the “Shareholder Reports”),
when available, will provide the most recent financial reports and portfolio
holdings. The annual report, when available, will contain a discussion of the
market conditions and investment strategies that affected the Fund’s performance
during the Fund’s prior fiscal period.
The
SAI and the Shareholder Reports, when available, are available free of charge on
the Fund’s website at www.Infracapequityincomefundetf.com. You can obtain a free
copy of the SAI and Shareholder Reports, request other information, or make
general inquiries about the Fund by calling the Fund (toll-free) at 800-617-0004
or by writing to:
InfraCap
Equity Income Fund ETF
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
Wisconsin 53201-0701
800-617-0004
Reports
and other information about the Fund are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s Internet website at
http://www.sec.gov; or
•For
a fee, by electronic request at the following e-mail address:
[email protected].
(The
Trust’s SEC Investment Company Act of 1940 file number is
811-23084)